“We’re hopeful these new rules preserve the value and utility that money-market funds provide individual investors,” Vanguard spokesman David Hoffman said in an e-mailed statement.
Redemption Fees
The SEC’s rules also would allow boards of directors to temporarily suspend or impose fees on withdrawals when a fund faces an inability to meet redemptions, according to a person familiar with the matter. SEC Commissioner Kara M. Stein has questioned whether investors might respond to such a feature by fleeing funds that look like they might impose fees or lock up investors’ money.
In a letter made public yesterday, top executives at Goldman Sachs Group Inc.’s asset management arm wrote that they agreed with Stein’s views on fees and redemption gates. A drop in share price won’t stop investors from rushing to the exits if they believe their funds could be frozen, Goldman’s executives wrote.
Contagion Concern
“These dynamics may lead to the very contagion the commission seeks to prevent,” Goldman’s James A. McNamara and David Fishman wrote in the letter dated July 21.
It’s unclear how Stein, a Democrat who joined the SEC last year, will vote. Commissioner Michael S. Piwowar, a Republican, has said he won’t support the SEC’s proposal for a floating share price, which he views as unnecessarily strict. Gallagher, SEC Chair Mary Jo White and Commissioner Luis A. Aguilar appear ready to vote for the rules, forming the majority required for passage.
Adopting the rules will relieve some pressure on White, who has to contend with outside scrutiny of the SEC’s efforts. After an earlier set of proposals failed in 2012, under the previous SEC chief, the secretary of the Treasury demanded the SEC take action and warned that if the agency failed he would seek to impose reforms via the Financial Stability Oversight Council. The group, set up under the 2010 Dodd-Frank Act, has the power to require money funds, or the firms that sell them, to submit to extra oversight by the Fed.
Piwowar and Gallagher have joined congressional Republicans in blasting the council’s intervention. In a speech last week, Piwowar called the council the “Capital Markets Death Panel” and said banking regulators were trying to impose their solutions on investment products overseen by the SEC.
“If the commission votes to do something on Wednesday, it will show that it hasn’t undermined the authority of the commission to move forward,” Walter said. “The commission is doing it. That was the right answer.”