Wednesday, November 07, 2012

Fidelity Urges SEC and European Commission to Harmonize Principles of Money Market Fund Regulation

In letters to the SEC and European Commission, Fidelity Investments urged consistent cross-border regulation of money market funds insofar as such is possible. While recognizing that differences in relative size and maturity of national economies may necessitate varying regulation, Fidelity believes that some minimum international standard must exist for consistent treatment and management of money market funds under a global regulatory framework.

Fidelity also said that all costs and benefits should be enumerated and evaluated before regulators seek to make further structural changes to a well-functioning investment vehicle that serves the needs of short-term investors and borrowers. Moreover, additional reforms should be carefully considered prior to implementation to ensure that they are consistent with creating a stronger, more resilient product, without imposing harmful, unintended consequences on financial markets or on the global economy.

The investment firm urged the European Commission and other regulators globally to consider some of the existing key features and principles that the firm deems as best practices for money market funds. Regulators were encouraged to codify these features and principles by including them directly in the definition of a money market fund. These practices include constraints on the liquidity, maturity, diversification, and credit quality of money market funds, as well as transparency and clear governance requirements.

The investment firm also asked regulators to expand their focus beyond money market funds to examine investment products that remain unregulated and non-transparent in the money markets. Rather than concentrating effort on removing the essential features of money market funds that have made these funds a successful innovation in the financial markets, the investment firm urged international securities regulators to bring regulation for the first time to the numerous pools and structured vehicles that offer cash investment without the strict rules under which money market funds operate.