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SEC’s Aguilar Open to Proposals for Overhauling U.S. Money Funds

U.S. SEC member Luis Aguilar
U.S. Securities and Exchange Commission member Luis Aguilar. Photo: Rich Clement/Bloomberg

A U.S. Securities and Exchange Commission member who blocked the agency’s initial proposal to overhaul regulation of money-market mutual funds now says the process is on the right track.

Commissioner Luis Aguilar, a Democrat, said in an interview yesterday that a study issued by SEC staff has allayed his concerns that money-fund rules adopted in 2010 hadn’t been sufficiently studied. He said he’ll reconsider all the ideas presented before, including abandoning the industry’s traditional $1 share price.

“The study indicates that the 2010 amendments weren’t enough,” Aguilar said. “Given the information that currently exists, it may be appropriate to consider the various proposals through the prism of the new information.”

Regulators, led by outgoing SEC Chairman Mary Schapiro, have been working to overhaul rules governing the $2.6 trillion money funds industry since the September 2008 collapse of the $62.5 billion Reserve Primary Fund. Its failure, because it owned debt issued by Lehman Brothers Holdings Inc., set off a run by money-fund investors that helped freeze global credit markets.

Aguilar said he thinks the study should lead the commission to consider a new version of a rule early next year. He said that floating the money funds’ share price “may make sense” in light of the new data, though he hasn’t yet seen what the SEC staff will recommend.

‘Important Option’

Republican Commissioner Daniel M. Gallagher said in September he might support a floating share value under certain conditions, calling it “an important option to keep on the table and to subject to further study and consideration.” He and Aguilar, along with Republican Commissioner Troy A. Paredes, derailed Schapiro’s overhaul proposals earlier in the year.

The SEC’s 2010 rules created liquidity minimums, lowered maturity limits and required more disclosure. Schapiro supported another round of changes that would have forced funds to choose between abandoning their traditional $1 share price or building capital buffers to absorb losses and imposing redemption restrictions to discourage runs.

This week’s report said the funds are “more resilient now to both portfolio losses and investor redemptions than they were in 2008,” but it concluded the rule changes wouldn’t have prevented the collapse of the Reserve Primary Fund.

Commissioner Elisse Walter, the Democrat who will replace Schapiro after her Dec. 14 departure, was the only member who didn’t oppose Schapiro’s proposals. The timing for considering a rule proposal will be up to Walter, Aguilar said.

The Financial Stability Oversight Council, a panel of regulators headed by Treasury Secretary Timothy Geithner, on Nov. 13 began a process by which it will pressure SEC commissioners to reconsider Schapiro’s plan and other overhaul proposals.

“I’ve taken no option off the table,” Aguilar said.

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