| WASHINGTON, June 5
WASHINGTON, June 5 A slice of the $2.6 trillion
money market fund industry would be required to fundamentally
change how they price their shares in an effort to reduce the
risk of runs, under a major proposal unveiled on Wednesday by
U.S. securities regulators.
The Securities and Exchange Commission's lengthy plan comes
after more than a year of infighting at the agency over how to
craft new rules for the industry.
The rules are in response to the events of 2008, when the
Reserve Primary Fund, one of the largest money funds, suffered
losses on Lehman Brothers debt and could not maintain its $1 per
share price, known as "breaking the buck."
That ignited a run by investors across the money fund
industry, cutting off a major source of overnight funding for
many corporations. The run did not abate until the government
stepped in to back the funds.
The SEC's new plan calls for two alternative proposals that
it said could be adopted alone or in combination.
The first piece would require prime funds used by
institutional investors to transition from a stable, $1 per
share, to a floating net asset value - a change designed reduce
the risk of runs like the ones during the 2008 financial crisis.
To price the shares, the funds would be required to "basis
point round" their share price to the nearest 1/100th of one
percent. That is a departure from the current practice of "penny
rounding" their share price to the nearest one percent.
The SEC said that retail and government funds, which are not
considered to be at the same risk for runs, would not be forced
to move to a floating net asset value.
Crane Data estimates that prime funds account for 55 percent
of money market fund assets, with 31 percent institutional and
24 percent retail.
The second alternative in Wednesday's proposal would allow
funds to maintain a stable share price, but they could utilize
so-called "liquidity fees and redemption gates" during times of
The SEC said a 2 percent liquidity fee on redemptions could
be imposed if a fund's level of weekly liquid assets fell below
If the fund crossed this threshold, its board of directors
would be allowed to impose the gates, or a temporary suspension