SmartMoney writes "Money-Market Funds: Will Reform Matter?" The article says, "One of the many amendments to the package of financial sector reforms would change the laws for money-market funds by removing a provision that requires these funds to include credit agency ratings of their underlying securities. In theory, the amendment could make money-market funds a riskier investment. They wouldn't include a second opinion that their underlying securities constitute a minimal credit risk. In other words, these funds could invest in riskier securities in an effort to bolster their returns, which have declined this year.... Because money-market funds are among the few financial instruments where rating agency evaluations are required by law, rather than industry practice, the provision, sponsored by Sens. George LeMieux (R., Fla.) and Maria Cantwell (D., Wash.) could hurt the big rating agencies: Moody's, Standard & Poor's and Fitch. However, in practice, even if the amendment makes it into the final version of the law, experts say little will change in the composition of these funds, which are among the least risky -- and least remunerative -- options for investors. The current language requires money-market funds to select securities from the two highest-rated categories of credit risk, as classified by nationally recognized statistical rating organizations, or NSROs." The piece quotes Peter Crane, president of Crane Data, "The ratings are an integral part of the money markets." In other news, see FT's "Cesr bans enhanced money market funds".

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