Ensuring the Orderly and Fair Operations of Financial Markets

ICI members participate in the financial markets on behalf of millions of investors and have a strong interest in policies that help markets operate in an orderly, fair, and transparent manner. This pursuit guided ICI’s work during the past year, both in the immediate crisis of market dislocation and volatility in response to COVID-19 and in ICI’s long-standing advocacy for reforms in equity market structure.

Addressing Market Turmoil During the COVID-19 Crisis

The onset of the COVID-19 pandemic and the subsequent restrictions on major sectors of the US economy dramatically affected financial markets in March 2020. Throughout that time, ICI worked with policymakers and legislators to ensure that funds had the support and resources they needed to operate and serve investors.

Fixed-income markets first showed signs of dislocation in early March, followed by turmoil in other markets as businesses and investors reacted, racing to bolster their cash to protect themselves from the uncertainty that the pandemic and the economy’s swift contraction engendered. As a result of this sudden demand for liquidity, short-term markets froze in mid-March, and some money market funds came under intense pressure.

During this time, ICI worked closely with members to understand what was happening in the markets. The Institute conveyed these market insights to policymakers and advocated for swift action to help restore market liquidity. When the Federal Reserve established a number of liquidity facilities, including the Money Market Mutual Fund Liquidity Facility (MMLF), ICI advocated for expanding the MMLF to include a wider range of securities.

ICI also suggested measures to enhance the utility and effectiveness of other facilities that the Federal Reserve established. For example, at the request of Federal Reserve staff, ICI worked closely with members and their outside counsel to evaluate and recommend changes to the proposed terms of the Term Asset-Backed Securities Loan Facility to facilitate funds’ participation and improve the program’s effectiveness. Taken together, the Federal Reserve’s actions and programs were necessary and appropriate, as they helped restore liquidity and the flow of credit to the economy.

Informing Policymakers About Funds’ Experiences During COVID-19

To help policymakers and government officials better understand how the markets and funds and their investors behaved during the onset of the pandemic, ICI published the Report of the COVID-19 Market Impact Working Group. It includes data-based, in-depth analysis of US markets and the experience of money market funds, exchange-traded funds, bond funds, and Undertakings for Collective Investment in Transferable Securities (UCITS).

Improving the Quality and Cost of Market Data in Equity Markets

Access to timely, accurate, and cost-effective market data is critical for funds to make informed trading decisions. During the past year, the Securities and Exchange Commission (SEC) proposed several amendments to Regulation NMS—the framework of rules that governs price quotes, trade execution, and market data—and ICI advocated for changes that would enhance the governance, cost-efficiency, and quality of market data.

Governance. Stock exchanges run equity data plans that consolidate and transmit stock data through public feeds. The exchanges govern these plans and exercise disproportionate influence over their design and operation through operating committees. ICI was pleased when the SEC adopted an order that requires exchanges to create one equity data plan, allows other participants—including fund advisers—on the operating committee, and gives these participants one-third of the voting power. The Institute has long advocated for operating committees to include a more diverse set of market participants to ensure the committees are better informed and less influenced by conflicts of interest.

Effective-upon-filing exemption. Exchanges have been able to use the effective-upon-filing exemption to establish or change a fee for market data without prior SEC approval or public comment. In August 2020, the SEC adopted an amendment that rescinded this exemption. ICI supported this change because it makes the fee setting process fairer and more transparent by enabling funds and other market participants to comment on the reasonableness of market data fees.

Market infrastructure rule. The exchanges administer two types of data feeds: public feeds and proprietary feeds. The public feeds use slower technology and include less data than the proprietary feeds, but funds must subscribe to both to obtain the most comprehensive and timely data. These feeds are expensive, and the costs are passed on to fund shareholders. To enhance the public feeds and make access to data more fair and cost efficient, the SEC proposed a rule that would enhance competition in the delivery of the data and add more meaningful information to the public feeds. ICI supported this proposal, arguing that it would help ensure that funds have access to timely, accurate, and fair data.

Illustrating the Trouble with Financial Transaction Taxes

As the 2020 election cycle heated up, several presidential candidates and lawmakers proposed versions of a financial transaction tax (FTT). These proposals made the tax and its impact on Main Street savers sound small. But, as ICI research shows, the reality is very different. An FTT would ultimately harm individual investors who are saving for retirement, education, and other long-term financial goals.

To help counter these proposals and illustrate the negative ramifications of an FTT, ICI Public Communications created a short educational video that explains how an FTT would tax every mutual fund holding four times or more, causing harm to retirement savers and other long-term mutual fund investors.

The video conveys a clear message: no matter how an FTT is designed, Main Street investors are going to face heavy costs.

Promoting the Benefits of Capital Markets and the Role of Regulated Funds

Throughout the year, ICI Global continued to help EU and Asia-Pacific policymakers understand the benefits of deep capital markets and the role that regulated funds can play in developing them—work that is taking on new importance, as COVID-19 has underscored the necessity of having flexible, robust capital markets that can weather and recover from financial shocks.

European Union

For more than six years, EU policymakers have worked toward developing strong capital markets through its capital markets union (CMU) initiative. Realizing this goal became more urgent with the onset of the pandemic, and policymakers worked to develop a new CMU action plan. In meetings with and submissions to policymakers, ICI Global emphasized the importance of designing a CMU that makes investing in regulated funds easier for and more attractive to EU citizens and was pleased that the action plan—consistent with ICI Global’s recommendations—included studying different countries’ experiences with auto-enrolling participants in occupational pension plans and making better use of technology in the investment process.

Asia-Pacific Region

Japan is considering economic reforms to develop stronger capital markets, including enabling regulated funds and other financial services to meet investors’ saving needs. In November 2019, ICI President and CEO Paul Schott Stevens traveled to Tokyo to meet with policymakers, including representatives from the Financial Services Agency, about these reforms. In a speech at a meeting of Japan’s regulated fund association, Stevens detailed the benefits of deep capital markets and how regulated funds help develop them. Stevens also traveled to China to meet with policymakers and emphasize the same messages about capital markets in a speech at Tsinghua University.