WASHINGTON - The Securities and Exchange Commission may propose rules as early as next month to boost the credit quality and shorten the maturity of eligible money-market fund investments, chairman Mary Schapiro said yesterday.
Speaking before the Mutual Fund Directors Forum here, Schapiro said that the SEC also may propose rules that would raise funds' capital requirements to ensure that they have enough cash to meet investor redemptions.
Schapiro said the proposals would go further than those favored by the industry, possibly by recommending floating net-asset values for money market funds to better protect investors from potential abuses and runs on the funds. Money market funds currently strive to keep stable asset values, typically of $1 per share.
The SEC rules would follow a report the Investment Company Institute released in March that proposed a number of reforms to bolster the industry in light of a run last September on the Reserve Primary Fund, a taxable money market fund that had exposure to Lehman Brothers' debt and became the first fund to break the buck following Lehman's collapse.
In its report, ICI opposed floating net-asset values, though the idea has gained traction among the Obama administration advisers, including former Federal Reserve chairman Paul Volcker, an economic adviser to President Obama.
"In light of the events of last fall, it is essential that the SEC comprehensively reexamine the money-market fund regulatory regime," Schapiro told those attending the forum. "We should do it with a view toward enabling money market funds to afford investors the relatively safe and liquid investment that they expect from an SEC-registered money market fund. Our staff is closely examining the credit quality, maturity, and liquidity provisions currently applicable to money market funds to consider ways to strengthen their requirements and better protect money market fund investors."
She added: "Our eventual reforms are likely to extend beyond those advocated by the ICI's March report."
"We look forward to continuing to work with the SEC as it considers various proposals on improving money market funds and how to move forward with new rules or regulations," an ICI spokesperson said.
Schapiro also said that the SEC may consider changes to Rule 12b-1, which allows fund advisers to use mutual fund assets to pay for fund marketing and distribution costs. While she said that while 12b-1 fees "deserve and will receive" attention, commission staff will probably not have time to review them until later in the year.
