(Adds more details throughout about the SEC's money market fund
By Sarah N. Lynch
March 26 U.S. securities regulators are inching
closer to completing new rules for money market funds, though no
final decision on how to proceed has been made just yet,
according to a person familiar with the matter.
The Securities and Exchange Commission staff in charge of
the rulewriting has been meeting with the agency's five
commissioners, circulating some documents that highlight
potential courses of actions and sounding them out to get their
thoughts, the person said.
The SEC is still actively eyeing a plan that would force
prime institutional money market funds to abandon their stable
$1 per-share net asset value and float their share price.
In response to some complaints from the industry, the SEC is
also exploring whether to make some changes from its initial
proposal that could effectively expand the number of money
market funds that would be exempt from a floating net asset
value, the person added.
The SEC has been exploring ways to reform the $2.6 trillion
money market fund industry as a direct response to the financial
In 2008, exposures to Lehman Brothers caused a large prime
institutional fund known as the Reserve Primary Fund to have its
net asset value dip below $1, an event known as "breaking the
Spooked investors rushed to get their money out, and the
U.S. government ultimately stepped in to prop up the money
market fund industry until the panic subsided.
The SEC's proposal, first released last summer, is aimed at
preventing similar runs.
In addition to proposing a floating NAV for prime funds, the
plan also contemplates an alternative which would permit fund
boards to impose liquidity fees and redemption gates during
times of stress.
The SEC could potentially adopt one of the two options alone
or in combination.
The source added that the proposal for gates and fees are
also still on the table as well.
Earlier this week, the SEC released four new economic
analyses on money market funds that it is using to help inform a
final rule and asked the public to submit feedback on the
SEC Republican Commissioner Michael Piwowar said on
Wednesday that he is advocating internally for the SEC to allow
funds to choose which option they prefer.
"My idea is, rather than us choosing for everybody, why
don't we allow for both options to be offered and then investors
can choose which one they want?" Piwowar said on the sidelines
of an SEC event.
"I call it the investor choice model, or the belts or
suspenders model," he added.
It is unclear if his idea could gain traction. A majority of
the five commissioners must agree before a rule can be adopted.
RETAIL EXEMPTION EYED
As part of the SEC's internal discussions, staff is
discussing making changes that would broaden an exemption for
retail money market funds from having to float their share
Retail funds were always supposed to be exempted from the
floating NAV plan because they are considered less at risk for
runs. But many in the industry have said that how the SEC
defined retail is problematic.
In October, nine fund management companies including
Blackrock, Fidelity, Vanguard and Wells Fargo
proposed an alternative definition of retail.
Under the SEC's plan, a fund would be considered retail if
it prohibits a shareholder from redeeming more than $1 million
per business day.
The nine companies have urged the SEC to instead define a
retail fund as one that "limits beneficial ownership interest to
natural persons" such as individuals who are investing in money
funds through individual accounts or retirement accounts.
The Wall Street Journal reported earlier on the SEC's
internal deliberations concerning broadening the retail
(Reporting by Sarah N. Lynch in Washington, D.C.; additional
reporting by Supriya Kurane in Bangalore; Editing by Gopakumar
Warrier and Andrew Hay)