Money Market Fund Reform SEC Rulemaking in the FSOC Era

Abstract

For more than four years, our law firm represented a large asset manager and adviser to money market mutual funds in the debate over proposals to impose new regulations on these funds. These proposals were developed in response to the heavy redemptions from prime money market funds during 2008 in the depths of the financial crisis. In this Article we share our observations about the dynamics of the debate and the forces that led to the Securities and Exchange Commission’s (“SEC”) action in 2014 to adopt amendments to its money market fund rules, which will be fully implemented on October 14, 2016. We begin with an overview of the SEC’s action, followed by a review of money market fund regulation, a recounting of relevant events in the 2007–2009 financial crisis, a discussion of the SEC’s initial efforts on money market fund reform, and a discussion of the impact of the new Financial Stability Oversight Council (“FSOC”) on the debate. We end with our comments regarding the SEC’s new money market fund rules and some concluding observations.

While the purpose of this Article is to provide a narrative of events that led to the SEC’s ultimate decision on new money market funds rules, we observe that the FSOC’s intervention into the SEC’s rulemaking, accompanied by threats of further FSOC action against SEC-regulated entities if the SEC failed to act on new rules, raises serious concerns and questions yet to be addressed about the role of the FSOC and the independence of the SEC as the primary capital markets regulator. The FSOC’s actions, if left unchecked, could portend a shift of power toward bank-like regulation of the capital markets.