SEC readies new rules for money funds
The Securities and Exchange Commission (SEC) may soon roll out new regulations for money market mutual funds, at least those used by institutional investors. The rules would abolish the constant $1-a-share price for money funds and put limits on the amount investors could withdraw in times of stress, according to the Wall Street Journal.
Money funds were one of the biggest problems during the 2007 financial collapse in the wake of the failure of Lehman Brothers. One fund, the Reserve Fund, saw its share price fall below $1 – “breaking a buck,” in mutual fund parlance. The subsequent run on money funds led to collapse of the commercial paper market – short-term IOUs vital to many companies’ daily functioning. Eventually, the government had to backstop both money funds and the commercial paper market.
Proposals to require a floating share price have been vehemently opposed by the fund industry, which says that abandoning the constant $1 share price could lead to massive outflows from the funds, and undermine the public’s faith in the $2.6 trillion industry. Many investors use money funds as a checking account or as a parking space for their money between investments.
Funds have been required to publish their “shadow NAV” – that is, their share price without the $1-a-share accounting convention – since 2012. You can find a fund’s shadow NAV at the SEC’s website. Since the financial meltdown, funds have also been required to conform to stricter investment rules that would, in theory, enable them to meet redemptions more quickly.
Source: Usatoday
