| WASHINGTON, July 23
WASHINGTON, July 23 U.S. regulators are expected
to adopt rules on Wednesday that force "prime" money market
funds used by large institutions to float their share price.
Proponents have suggested that moving from the current
stable $1 per share net asset value (NAV) to a floating NAV
would help prevent investors from getting spooked by the
prospect of funds "breaking the buck," or falling lower than
The Securities and Exchange Commission is also likely to
finalize a second provision that will permit fund boards to
lower so-called redemption "gates" or charge fees in stressed
market conditions, according to people familiar with the matter.
The reform will impact a wide variety of asset managers,
from Blackrock Inc, Fidelity and Vanguard to Charles
Schwab Corp, Pimco and Federated Investors Inc.
The two-pronged reform for the $2.6 trillion industry comes
after a long battle between the SEC, the industry and federal
The industry and the U.S. Chamber of Commerce have warned
that any rules that drastically change the structure of money
market funds could cut off a major supply of short-term funding
Wednesday's final rule is expected to carve out exemptions
for a wide swath of money funds.
Funds used by retail investors, for instance, will still be
permitted to maintain a stable $1 per share net asset value
because they are considered less likely than institutional
investors to run on a fund if the market deteriorates.
The U.S. Treasury Department, which has been working to
devise a way to relieve investors in funds with a floating NAV
from burdensome tax rules, is also expected to unveil its plan
sometime on Wednesday, several people familiar with the matter
The Financial Stability Oversight Council, a panel of
regulators charged with policing for risks, has been pressuring
the SEC to bolster money market fund regulations since 2012.
In 2008, the Reserve Primary Fund's heavy exposure to Lehman
Brothers led panicked investors to yank out their money, causing
the fund to break the buck when its net asset value fell below
$1 per share.
The Federal Reserve was ultimately forced to backstop the
industry until the chaos subsided.
Former SEC Chair Mary Schapiro initially pushed two
potential plans for money funds, including either a floating NAV
or a capital buffer requirement.
The majority of the industry and three of the SEC's fellow
commissioners, however, rejected the ideas, saying they could
kill the product and that more study was needed to justify new
After the SEC completed a study and the agency assumed new
leadership, sentiment toward a floating NAV softened.
While some funds and industry groups are still opposed to
requiring a floating NAV, others say they are fine with it as
long as it only applies to prime funds and as long as all of the
tax and accounting issues associated with a floating share price
(Reporting by Sarah N. Lynch. Editing by Andre Grenon)