FSOC Meets to Discuss Money Market, Open-End, and Hedge Funds
The Financial Stability Oversight Council (FSOC) held an open session to discuss nonbank financial intermediation including potential risks posed by money market funds, open-end funds, and hedge funds. The meeting included an update from the open-end fund working group that was formed in 2021 in response to March 2020 market events. The working group observed issues with redemption pressures, liquidity, and first mover advantage, and supports further investigation into their contribution to market stress. SEC Chairman Gary Gensler remarked that the SEC has a responsibility to help protect for financial stability and reminded the audience that he has asked SEC staff to make recommendations for the Commission’s consideration with regard to bolstering the resiliency of money market funds and open-end bond funds. With respect to open-end bond funds, Gensler said the staff is looking into whether there are improvements the SEC can consider regarding the fund liquidity rule or through other reforms to enhance fund liquidity, pricing, and resiliency in possible future stress events. Additionally, the SEC’s Director of Investment Management William Birdthistle delivered remarks on risks associated with money market funds. He voiced support for the SEC’s recently proposed rule which would require changes in liquidity requirements and swing pricing, among other regulatory shifts. At the conclusion of the meeting, the FSOC voted in the affirmative to release a statement highlighting concerns from the above mentioned areas. The statement applauds the SEC’s proposed money market fund rule amendments and notes that the SEC is also considering whether to propose reforms to open-end funds.