One of scarier events that occurred in the 2008 financial crisis was when a money market mutual fund broke the buck; otherwise known as having its NAV go below $1.00. Most investors have assumed (wrongfully) over the years that investments in money market mutual funds were as safe as a bank savings account, albeit with a better return. But that was not the case. Chairman Schapiro has vowed to press for reform.
Chairman Schapiro has championed two alternative approaches to bolster money market mutual funds. First, move these funds to a floating NAV, as opposed to $1.00. Second, require the funds to maintain a capital buffer, as well impose redemption limits or fees. The SEC has yet to propose either, but that has not staved off industry opposition to both approaches who believe that either would essentially drive investors out of these funds altogether. Moreover, the SEC has been faced with Congressional opposition, as well as divided support among SEC Commissioners.
So what does this all mean? In the short run, it is unlikely that there will be any reform of the money market mutual fund. In the long run, public opinion will push for reform. Although maybe impossible to obtain, investors want the best of both worlds, the relative security of a bank but the returns of a money market mutual fund. In the end, there will need to be some compromise to protect investors, but allow the fund industry to continue. It seems to me that one of the two proposed alternatives will become reality.