Comment letters are flooding into the Securities and Exchange Commission regarding the agency's money-market fund proposal, as the comment period expires next week.
Charles Schwab filed its comment letter Thursday, saying that while it "generally supports" the SEC's two-pronged reform plan, it has a "significant number of concerns about the proposed rule," and recommended seven changes "that would make the rule less burdensome to implement."
The SEC's two-pronged plan, announced by SEC Chairwoman Mary Joe White in early June, would require institutional prime funds to have a floating net asset value, and impose a "fees-and-gates" approach by allowing a fund's board to impose a 2% liquidity fee if the fund's weekly liquid assets fell below 15% of its total assets.
White said in June that the two reforms could be adopted separately or combined into a single reform package.
Marie Chandoha, president of Charles Schwab Investment Management, said on a call with reporters Thursday that Schwab agreed that a "final rule should combine the two alternatives."
While a floating NAV and fees and gates will help eliminate the risk of a fund breaking the buck, Chandoha said, "the reality is that nothing short of eliminating the product will prevent a run on the fund."
However, she said the value Schwab clients' see in money-market funds is undeniable: while the funds have "been yielding zero for many years, clients continue to use them." Schwab is one of the largest managers of money-market fund assets in the United States, with 3 million money fund accounts and $168 billion in assets under management as of June 30.
Jeff Brown, senior vice president of government and regulatory affairs at Schwab, who was also on the call, said that while Schwab believes that the "SEC has done a thorough job on a complicated issue," including conducting "extensive research," Schwab does have suggestions to make.
While there is consensus, Brown says, on making sure that "municipal funds can maintain their NAV," many divergent views will likely be expressed in the comment letters (the comment period expires Tuesday), and at the Sept. 18 hearing to be held by the House Financial Services Capital Markets Subcomittee regarding the SEC's proposal, in which Schwab will testify.
Schwab recommended the following seven changes to the SEC's money fund proposal:
