DBRS Comments on SEC Money Market Reform Proposal

DBRS has today commented on the U.S. Securities and Exchange Commission’s Money Market Fund Reform proposal, which is designed to make money market funds more resilient to certain types of short-term market risk and to enhance investor protections where a fund is unable to maintain stable net asset value per share. In its effort to revamp rule 2a-7 under the Investment Company Act of 1940, the SEC asks a number of questions about the use of nationally recognized statistical rating organization (NRSRO) credit ratings in identifying securities that are eligible for purchase by money market funds. DBRS’s letter to the SEC addresses these questions.

Notwithstanding market events over the past year, DBRS continues to believe that eliminating the objective NRSRO standards from the credit quality provisions of rule 2a-7 would significantly weaken the rule’s investor protections. While credit ratings should never be the sole determinant of portfolio investment quality, they do remain an important complement to fund boards’ (or managers’) subjective credit assessments. DBRS also believes that a fund’s board should be permitted to designate the NRSROs that the fund would look to for all purposes under rule 2a-7 in determining whether a security qualifies as eligible. DBRS suggests that a board be required to designate at least four NRSROs, rather than three as proposed, and that there be a transparent evaluation process and documented rationale for such selection, in order to enhance investor protection.

DBRS letter to the SEC is available on www.dbrs.com under Regulatory Affairs.

DBRS has its headquarters in Toronto, with offices in New York and Chicago, and covers entities worldwide.

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