Money Fund Firms, Clients Sour on SEC Proposals

Money Fund Firms, Clients Sour on SEC Proposals

Fund management firms voiced sharp objections Tuesday to proposals that would tighten regulations on money market funds in an effort to make them more safe.

That outcry comes in response to several proposals the U.S. Securities and Exchange Commission is considering that would significantly alter the $2.6 trillion money-market fund industry.

One proposal would allow the value of the funds to float, rather than being fixed at $1 per share as it is now. Another would require investors to stagger withdrawals. They could get 97 percent out at once and the remainder after 30 days.

A formal SEC proposal could come within a month, according to mutual fund industry executives.

"It definitely has the potential to completely change the economics of the money market fund industry," said Tom Bradley, president of TD Ameritrade Institutional. He added companies would fight rules changes. "This will not happen without a battle," he said.

Shares of some major fund companies fell Tuesday in response to news of the potential changes, including Federated Investors Inc and Charles Schwab Corp

Fidelity Investments, the nation's largest money-market fund manager, has warned regulators that more than half of its money-fund clients would move some or all of their assets out of the investments if the net asset value of the funds were allowed to fluctuate.

Fidelity said a poll of customers found 52 percent of retail investors surveyed would invest less, or stop investing altogether, in money market funds if there were a waiting period on part of their redemptions. Results did not change significantly when the holdback scenario was dropped to 1 percent of redemptions, Fidelity said. Read more.