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Alternative Market Briefing

SEC studies reform proposals to strengthen money market funds to reduce systemic risk

Thursday, July 24, 2014

Komfie Manalo, Opalesque Asia:

The Securities and Exchange Commission on Wednesday discussed regulatory reform proposals to strengthen the nation’s money market funds and reduce systemic risk. In her opening statement, SEC chair Mary Jo White said the proposed reforms would fundamentally change the way that most money market funds operate.

"They will reduce the risk of runs in money market funds and provide important new tools that will help further protect investors and the financial system in a crisis. Together, this strong reform package will make our financial system more resilient and enhance the transparency and fairness of these products for America’s investors," White said.

She explained that over the last several decades, money market funds have become a critical part of the American economy, providing an important source of short-term financing for issuers, including American businesses, state and local governments, and other market participants. An estimated $3tln is invested in money market funds, much of it in institutional prime funds held by investors such as pension funds and corporations. Issuers and investors now rely daily on money market funds, and the benefits of such funds are significant.

However, the widespread use of money market funds can also create risks through investor runs and the contagion that can follow. During the last financial ......................

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