July 20, 2012
Money-Market Funds, Peregrine, Volcker Rule: Compliance
The Federal Reserve Bank of New York said money-market fund investors should be prohibited from withdrawing all their assets at once as a way to make the $2.5 trillion industry “safer and more fair.”
Money funds should set aside a portion of every investor’s balance as a “minimum balance at risk” that could only be withdrawn with a 30-day notice, the New York Fed’s staff said yesterday in a report. The provision would reduce systemic risk and protect small investors who don’t pull out of a troubled fund quickly, according to the report.
The idea, opposed by the funds industry, is already part of a proposal before the U.S. Securities and Exchange Commission that would force money funds to float their share value or build capital cushions and impose withdrawal restrictions, a person familiar with the plan said last month. The agency hasn’t made the proposal public and hasn’t scheduled a meeting for commissioners to vote on it.
Regulators have worked on money fund proposals since the September 2008 collapse of the $62.5 billion Reserve Primary Fund triggered an industry run, helping to freeze global credit markets.
Compliance Action
Peregrine Trustee to Have Claims-Payout Estimate in 14 Days
Peregrine Financial Group Inc.’s bankruptcy trustee will tell some former clients within 14 days about how much they have to put on deposit so they can redeem specific property claims against the defunct futures brokerage.
Robert Fishman, a lawyer for Ira Bodenstein, the trustee, yesterday told U.S. Bankruptcy Judge Carol Doyle in Chicago that the preliminary estimate -- a percentage of the properties’ value -- was needed as a guide for processing 11 potential claims, primarily from owners of warehouse receipts for precious metals held by the collapsed Cedar Falls, Iowa-based firm.
“We’ll be pretty conservative,” Fishman told reporters after the hearing, in which Doyle gave the trustee permission to notify the clients about their property.
Clients will have 14 days from when they are notified to say whether they want to reclaim that property, mostly warehouse receipts for precious metals. Because claimants in the same class must be treated equally, each one seeking the return of property must deposit a percentage of its cash value, to be held for ultimate pro rata distribution to claims class members.
The percentage estimate will apply for now only to members of this group, Fishman said.
Peregrine filed for liquidation under Chapter 7 of the U.S. Bankruptcy Code on July 10, one day after the National Futures Association, an industry self-regulator, said the firm’s bank accounts were short more than $200 million.
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The Volcker Rule’s implementation period will commence once the Financial Stability Oversight Council (“FSOC”) completes a required study, which must be accomplished by January 21, 2011.
Once the FSOC completes its study, the Fed along with a number of other agencies must then adopt implementing rules within 9 months.
The restrictions and prohibitions of the Volcker Rule then would become effective 12 months after issuance of the final rules by the agencies, or July 21, 2012, whichever is earlier. (Note that we anticipate the Volcker Rule will become effective on July 21, 2012 because the final rules are not required to be issued until October 21, 2011.)
Once the restrictions and prohibitions of the Volcker Rule become effective, however, banking entities and nonbank financial companies will have a period of time to bring their affected activities into conformance with the rule.
This conformance period generally extends through the date that is two years after the date on which the prohibitions become effective or, in the case of a nonbank financial company supervised by the Fed, two years after the company is designated by the FSOC for supervision by the Fed, if that period is later.
In addition to the statutory conformance period of two years, the Volcker Rule permits the Fed to extend the conformance period by up to three additional one-year periods, for an aggregate conformance period of five years. In the case of illiquid funds, the Fed may extend the conformance period for an additional five-years beyond the three one-year extensions, for an aggregate conformance period of 10 years (including the two-year statutory conformance period). source ..
