The Securities and Exchange Commission is nearing completion of much-anticipated rules that are intended to protect some money market funds from investor runs similar to those that threatened to freeze corporate lending during the 2008 financial crisis, The Wall Street Journal reports.
The two-part plan—which a person familiar with the matter told Bloomberg is likely to be voted on by the five-member commission on July 23—would require prime institutional funds, which invest in short term corporate debt, to float their share price instead of keeping it fixed at $1. It would require funds to impose a 1 percent fee on redemptions and allow them to temporarily suspend withdrawals during times of market stress, Bloomberg reports.
The SEC has been under pressure from U.S. and global regulators to complete the rules, which are aimed at making the $2.6 trillion money-fund industry less prone to investor runs. Although the SEC brought in significant changes in 2010 aimed at making the industry more resilient—including tightening the rules on the kinds of securities that funds could hold—critics argue that structural issues remain unresolved, The Wall Street Journal reports.
The floating share prices would only apply to prime institutional funds, which make up around 37 percent of the industry, meaning that mom-and-pop retail investors are likely to remain unaffected, according to the Journal.
The rules are expected to pass the Commission with majority support, but the vote may not be unanimous. Both Commissioner Kara Stein, a Democrat, and Commissioner Michael Piwowar, a Republican, have voiced concerns about aspects of the proposal.
In a speech last month, Stein said that redemption limits may exacerbate the risk of investor runs by causing pre-emptive redemptions before the measures are implemented, and Piwowar has raised questions about whether the combination of the two rules would make money market funds unattractive to investors.