Today's Wall Street Journal features an article entitled, "Money Funds Open to a Deal With SEC," which says, "Major firms are willing to consider a compromise on a key issue delaying a new regulatory plan for the $2.6 trillion money-market mutual-fund industry. The firms said in a May 8 meeting in Washington that they would consider supporting a watered-down version of a plan floated by the Securities and Exchange Commission to limit how quickly investors can withdraw their money, according to people familiar with the matter."
The Journal explains, "The SEC, which called the meeting, was receptive to the idea. If the two sides can come together, it would represent a major turning point in SEC Chairman Mary Schapiro's long-running campaign to beef up regulation of money funds. Officials from fund giants BlackRock Inc., Vanguard Group Inc., J.P. Morgan Chase & Co. and Invesco Ltd. attended the meeting. Another meeting is scheduled in June. The talks still could fall apart."
They write, "At issue is Ms. Schapiro's plan to allow investors to redeem only 95% to 97% of their holdings at once, with the rest payable after 30 days. The fund industry has resisted the 30-day rule, saying it would effectively kill their businesses because investors will go elsewhere if they don't have immediate access to their money. The companies support a weaker measure: Rather than lock up a portion of investors' money for 30 days, the companies would charge investors a fee to withdraw money during a "liquidity event," such as the 2008 financial crisis, according to people familiar with the matter. The details, including what would constitute a liquidity event, haven't been settled, according to these people. European money funds take a similar approach, calling it a "dilution levy.""
The Journal's Kirsten Grind and Andrew Ackerman tell us, "Money funds pitched the SEC on the idea late last year, but the agency resisted, according to people familiar with the matter. But Ms. Schapiro has had trouble lining up support among the five-member commission for her plan, and now is more willing to negotiate, according to a person familiar with the matter."
The article mentions a floating NAV option again, and adds, "A third idea, designed in tandem with the 30-day rule, would force firms to keep more money on hand to protect against a run on money funds."
For more on the concept of a "redemption charge," see HSBC's Feb. 28, 2011, `Comment Letter to the President's Working Group from John Flint, Chief Executive of HSBC Global Asset Management.
