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Investment Company Institute Backs Money Market Recommendations
By Mike Sachoff
Staff Writer
Article Date: 2009-03-18
The Investment Company Institute announced toady that its Board of Governors has unanimously endorsed a report from the Money Market Working Group concerning new regulatory and oversight standards for money market funds.
John J. Brennan, Chairman of the Money Market Working Group and Chairman of The Vanguard Group, reported to the Board: "The recommendations respond directly to weaknesses in current money market fund regulation, identify additional reforms that will improve the safety and oversight of money market funds, and will position responsible government agencies to oversee the orderly functioning of the money market more effectively."
The recommendations would for the first time require money market funds to meet new mandated daily and weekly minimum liquidity standards. The Money Market Working Group also recommends tightening the portfolio maturity limits currently applicable to money market funds and raising credit quality standards.
The report includes a number of recommendations that will:
For the first time, impose daily and weekly minimum liquidity requirements and require regular testing of the fund's individual portfolio holdings and shareholder base.
Tighten the portfolio maturity limit currently applicable to money market funds and add a new portfolio maturity limit.
Raise the credit quality standards under which money market funds operate. This would be accomplished by requiring a "new products" or similar committee to review and approve new structures prior to investment, encouraging advisers to follow "best practices" for determining minimal credit risks, requiring advisers to designate the credit rating agencies their funds will follow to encourage competition among the rating agencies to achieve this designation, and prohibiting investments in "Second Tier Securities."
Address "client risk" by encouraging money market fund advisers to adopt "know your client" procedures and requiring them for the first time to disclose client concentrations and the potential risks, if any, posed by a fund with a strongly concentrated client base.
Enhance risk disclosure for investors and the market and require monthly website disclosure of a money market fund's portfolio holdings.
Assure that, when a money market fund proves unable to maintain a stable $1.00 NAV, all of its shareholders are treated fairly. For this purpose, a money market fund's board of directors would be authorized to temporarily suspend redemptions and purchases of fund shares under certain situations, and to permanently suspend redemptions for funds preparing to liquidate in order to ensure that all shareholders are treated fairly.
About the Author:
Mike is a staff writer for WebProNews. Visit WebProNews for the latest ebusiness news.
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