The SEC "Reforms" Money Market Funds but Votes to Allow Funds to Suspend Redemptions

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schapiro.jpgBy a 4 to 1 vote, the SEC today "reformed" money market funds --- to make them safer for you and me. But, thanks to Chairwoman Mary Schapiro, if your clients' money market funds are threatening to break the buck (as happened last year during the crisis), the board of the fund may elect to suspend redemptions. Okay, so now the SEC can decide when your client may take his or her money out of an investment? (Think of this as auction-rate-securites rulings in reverse --- the ones that SEC made that forced brokerages to disgorge frozen ARS assets to retail investors.)

As a CFP who runs an RIA told me, "This is a big deal." Zerohedge.com has a blistering little take on this "reform." (Also today, the SEC without "opining" on the merits and/or causes of "climate change," issued an "interpretive guidance" directive for public companies to help them disclose any legal, um, er, I can't even understand the SEC announcement on this subject. Aren't publicly traded companies already required to issue public announcements about "material" events, such as a big lawsuit or material changes to its business? Gosh, the SEC sure sounds stupid on this one. Read the SEC "guidance" here, if you dare.)

Anyway, with regard to the suspending of redemtions, the SEC said in a statement, "Suspension of Redemptions: The new rules permit a money market fund’s board of directors to suspend redemptions if the fund is about to break the buck and decides to liquidate the fund (currently the board must request an order from the SEC to suspend redemptions). In the event of a threatened run on the fund, this allows for an orderly liquidation of the portfolio. The fund is now required to notify the Commission prior to relying on this rule."

Schapiro said in her opening statement, "The new rules will permit the board of a money market fund to halt redemptions if the fund "breaks the buck." The halting of redemptions will stem the motivation for runs. It also will eliminate the need for a failing fund to sell securities into a potentially de-stabilized market and further drive down prices, which could impact other money market funds holding the same securities. Our rules also will require money market funds to be able to process transactions at prices other than $1.00. This will avoid unnecessary processing delays should a fund break the buck."

For the full SEC speech (and video), go here.

Oh, and back to the climate change directive; long-time Registered Rep. legal columnist Bill Singer told me this via email when I wrote to him about the stupidity of the "climage change" clarification:

"Truly, it's hard to make up something more absurd than that [Schapiro] quote. The SEC issues a release that is about climate change disclosure but feels compelled to first note that it does not necessarily agree that the climate is changing, or is changing at a given pace, or why it may (or may not) be changing. Further, notwithstanding a long-winded climate change disclosure release and trumpeting press release, Schapiro notes that the SEC should NOT be construed as weighing in on climate change -- beyond finding the issue so important as to warrant a full-fledged SEC commentary. And for some absolutely hysterical (and also pathetic) reason, the head of the SEC seems to think that its guidance will help ensure that disclosure rules are consistently applied about an issue that may or may not be real, may or may not be happening, and the causes of which are not clear -- plus the SEC does not want to be seen as weighing in on those topics!!!"

You can visit Bill Singer's outspoken blog at, BrokeandBroker.com.

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REP. Editor-in-Chief David Aldo Geracioti on the business of Wall Street from a free-market perspective.

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David Aldo Geracioti

Is the editor-in-chief of REP. magazine.  He is also a devotee of the Austrian School of Economics leading lights Ludwig von Mises, Friedrich von Hayek, Murry Rothbard and to other thinkers in...
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