Better Markets filed a comment letter to the Securities and Exchange Commission (SEC) in response to the agency’s proposal on additional money market fund (MMF) reforms.

Why it Matters. Countless everyday Americans and businesses rely on MMFs to manage their cash and earn returns that beat out the local banks.  What many don’t realize is that these products still pose unique risks to investors and to financial stability.  And these products are gaming the regulatory system to get a free ride from taxpayers—that’s how they boost returns.  The SEC’s proposal will help around the edges, but like prior reforms, these are still piecemeal remedies that won’t solve the challenges posed by MMFs.

What we Said. Among other things, the SEC must eliminate the fiction of fixed or stable share pricing, so all investors really understand that MMFs can in fact lose money.  And the agency must require that all MMFs establish capital buffers to protect investors against losses, just as FDIC deposit insurance protects bank customers. Over the years the SEC has rightly seen the need to apply more regulation to MMFs.  Unfortunately, it has never finished the job and the current proposals are still incomplete.

Bottom Line. The current proposals will help somewhat by improving the liquidity of the investments that MMFs are allowed to hold, increasing reporting, and helping to ensure that those who withdraw early in times of stress don’t come away with more than their fair share.  But what’s really needed is a full package of reforms, including the floating (and fully transparent) NAV, along with meaningful and mandatory capital buffers.

Read our full comment letter here.