By J.L. Wilson
Associated Oregon Industries
Oregon’s largest business advocate
This week, AOI joined a growing chorus of business groups across the country, including the U.S. Chamber of Commerce, in registering concern and opposition to new proposed regulations from the Securities and Exchange Commission (SEC) that would fundamentally alter the structure of money market mutual funds (MMMFs).
Although businesses across Oregon and the U.S. have relied on money market funds for stability, convenience, a high degree of liquidity, and historically higher yields than other products, the SEC is looking to alter these funds in a way that would disadvantage their use.
Currently, money market funds enjoy a stable net asset value (NAV), set at $1.00, which has helped them be a steady, predictable constant in the financial market. Yet, the SEC has clearly indicated its desire to change the stable NAV to a floating NAV, undermining the very benefits that make money market funds appealing to investors.
As a result of the floating NAV, businesses would face new tax, accounting and legal hurdles, disrupting the ease of using money market funds for cash management.
And even worse, the SEC’s proposed regulations would include redemption restrictions which would keep businesses from being able to access as much as 5% of their money market investment for 30 days. This redemption restriction is a direct consequence of the floating NAV, which may be unable to maintain the $1.00 share price.
In recent surveys, more than three-quarters of corporate money market fund users have indicated that they would move cash out of these funds if their NAV was changed from stable to floating. This would have serious ramifications given that money market funds hold more than one-third of the commercial paper that businesses use to meet short-term obligations, such as funding payrolls, replenishing inventories, and financing expansion.
If proposed reforms drive investors out of money market funds, the flow of short-term capital to businesses will be significantly disrupted.
Access to vital capital will be severely constricted for Oregon companies at precisely the time when we need a greater infusion of cash into our state and local economies. That’s why this week, AOI joined with the US Chamber of Commerce to urge the SEC to reconsider such reforms.
You can see AOI’s comments to the SEC here.