Of course, a pessimist would point out that we would be better off if the rules weren’t pointless or damaging at all.
A few years past, the SEC’s then-Chairman, Mary Schapiro, considered several rule changes. Among other regulations, Schapiro would have required all money market funds to vary their share prices, or net asset values, virtually conquering the purpose for which such funds can be used.
Despite the http://bookkeepingservicespenrith.com.au/ support Ben Bernanke, Schapiro didn’t succeed in killing money market funds with her regulations. A majority to overrule her in 2012 was formed by three commissioners. However, while the particular regulations at issue were set aside, the notion that money market funds desired further reform persisted.
Under the rules funds catering to small investors will not need to alter the way they do business at all. That’s important, because such funds endure in this repressed rate of interest age simply with the financial support of their sponsoring companies, which commonly are large brokerage or mutual fund firms that have to give investors a place to park cash between making other investments.
Historically, money market funds could cover these costs out of the interest earned on the funds’ short term investments, but the funds are at best a break even proposition since short term investments have paid virtually no interest for the past six years due to the Fed.
Partly as a consequence of pressure from the Fed, the SEC however wants to impose the much-discussed floating share price – but just on money market funds that focus on institutional-sized clients. Since those floating prices would visit potentially fatal tax complexities, nevertheless, it appears that the move is contingent on the Treasury agreeing to unilaterally rewrite the tax rules, probably by allowing or visiting a “de minimis” provision to let – or require – taxpayers to disregard cash fund cost movements that fall within a particular range.
Of course, once you declare that cost movements are de minimis, you motivate individuals to dismiss them. The entire purpose of the floating-price demand, according to its supporters, would be to remind investors that money funds aren’t just like cash. This despite the fact that investors, unlike regulators, are not likely to have already been so shortsighted as to have forgotten. The supposed logic behind the change would make the change tolerable, although tax leniency would undo it.