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Question 5: Which alternative promotes investor protection? This is a cornerstone of the SEC’s responsibilities and here also the differences are clear. A floating NAV harms investors by eliminating a proven and popular cash management solution, adding to investor costs without reducing risk and creating uncertainty regarding redemption values. Gating directly mitigates the risk of runs and “first-mover advantage” and protects stability, daily liquidity and yield for shareholders.
The SEC has done an excellent job regulating the funds, and it is a big reason 56 million American investors, businesses, state/local governments and nonprofits depend on them every day. Gating is the only answer that meets the goals of the SEC and serves the interests of all users. It is a sensible and workable addition to the already robust rules that have governed money funds well for decades and the 2010 amendments, which further improved credit quality, maturity, liquidity and the transparency of funds.
More importantly, it is the only alternative that preserves money market funds and keeps them working for the American economy. And I hope Congress will make this clear to the SEC.
J. Christopher Donahue is president and CEO of Federated Investors Inc.