The Technical Committee of the International Organization of Securities Commissions has issued a consultation report sharing its views and seeking comments on the possible risks money market funds may pose to systemic stability and on possible policy options to address these risks. IOSCO, Money Market Fund Systemic Risk Analysis and Reform Options; Consultation Report (Apr. 27, 2012). IOSCO's consultation report is part of a review, at the request of the Financial Stability Board, of potential regulatory reforms of money market funds that would mitigate their susceptibility to runs and other systemic risks; the FSB asked IOSCO to develop policy recommendations by July 2012. The Securities and Exchange Commission is a member of both IOSCO and the FSB, and the $2.7 trillion of assets in U.S. money market funds is a majority of the $4.7 trillion in worldwide money market fund assets as of fourth quarter 2011.
The report notes that money market funds are vulnerable to runs because shareholders have an incentive to redeem their shares before others do when there is a perception that the fund might suffer a loss. It discusses a number of policy options, including prohibiting the use of amortized cost valuation, requiring buffers to protect net asset values per share, requiring bank-like regulation for money market funds, imposing portfolio liquidity requirements, and reducing reliance on ratings. The report preliminarily is of the view that, although important reforms have already been adopted and implemented, several areas of risk remain, and the safety of money market funds is paramount for financial stability at large. Comments on the consultation report are due on or before May 28, 2012.
The report is available online at
The related IOSCO news release is at
For previous FundLaw posts on money market funds, see
John M. Baker <JMB@...
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