The Wall Street Journal wrote Wednesday in an article entitled, "SEC-Money Fund Showdown: Aug. 29," "After months of wrangling in Washington, U.S. regulators are planning to vote later this month on a proposal to tighten rules governing the $2.6 trillion money-market mutual-fund industry. Securities and Exchange Commission Chairman Mary Schapiro has waged a public campaign this year to rein in money funds. Her goal: to avoid a repeat of 2008, when a run on one fund threatened to destabilize the financial system. But the proposal has faced stiff opposition from the mutual-fund industry, which argues that the rules effectively would kill their businesses."
The Journal says, "The SEC has set a public vote for Aug. 29 in an effort to force all five commissioners to take a public position, according to SEC officials. The 337-page proposal would require money funds to allow their net-asset values to float instead of remaining fixed at $1 per share, or set aside capital to protect against losses while holding back a portion of shareholders' cash for 30 days when they seek to withdraw all of their money. SEC officials have said the capital buffers would be less than 1% of a fund's assets, but could vary depending on the types of investments held by a fund."
The piece explains, "Ms. Schapiro's proposal has been months in the making. It was initially anticipated to be released in early spring, but was pushed back when she failed to win majority support among the commissioners.... Industry representatives had been willing to support a rule that would charge investors in money-market funds a fee to withdraw money during a "liquidity event" such as the 2008 financial crisis. But the talks fell apart."
The Journal adds, "One stumbling block has been Ms. Schapiro's insistence on including a stipulation that investors be able to redeem only 95% to 97% of their holdings at once, with the rest payable after 30 days, in order to prevent a stampede, SEC and industry officials said. Another sticking point has been the floating-net-asset-value idea. Money funds peg their net asset value to $1 and seek to maintain it every day, but during choppy markets the net asset value can fall slightly below $1. A floating net asset value would give investors a truer picture of a fund's value at any given time. The industry says such a provision could lead to more volatility."
Finally, they write, "SEC officials said the Aug. 29 date could be delayed as Ms. Schapiro works to gain support. While the SEC announced last week that Robert Plaze, the lead agency staffer working on the proposal, plans to retire at the end of August, Mr. Plaze said he would remain at the commission until a vote is held. If a majority of commissioners support the proposals, the changes would be subject to a round of public comments. The agency then would have to vote again, likely next year, to implement any changes."
