Regulators Looking at Money Fund Rule as Industry Digests March Volatility
In a recent speech Dalia Blass, director of the Investment Management Division at the SEC, discussed the impact of COVID-19 market disruption on money market funds and ETFs. Blass noted that the percentage of redemptions from certain prime and tax-exempt money market funds during the height of the market turmoil was higher than in September 2008. Blass said it was critical for regulators to analyze the events in March and how the framework of the money market rule 2a-7 may have either alleviated or contributed to the volatility. She singled out redemption gates and risk limitations as possible areas for study. “We should seek to construct a framework that provides structural resiliency and appropriate incentives during market stress while preserving the important role of money market funds in the short-term funding markets,” Blass said. Meanwhile, a Treasury Department official and SEC Chairman Jay Clayton also echoed the concerns over money market fund regulation, the Wall Street Journal reported, with Clayton noting that the regulator needed to reexamine the reforms of 2014. With respect to ETFs, Blass said that during March, ETF secondary market trading spiked to historic levels while ETFs in the fixed- income space experienced significant dislocations between their net asset value and their market price. Blass noted that although the ETF structure was put through a significant test it largely performed well. ETFs played a critical role as market participants sought liquidity, Blass said, and were able to meet redemptions, even with the high market volatility, unprecedented trading volumes and deterioration in overall liquidity.