Capital Advisors Group’s Comments on the Recent Money Market Fund Reform Proposal by the Securities and Exchange Commission

Summary Opinion

Institutional Shareholder Perspective: We commend the Commission for tackling the tremendous task of analyzing mountains of data before putting forth the reform alternatives for public comment. We seek to weigh in on the subject from the perspective of an institutional asset manager.
Penny Rounding for Shareholder Activities: We support the mandatory daily disclosure of market-based NAVs as the published share prices and penny-rounded NAVs for shareholder activities. In our opinion, floating NAVs provide no more informational value than market-based NAVs.
Managed Stable NAV: If the basis point rounded NAV approach is adopted, we propose a NAV stability band between $0.995 and $1.005 beyond which fees and gates may be imposed. This approach provides tax and accounting justification for maintaining the funds’ current distinction and preserves some operational attractiveness.
Fees and Gates are a Non-Option: We view fees and gates as ineffective because of probable shareholder expectations that the tools will not be deployed due to fund sponsors’ self-preservation motives.
Cost Plus Penalty Redemptions: We propose an emergency redemption price of market-based NAV plus a 1% liquidity fee when thresholds are breached (defined as weekly liquidity < 30% or market-based NAV < $0.995).
Gates Most Undesirable: We are strongly opposed to the use of gates. However, if gates must be implemented, we propose allowing redemptions of up to 50% of remaining balances.
Explicit Sponsor Support: We propose making sponsor support explicit, committed and disclosed prior to an event occurring.

Background and Scope

We welcome the opportunity to comment on the Securities and Exchange Commission’s money market fund reform proposal. We express our thoughts from the perspective of an investment advisor that manages excess cash balances for more than 150 institutional and corporate accounts, the majority of which use money market funds as daily liquidity instruments. As such, we limit our comments to matters concerning institutional prime funds, not retail, government or tax-exempt funds. We commend the Commission for covering the bases on many of the subjects we are about to discuss. For brevity’s sake, we organize our views in a summary format without detailed reference to discussions in the proposal.
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