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Warning Against New Money Market Fund law

October 24, 2010

U.S. Chamber Warns Against Moves That Would Harm Money Market Funds
— Removing Stable Pricing Would Harm Businesses, Investors, and Recovery
BY US Chamber of Commerce

WASHINGTON, D.C.—The U.S. Chamber of Commerce expressed concern over the report issued by the President’s Working Group on Financial Markets (PWG)  regarding the regulation of money market mutual funds.

“Forcing money market funds to float their Net Asset Value will not make them safer and will directly harm American businesses that rely on money funds to finance short-term needs such as payroll and inventory,” said David Hirschmann, president and CEO of the Chamber’s Center for Capital Markets Competitiveness. “We support appropriate steps to preserve and strengthen this vital source of business financing, but floating the Net Asset Value is one proposal that should be rejected outright.”

The PWG report includes several options for additional regulation of money market funds. Earlier this year, the SEC adopted new safeguards, including liquidity requirements, and for the first time, tightened existing investment and disclosure rules. Because these changes are being implemented now, there has not been an opportunity to observe the impact on short-term financing markets, yet there is clear evidence that moving away from a stable NAV would unwind this progress and result in a weaker product.

Many institutional investors are required by law or by investment policy to keep cash in stable-value accounts. Stable value products also provide accounting simplicity that makes them more convenient and attractive. Money funds purchase over 40% of the commercial paper American businesses use for short-term financing needs like payroll and inventory. Research shows that moving to a floating NAV would cause at least a third of institutional investors to walk away, reducing this vital source of financing.

“This $3.1 trillion industry plays an essential role in financing the needs of American businesses and governments and offers investors stability, diversity, and convenience,” said Hirschmann. “We will continue to work with our broad membership and regulators to preserve this important source of capital and ensure the longer-term resiliency of money market funds.”

The Chamber’s comments on the SEC’s 2009 rule proposal can be found here.

Since its inception three years ago, the Center for Capital Markets Competitiveness has led a bipartisan effort to modernize and strengthen the outmoded regulatory systems that have governed our capital markets. The CCMC is committed to working aggressively with the administration, Congress, and global leaders to implement reforms to strengthen the economy, restore investor confidence, and ensure well-functioning capital markets.

The U.S. Chamber of Commerce is the world’s largest business federation representing the interests of more than 3 million businesses of all sizes, sectors, and regions, as well as state and local chambers and industry associations.

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