On August 22, Securities and Exchange Commission Chairman Mary Shapiro stated that three of the five SEC commissioners have told her that they will not support a staff proposal to reform the structure of money-market funds. As a result, Chairman Shapiro stated that after two and a half years of study by the SEC, it is now time “for other policy makers . . . to address the systemic risks posed by money-market funds.”

Chairman Shapiro stated that in her view the exemptive rules that allow a money-market fund to maintain a stable $1.00 net asset value (NAV), rather than having to mark-to-market as is required by all other mutual funds, create systemic risks to US financial markets because money-market funds have insufficient ability to absorb losses above a certain amount without “breaking the buck” and, if that were to occur, there would be massive withdrawals from money-market funds which could create or further exacerbate a financial crisis. She stated that the proposal being considered by the staff of the SEC would have provided two alternatives to address these perceived structural issues: a floating NAV using a mark-to-market valuation or the creation of a “capital buffer” to absorb day-to-day variations in the value of money-market fund holdings.

In light of the SEC’s inability to adopt either of these structural reforms, Shapiro stated that “other policy makers now have clarity that the SEC will not act to issue a money-market fund proposal and can take this into account in deciding what steps should be taken to address this issue.”

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