June 23, 2009 / 6:19 PM / 10 years ago

UPDATE 2-SEC eyes stricter rules for money market funds

 * SEC mulls more disclosures for money mkt funds -source
 * SEC to seek comment if floating NAV needed - source
 * Agency eyes how to improve fund liquidity -source
 (Recasts, adds second source, details on liquidity,
redemptions suspensions)
 By Rachelle Younglai and Ross Kerber
 WASHINGTON/BOSTON, June 23 (Reuters) - U.S. securities
regulators are considering steps to boost money market funds'
liquidity and protect investors after last year's sudden losses
in industry pioneer Reserve Primary Fund, two sources familiar
with the agency's thinking said on Tuesday.
 Money market funds were long considered as safe as cash
until the collapse of Lehman Brothers Holdings pushed the value
of Reserve Fund below $1 a share, triggering a government
program to backstop the $3.67 trillion market.
 The Securities and Exchange Commission, which meets on
Wednesday, may require more disclosure about money funds'
assets as well as streamlining the process by which a fund's
parent company can buy its distressed assets, the sources
 The sources requested anonymity because the proposal was
being crafted and could change before Wednesday's meeting. Any
proposal needs approval from a majority of the five SEC
commissioners for it to move forward.
 The SEC is considering shortening the average maturity of
debt that money market funds can hold. That would boost the
funds' liquidity and help ensure investors are able to get
their money out of a fund, if desired.
 The idea of cutting the so-called weighted average maturity
limit from its average 90 days is widely supported by the
powerful mutual fund lobby, the Investment Company Institute.
The ICI, which represents industry heavyweights like Fidelity
Investments and Vanguard Group, has recommended cutting the
average maturity on debt they can hold to 75 days.
 The SEC may consider shortening the average to 60 days, one
of the sources said.
 Another step to improve liquidity would include requiring
funds to hold a minimum of 5 percent in highly liquid assets
such as cash or cash equivalents, one of the sources said. A
retail money market fund could be required to hold a minimum of
5 percent, while an institutional fund could face a minimum of
10 percent in cash or cash equivalents, the source said.
 The SEC may also propose that fund boards be allowed to
suspend redemptions in extraordinary circumstances, one of the
sources said.
 Some of the SEC ideas under consideration are aligned with
what the Obama administration has proposed to reduce the
susceptibility of money market fund runs. It wants the SEC to
consider requiring the funds to maintain liquidity buffers and
reduce the maximum weighted average maturity, among other
 The SEC is expected to issue a concept release on whether
it should consider a floating net asset value instead of the
current $1 NAV, or the level the fund needs to maintain in
order to pay back its customers if they want to redeem their
shares, the sources said.
 A floating NAV, which could reflect actual assets held,
could drive investors out of money market funds and into other
financial products that protect the principal amount.
 An SEC spokesman had no comment.
 * Consumers need financial watchdog-senator [ID:nN2381243]
 * TAKE A LOOK-Changes in financial regulation [ID:nFINREG]
 * Washington regulatory news       [WASH-REG-BNK-LEN-RTRS)
 (Reporting by Rachelle Younglai and Ross Kerber, editing by
Leslie Gevirtz and Matthew Lewis)

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