I have mentioned before about the proposal to insulate money market funds from runs that would have an adverse impact on markets. The proposal would have money market funds either 1) have a cushion provided by the management firm, or 2) allow the NAV to float. Next, the Financial Stability Oversight Board stepped in to say that is the SEC didn't adopt the proposal, it would require the commission to enforce it..
Now, the Federal Reserve has stated its intention of using its bank regulatory powers to accomplish the same objective. According to Investment News, the Fed is considering reclassifying the funds provided by money market funds to a riskier category. this would make money funds a less attractive option for funding, possibly limiting the investment available to the money market funds. Of course, all would be well if the money funds would drop their opposition to the SEC proposals. Wink,wink, nudge, nudge, knowwhatImean?
Last time I said it's going to happen. Now it's time for money fund companies to figure out how they will comply. As a money fund with a floating NAV is not much of a money fund, I expect more than a few funds to announce that they will have the 3% (or so) equity buffer. Expect any fee waivers that these funds enjoyed to be dropped, and fees to increase once interest rates increase sufficiently to cover them.
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