SEC Proposes to Improve Regulation of Money-Market Mutual Funds

Today the Securities and Exchange Commission (SEC) suggested tighter restrictions on money-market mutual funds (MMF) in response to a call “to strengthen the regulatory framework around MMFs” in the Administration's financial regulatory white paper (see page 39). The SEC is requesting public comment before passing a final version of the new rules.

MMFs are companies that invest money for a large group of investors. The money is put into a diverse array of financial products, collectively known as the MMF's portfolio, in an effort to mitigate risk. Each share denotes an investor's ownership of a portion of the fund and the returns it yields.

MMFs are in desperate need of better federal regulation. As David F. Swensen describes in his 2005 book Unconventional Success, current SEC regulations “fail to protect investors.”

Among other suggestions, the SEC proposed requiring MMFs to report monthly on the contents of their portfolio, both to the SEC and on their websites. POGO applauds this regulatory double-whammy, which improves both oversight and transparency.

As of yet, much of the industry has not made a comment. According to the Washington Post, the president of the Investment Company Institute (ICI) has expressed concerns, although there is no official comment on the group's website. But considering the industry's out-cry over previously proposed money-market rules, it's fair to assume we'll be hearing from ICI soon.

We'll post a link to the proposed rule in the Federal Register once it's up.

-- Eric Orenstein