9.24.2009 SEC Commissioner Troy Paredes spoke at the Investment Company Institute’s Annual Capital Markets Conference in Washington, D.C. He discussed custody, money market funds, and the Jones v. Harris case.

  • Custody
    • Commissioner Paredes stated that he questions whether the proposed surprise examination requirement reaches too far, and that it is possible to regulate past the point of prudence. He stated, “Given the rest of the relevant regulatory regime and the steps advisers already take to secure investor assets, the marginal benefit of a surprise examination may not outweigh the attendant cost. Not every incremental benefit of additional regulation is justified; there are diminishing returns.”
  • Money Market Funds: Paredes has significant reservations about two features of the rulemaking of the SEC’s proposed sweeping amendments to Rule 2a-7:
    • The proposal to eliminate Second Tier securities from money market fund holdings; and
    • Concerns on the prospect of replacing the longstanding stable $1.00 net asset value (NAV) of money market funds with a floating market-based NAV.
  • Jones v. Harris Case: Paredes concluded by highlighting two core points relating to the case:
    • First, adequate market discipline can obviate the need for more exacting and burdensome regulation, including demanding judicial scrutiny of advisory fees.
    • Second, courts are not well-positioned to second-guess the business decisions that boards and others in business make in good faith.

Click http://www.sec.gov/news/speech/2009/spch092409tap-ici.htm to access the speech.