The SEC is proposing to reduce the references to required credit ratings throughout its rules. Its concern is that investors may interpret the use of credit ratings in laws and regulations as an endorsement of the quality of the ratings issued by NRSROs, which may in turn have encouraged investors to place undue reliance on the ratings issued by these entities. The ACT’s response to this consultation has concentrated on the consequences for Money Market Funds complying with Rule 2a-7. The rule as it currently stands requires such funds to invest in paper that is rated within the top two categories.
The perception is that 2a-7 products are well understood and are working well, and that investors do take some comfort from the credit rating requirements of Rule 2a-7. There is a danger that any ‘apparent’ weakening of the rules around 2a-7 MMFs could cause a disturbance to the market and a loss of confidence. For these reasons the ACT does not support the changes proposed by the SEC.
