Depending on whether you support tightening financial requirements on the nation’s money market funds, you’ll either see today’s story in The New York Times
about SEC commissioner Luis Aguilar as a gutsy move to expose how the mutual fund industry can exert its influence to block needed government regulation or as a hatchet job.
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Last week, Schapiro was forced to table a vote by commissioners on money fund reforms that she had proposed and that would have required fund companies to float their net asset value and take other steps to undercut the unwritten rule to pay investors $1 for every dollar they invest in a money fund. Money market fund reform has been a major priority for Schapiro in the wake of the 2008 financial crisis, when a large money fund “broke the buck,” after the failure of Lehman Bros., and could not make good on the long-held fund industry promise to always pay investors $1 and make to clearer to investor that the net asset value on money funds is not guaranteed like assets in a bank account.
Aguilar, a Democrat appointed by former president George W. Bush and reappointed by President Barack Obama, had been expected to support Schapiro’s proposal, which had the backing of Treasury Secretary Timothy Geithner as well as Federal Reserve Chairman Ben Bernanke. But Aguilar let Schapiro know just before the vote on the reforms that he would side with the two Republicans on the commission by voting against the reform proposals. According to The Times
, that “put Mr. Aguilar in lock step with the powerful and aggressive mutual fund industry in which he worked as a lawyer from 1994 to 2002.”
Aguilar’s public statement last week said that he needed more information to support the reforms, an assertion directly refuted by unnamed SEC officials. “Behind the scenes, though, Mr. Aguilar had not requested that additional information, according to people briefed on his actions in recent months,” The Times reported.
The Times article quotes unnamed sources directly refuting other reasons cited by Aguilar for not backing the proposed reforms, noting that “he was the only commissioner who did not attend a May 2011 S.E.C. round-table discussion on mutual funds.”
One of Schapiro’s proposals would have required money funds to disclose their share prices like other mutual funds. By showing their net asset values, the money would make it clearer that there is no guarantee that an investor can withdraw everything in a money fund anytime and that there is no government backing of money fund investments. Another Schapiro proposal would have required money funds to hold more capital to protect against losses and that investors be required to give money funds up to 30 days to withdraw a portion of their cash.
For an SEC chair to be unable to get a majority of the commissioners to vote for a major reform initiative is seen as a setback for Schapiro. But seeing The Times coverage in which unnamed commission officials publicly refute Aguilar’s reasons for siding with the fund industry shows a surprising level of animosity and derision among commissioners at a time when they are considering the most sweeping regulatory reforms to the financial system in decades, including the regulation of RIAs.