US Chamber makes final push against US SEC money fund reforms

WASHINGTON, July 22 Wed Jul 23, 2014 12:09am IST

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WASHINGTON, July 22 (Reuters) - The U.S. Chamber of Commerce made a last-ditch plea on Tuesday to federal securities regulators, urging them not to adopt rules that will change how some money market funds are valued and could cause companies to park their cash elsewhere.

In a lengthy call with reporters, Chamber officials along with corporate and municipal treasurers said they are vehemently opposed to the proposal slated to be adopted by the U.S. Securities and Exchange Commission on Wednesday morning.

They said they are especially alarmed by a provision that would force money market funds used by corporate treasurers and institutions to float their share price.

"We are still not convinced that the very limited, marginal benefits arising of implementing a floating net asset value exceeds any of the very substantial costs that are certain to come," said Alice Joe, a managing director for the Chamber's Center for Capital Markets Competitiveness.

The SEC has been careful not to divulge details on how the final rule will come out, but people familiar with the matter have said the agency is expected to adopt a two-pronged rule.

The first measure will require prime money market funds to switch from a stable $1 per share net asset value (NAV) to a floating NAV, in an effort to reduce the risk of investor runs experienced during the 2008 financial crisis.

A floating NAV is seen by some as less prone to financial shocks because it will curb investor complacency over the stable $1-per-share value that funds currently quote.

The second measure would permit fund boards to lower redemption "gates" or charge fees in times of market stress.

The Chamber has been one of the most vocal groups in opposition to the SEC's money market reform plan.

It has organized a broad coalition of companies and municipalities to combat the rule, and at one point even blanketed Union Station near SEC headquarters with posters lobbying against the effort.

The Chamber is one of the few major trade groups in recent years that has been unabashed about going toe to toe with the SEC in court over rules it has opposed.

It has won a handful of cases by arguing that the SEC violated rulemaking procedures or failed to properly weigh the economic costs and benefits of its rules.

Tuesday's call with reporters featured a handful of corporate and municipal treasurers who all rely heavily on prime money market funds for short-term funding and cash flow management.

Verett Mims, an assistant treasurer for The Boeing Company , said Tuesday that of the $2-3 billion Boeing has invested in money funds, roughly 70 percent sits in prime funds that would be affected by the SEC's rule.

If prime funds are forced to have a floating NAV, "We would actually have to start moving our money," Mims told reporters.

"Prime funds of course offer the most amount of liquidity and flexibility. If that flexibility is gone, then we really wouldn't want to be invested in those funds."

Part of the Chamber's concern with a floating NAV centers on a fear it will trigger burdensome tax rules that will require investors to track numerous tiny gains and losses.

The Treasury Department and the SEC have been working to come up with a fix for the problem, but have yet to tell the public any details.

The Chamber and corporate treasurers called on the SEC to hold off implementing money fund rules until the Treasury's plan can be properly vetted.

The SEC said last year the Treasury was exploring a fix that would simplify fund investors' tax returns.

But treasurers said Tuesday they fear that solution falls short, and that the Internal Revenue Service may actually lack the power to grant full relief from the tax rules unless Congress intervenes.

Joe declined to say whether the Chamber might file a legal challenge to the rule.

However, she noted that if the SEC proceeds to adopt a floating NAV without giving the public a chance to comment on the tax implications, it will weaken the quality of the agency's economic analysis justifying the rule.

"It raises the question of how does this impact the SEC's cost benefit analysis if they don't have the benefit of public comment," she said. (Reporting by Sarah N. Lynch; editing by Andrew Hay)

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