Following March 2020’s pandemic-induced liquidity shock, the Securities and Exchange Commission has been examining how to regulate the money market fund (MMF) sector in the US further. Proposals under consideration include replacing liquidity fees and redemption gates with swing pricing and increasing the minimum liquidity requirements of funds.
In a recent open letter to the SEC, Northern Trust Asset Management (NTAM) outlined why critical elements of these proposals are likely to add more complexity and confusion for cash investors such as corporate treasurers. As stated in the letter, NTAM has already exited the prime and municipal MMF space due to not being appropriately compensated. These proposals further detract from the appeal of this type of fund.
Peter Yi, Director of Short Duration Fixed Income and Head of Taxable Credit Research, NTAM, met with Treasury Management International’s (TMI’s) Ben Poole for a wide-ranging Q&A, exploring the impacts the regulatory proposals may have on both issuers and treasurers, what other options the SEC should consider, and where innovation in the cash investment space is heading.
Ben Poole, TMI (BP): What are the possible impacts of the SEC’s proposed changes to MMFs for corporate treasurers?
Peter Yi, NTAM (PY): These proposals seem to be adding a lot more complexity to prime- and municipal MMFs, a segment of the money market industry that has continued to shrink significantly over the years. If the SEC proposals now on the table are ultimately adopted, we believe corporate treasurers will find prime- and tax-exempt MMFs even more undesirable.