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 Proponents have suggested that moving from the current stable $1 per
share net asset value (NAV) to a floating NAV would help prevent
investors from getting spooked by the prospect of funds "breaking
the buck," or falling lower than that amount.
The Securities and Exchange Commission is also likely to finalize a
second provision that will permit fund boards to lower so-called
redemption "gates" or charge fees in stressed market conditions,
according to people familiar with the matter.
The reform will impact a wide variety of asset managers, from
Blackrock Inc, Fidelity and Vanguard to Charles Schwab Corp, Pimco
and Federated Investors Inc.
The two-pronged reform for the $2.6 trillion industry comes after a
long battle between the SEC, the industry and federal banking
regulators.
The industry and the U.S. Chamber of Commerce have warned that any
rules that drastically change the structure of money market funds
could cut off a major supply of short-term funding for corporations.
Wednesday's final rule is expected to carve out exemptions for a
wide swath of money funds.
Funds used by retail investors, for instance, will still be
permitted to maintain a stable $1 per share net asset value because
they are considered less likely than institutional investors to run
on a fund if the market deteriorates.
The U.S. Treasury Department, which has been working to devise a way
to relieve investors in funds with a floating NAV from burdensome
tax rules, is also expected to unveil its plan sometime on
Wednesday, several people familiar with the matter said.
The Financial Stability Oversight Council, a panel of regulators
charged with policing for risks, has been pressuring the SEC to
bolster money market fund regulations since 2012.
In 2008, the Reserve Primary Fund's heavy exposure to Lehman
Brothers led panicked investors to yank out their money, causing the
fund to break the buck when its net asset value fell below $1 per
share.
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The Federal Reserve was ultimately forced to backstop the industry
until the chaos subsided.
Former SEC Chair Mary Schapiro initially pushed two potential plans
for money funds, including either a floating NAV or a capital buffer
requirement.
The majority of the industry and three of the SEC's fellow
commissioners, however, rejected the ideas, saying they could kill
the product and that more study was needed to justify new rules.
After the SEC completed a study and the agency assumed new
leadership, sentiment toward a floating NAV softened.
While some funds and industry groups are still opposed to requiring
a floating NAV, others say they are fine with it as long as it only
applies to prime funds and as long as all of the tax and accounting
issues associated with a floating share price are resolved.
(Reporting by Sarah N. Lynch. Editing by Andre Grenon)
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