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July 23, 2014

SEC’s Money Market Funds Rule is a Mixed Bag: Will Not Stop the Hair-Trigger Run Risk Posed by Money Market Funds

Washington, D.C., July 23, 2014 – Today, the federal Securities and Exchange Commission (SEC) left investors and the entire economy at further risk by leaving large loopholes in its final rule for the regulation of money market funds, said Better Markets.

Better Markets President and CEO issued the following statement in response to today’s vote by the members of the Securities and Exchange Commission:

“The financial crash of 2008 proved that money market funds are highly unstable and transmit systemic risk.  That is why the money market fund industry received $3.7 trillion in federal emergency support in September 2008, as it was contributing to the collapse of the financial system.  The SEC is required to make sure that never happens again.  Unfortunately, today’s action by the SEC is a mixed bag and ultimately insufficient to eliminate the hair-trigger run risk posed by money market funds.

“The SEC got three things right today in their newly adopted money market fund rule.  First and most importantly, the SEC is requiring a floating net asset value for some funds.  This should eliminate the fiction created by a stable NAV that money market fund investments do not have a risk of loss.  It was also important for the SEC to require government funds to actually be government funds.  Lastly, it is important that the SEC adopted a combination of reforms, recognizing that there is no single solution to this complex problem.

“However, requiring a floating NAV for only a minority of money market funds creates a huge loophole. A stable NAV is an SEC-endorsed fiction that creates the belief in a price guarantee.  As we saw in 2008, when investors see that their money market funds are losing money (so-called “breaking the buck”), they start withdrawing their money fast and in large amounts.  This run quickly destabilizes the entire financial system, causing contagion and requiring government bailouts.  A floating rate NAV for all money market funds is required to end this systemic risk.

“Fees and gates, like those the SEC adopted today, might be important reforms, but not when, as here, they are voluntary.  Expecting hundreds of Board of Directors to make such decisions under crisis conditions with incomplete and rapidly changing information is simply never going to work.  Worse, this SEC-created process will incentivize institutional investors to run quicker and faster in the future to avoid having to correctly guess which funds will impose what types of fees and gates.  As a result, the rule will actually accelerate the very harm the SEC seeks to avoid.

“Thus, the SEC took a few steps forward, but there is still a long way to go before the known systemic risks in money market funds that materialized in 2008 are eliminated.  We look forward to the FSOC’s analysis of the SEC’s rule and its independent determination of the appropriate action necessary to protect the financial system and US taxpayers from the risks posed by money market funds.”


Better Markets is an independent, nonprofit, nonpartisan organization that promotes the public interest in financial reform in the domestic and global capital and commodity markets. Better Markets advocates for transparency, oversight and accountability with the goal of a stronger, safer financial system that is less prone to crisis and failure thereby eliminating or minimizing the need for more taxpayer funded bailouts. To learn more, visit

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