* Schwab CEO calls for floating NAV for institutional prime
* Says retail prime funds, non-prime funds carry less risk
Nov 23 Charles Schwab Corp, one of the
largest U.S. brokerages, has called for compromise on reform for
the $2.5 trillion money market, throwing its support behind an
idea largely rejected by others in the fund industry.
Schwab supports requiring certain money market funds to have
a floating net-asset value rather than a share price pegged at
$1, Schwab Chief Executive Walt Bettinger said on Friday in an
opinion editorial in the Wall Street Journal.
"As far as risk goes, not all money-market funds are alike,"
Money market reform has been in the spotlight since 2008
when heavy exposure to collapsed investment bank Lehman Brothers
caused the Reserve Primary Fund's net asset value to fall below
$1 per share, or "break the buck." That sparked a run of
withdrawals, freezing a major lending source across the economy.
Schwab believes that some prime money market funds, which
invest in short-term fixed-income securities issued not by the
U.S. government but rather by corporations, banks and foreign
governments, carry greater credit risk and require reform,
"The problem here is fairly obvious: If a company gets into
trouble, a money-market fund's assets can decline and the value
of its holdings may no longer equal $1 per share," he said in
The risk of a run on prime funds is far greater among
institutional investors, which tend to have bigger stakes than
retail investors, and that is where the floating net asset
values make sense, Bettinger said.
The institutional prime money market fund's price would be
reported at the end of the day under the Schwab proposal. Retail
funds and non-prime funds, which invest exclusively in U.S.
Treasury instruments, U.S. government agency paper or debt
issued by states, would continue to operate with a stable $1 per
share net-asset value.
The U.S. Financial Stability Oversight Council (FSOC) rolled
out a non-binding framework of new rules for the money market
fund industry on Nov. 13 that included capital buffers and a
floating net asset value.
U.S. Securities and Exchange Commission Chairwoman Mary
Schapiro had championed a similar proposal, which failed to
garner enough support from three of her colleagues.
Funds and corporate treasurers have said such changes could
drive investors out of the products and harm companies that use
them for short-term borrowing.
The Investment Company Institute called the FSOC plan deeply
flawed. It had no comment on the Schwab proposal.
Fidelity Investments, the largest manager of money market
funds, said it was examining the FSOC proposal, and would submit
a comment letter to regulators on the plan. It was not prepared
to comment on the Schwab proposal.