SEC moves to tighten regulations on money market funds

Sarah N. Lynch

A portion of the $2.6 trillion money market fund industry would be required to fundamentally change how it prices its shares under proposals issued by U.S. regulators on Wednesday to reduce the risk of abrupt withdrawals.

But the Securities and Exchange Commission plan was not as strict as some market players feared and included an industry-favored provision for funds to charge withdrawal fees and delay return of funds to customers during times of financial distress.

For more than a year the SEC has been debating whether changes made in 2010 were enough to avoid a repeat of a run on money market funds seen at the height of the financial crisis.

The additional reforms proposed on Wednesday did not go as far as a draft proposal floated last year by then-SEC Chair Mary Schapiro, who left in December.

The fund industry had warned that further major reforms could kill investor interest in money market funds.

In a compromise move, the SEC’s new plan mostly focuses on prime funds for institutional investors, which are seen as more prone to runs because those investors are more sophisticated and more likely to pull large blocks of money first in a panic.

The SEC estimated that institutional funds represent 37 percent of the market with $1 trillion in assets.

The SEC’s plan calls for two alternative proposals that it said could be adopted alone or in combination….

The article continues at Reuters.


H/T The Blaze

Some commissioners appeared to be sympathetic to arguments made by representatives for the industry, who complained that most of the changes previously recommended would make money funds unattractive and lead to fewer investors.

This time, however, the SEC faced pressure from the Financial Stability Oversight Council, a group of high-level regulators that has backed both the floating-value requirement and calls for strict capital reserves. Bernanke and Treasury Secretary Jacob Lew both sit on the panel.

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