This story appeared in Jim Hamilton's World of Securities Regulation.
The Federal Reserve Bank of New York has announced that it will expand the set of counterparties it uses for reverse repo transactions to include money market mutual funds. Previously, only entities designated as primary dealers could engage in such transactions with the Fed. The purpose of this change is to ensure the availability of enough counterparties to engage in reverse repo transactions when the Fed begins to withdraw economic stimulus. In October of 2009, the Fed issued an operating policy statement in which it noted that reverse repos were one tool it may use to withdraw economic stimulus. The Fed even conducted tests with prospective counterparties to determine the feasibility of using reverse repos in this manner. The Fed now appears ready to move forward with its preparations to remove accommodative monetary policy, subject to the caution that doing so amounts to "prudent advance planning" and is not intended to imply the timing of any change in monetary policy.
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By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.
The SEC has amended the rules for money market funds and SEC Chair Mary Schapiro said the new rules are only the beginning. The SEC is continuing to consider more fundamental changes to the structure of money market funds, including a floating net asset value, real time disclosure of shadow net asset values and a private liquidity facility for money market funds to use in times of market stress.
The amendments to the money market fund rules were developed as a result of the financial crisis of 2008 when the Reserve Primary Fund "broke the buck." The SEC conducted a full-scale review of the money market fund regulatory regime and drafted rules to improve liquidity, increase credit quality and shorten maturity limits.
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By James Hamilton, J.D., LL.M., Principal Analyst, CCH Federal Securities Law Reporter; and CCH Derivatives Regulation Law Reporter.
The SEC adopted new rules designed to significantly strengthen the regulatory requirements governing money market funds. The new rules are intended to increase the resilience of money market funds to economic stresses and reduce the risks of runs on the funds by tightening the maturity and credit quality standards and imposing new liquidity requirements. The Commission acted after a review of the money market regulatory scheme prompted by the Reserve Primary Fund's "breaking the buck" in September 2008. A money market fund "breaks the buck" when its net asset value falls below $1.00 per share, meaning investors in that fund will lose money.
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By Richard Roth, J.D., Editor, the CCH Federal Banking Law Reporter, CCH Bank Compliance Guideand Bank Digest.
The Treasury Department has issued a “status report“ summarizing the Obama administration's financial system stabilization efforts to date and describing planned steps toward ending the current support programs. According to the report, some of the programs already are winding down, with the Money Market Mutual Fund Guarantee Program scheduled to end on Sept. 18, 2009, and the Debt Guarantee Program component of the Temporary Liquidity Guarantee Program (TLGP) scheduled to end on Oct. 31, 2009. Market condition improvements mean that there is no plan to extend either of these programs, although an emergency facility may be put in place to allow banks to issue guaranteed debt for an additional six months.
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This story appeared in SEC Today.
The SEC voted unanimously yesterday to issue proposed amendments to Investment Company Act Rule 2a-7 that would enhance the regulation of money market funds. The Commission also agreed to solicit feedback on several questions regarding the funds, including whether they should, like other types of mutual funds, effect transactions at the market-based net asset value rather than maintaining a stable $1 net asset value. Chair Mary Schapiro noted that a floating NAV might better protect investors from runs on money market funds, but asked for feedback on whether the efficiency of the $1 NAV is more beneficial to investors.
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In the first of what promises to be a series of hearings on financial regulatory reform, the Senate Banking Committee heard from former Fed Chair Paul Volcker, a top adviser to President Obama on financial regulation. Committee Chair Christopher Dodd first outlined some essential elements that will drive the reform. The first order of business will be to erect a new financial regulatory regime in order to restore investor confidence in the securities markets. As part of this legislative effort, the committee will execute an ambitious schedule of meetings, briefings, and hearings to understand the strengths and weaknesses of the current regulatory system. The committee’s inquiry and deliberations, assured Dodd, will be guided not by pre-conceived notions, but by core principles that must be reflected in any comprehensive reform effort.
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