Securities Roundup: Study Recommends Against Additional Money Fund Reforms, Lawmakers Disagree on Whether Dodd-Frank Wiped Out “Too Big to Fail” & An SEC Committee Approves Recommendations to Proposed General Solicitation Ban
Per a study released by the U.S. Chamber of Commerce, it is “ill-advised” to regulate money market mutual funds further due to the effective reforms that the SEC already implemented two yeas ago, including revisions that made the funds more transparent and liquid and not as high risk. The study comes in the wake of debate between lawmakers, market participants, and regulators about more regulations to the industry. For example, SEC Chairman Mary Schapiro has been pushing for the additional reforms because she believes the money market mutual fund industry continues to be a threat to the financial system.
The authors of the study derived their findings from money fund investment data that had been filed with the Commission, as well as from information on commercial paper from the Federal Reserve. Among its conclusions is that the reforms in 2010 made the funds more liquid and better equipped to deal with significant redemption changes. Also, in the last two years, the funds have begun to shift “more dynamically” through geographies and asset classes in reaction to “evolving risks.”
Another area that has been up for debate is whether the Dodd-Frank Wall Street Reform and Consumer Protection Act has, in fact, ended “too big to fail” and outlawed bailouts. Rep. Barney Frank (D-Mass) issued an analysis earlier this month that said that the law does. However, another report, by House Financial Services Committee Chairman Rep. Spencer Bachus (R-Ala), disagrees.
Dodd-Frank has sough to terminate “too big to fail,” which is the description for financial firms that are so big and interlinked that should they fail the consequences for the economy would be catastrophic. The government would therefore need to intervene should these entities get into trouble. While the analysis issued from Frank said that the law sets up a “framework” that lets big financial institutions fail without causing economic disaster, the report from Frank found that not only are the country’s largest banks still too big to fail—even bigger than during the recent financial crisis—but also, rather than ending bailouts, it institutionalized them and made them permanent via the act’s ‘Orderly Liquidation Authority in its Title II.
Meantime, the SEC’s Investor Advisory Committee voted in favor of adopting recommendations made by its Investor as Purchaser subcommittee to modify the Commission’s proposed amendments to the general solicitation ban for certain private placements. Per the proposal, the Jumpstart Our Business Startups Act’s Title II would let issuers generally solicit investors for/advertise offerings under Regulation D Rule 506 and 1933 Securities Act Rule 144A as long as only qualified institutional buyers and accredited investors are the ones doing the buying.
Among the recommendations; adopting a new Form GS for issuers planning to depend on the new provisions, mandating that issuers provide materials that they use general solicitation to the SEC (which will in turn make it available to the public), making Form D a requirement to issuers depending on a Reg D exemption, taking action to make sure that performance claims found in materials for general solicitations are grounded in proper performance reporting standards, amending the “accredited investor” definition’s natural persons prong, including non-exclusive safe harbors for how issuers can confirm that the buyers of their generally solicited Rule 506 offerings are this type of investor, and making sure felons and bad actors are disqualified and unable to take part in the Rule 506 offerings.
Find the analyses on Dodd-Frank and "Too big to fail" here, The Committee on Financial Services
Investor Committee OKs Recommendations For SEC's Proposal on General Solicitation, BNA/Bloomberg, October 15, 2012
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Plaintiff Must Arbitrate Faulty Investment Advice Claim With TD Ameritrade But Can Proceed With Litigation Against Oakwood Capital Management, Stockbroker Fraud Blog, October 29, 2012
If SEC JOBS Act Rule 506 Proposal is Made Final, Legal Challenges Are Likely, Institutional Investor Securities Blog, October 27, 2012