In a very rare occurrence, financial industry lobbyists suffered a defeat this week when the SEC finally voted to remove the requirement that money-market mutual funds can only invest in “rated securities”. This requirement that money-market funds invest only in the highest rated securities has been around for a couple of decades, but the 2010 Dodd-Frank act mandated that it be scrapped.
It took the SEC five long years to finally make the change due to ratings industry lobbyists fighting the process tooth and nail every step of the way.
According to a recent interview, Corsair Capital's founder Jay Petschek did not plan to be a hedge fund manager. After holding various roles on Wall Street, Petschek decided to launch the fund in January 1991, when his family and friends were asking him to buy equities on their behalf. He realized the best structure for Read More
More on SEC decision to allow money market funds to buy all securities with “minimal credit risks”
On Wednesday of this week, the SEC unanimously voted to end the requirement that money market funds only invest in the highest-rated debt securities. The new rules (which don’t kick in until October) mean funds instead can now purchase any securities they determine have “minimal credit risks.”
The new rules are designed to reduce investor reliance on rating firms, and are a part of Dodd-Frank financial law passed after the 2008 financial crisis. Analysts point out that the SEC tried and failed to take out the ratings requirement on at least two occasions over the last 10 years, but was stymied by stiff ratings industry opposition.
Of note, the SEC avoided the limelight in this decision by voting on the changes in fund rules via “seriatim,” where commissioners can vote on a rule change outside of a public meeting.
Statements from SEC members
“Reducing reliance on credit ratings to determine which securities money market funds can hold is an important part of our efforts related to these funds,” SEC Chairman Mary Jo White noted in a statement late Wednesday.
In his own statement, SEC Commissioner Daniel Gallagher commented that this requirement of the Dodd-Frank law, “is one of the very few provisions of the statute that directly addresses a cause of the financial crisis. And so, although I lament that it took over five years, I applaud the commission for adopting these amendments.”