Money market reform returns to spotlight


Proponents of money market fund reform were dealt a significant and surprising setback in August when commissioner Luis Aguilar made it clear that he would not support a reform proposal put forward by SEC Chairman Mary Schapiro.

Schapiro was in favor of ending the long tradition of valuing these funds a rock-solid $1 per share and requiring more collateral to be held by funds among other things. Aguilar's move scuttled a planned vote on the issue. At the time, he said he wanted to see additional research.

The latest development is that the SEC has come forward with new research, and Aguilar seems more amendable to reform.

"The huge benefit of having the study and the comments we receive on the study is that it will put me, and I suspect my colleagues, in a much better position to allow us to vote on a proposal," Aguilar told Reuters, adding that, "It's important information that was lacking in the earlier draft."

The SEC's new study, which was released last week, found "that while the 2010 reforms helped bolster the industry, they would not have been enough to prevent a run on the Reserve Primary Fund in 2008 during the financial crisis."

Aguilar's move might be construed as grandstanding, but he might have done the SEC a favor. Several provisions in Dodd-Frank have been challenged on legal grounds that the regulators did not perform rigorous cost-benefit analyses. The additional study on the money market reform proposals may come in handy if legal challenges emerge.

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