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June 25, 2009 at 08:00 PM
The Securities and Exchange Commission is rewriting rules that would make money market funds safer for investors, the New York Times reports. The Commission is proposing that retail funds be required to keep “at least 5 percent of their assets in cash, Treasury securities or assets that could be converted into cash within one day” to protect investors in the event of a run. At least 15 percent of assets should be able to be converted to cash within a week; institutional funds would be held to an even higher standard.
Also among the proposals, the SEC is suggesting that a fund’s board should be allowed to suspend redemptions should the funds value fall below the $1 mark. In this case, the paper reports, the fund would be able to liquidate assets in an “orderly and equitable fashion.”
“It’s a trade-off between safety and return,” Joan Ohlbaum Swirsky, a lawyer with Stradley Ronon Stevens & Young, told the Times, pointing out that if yields go too low, other products will become more attractive and investors will move away from money market funds.
“There is no doubt that these recommendations will come at some sacrifice of yield, but I think the larger issue for our shareholders is in the safety and convenience arena,” counters Paul Schott Stevens, president and chief executive of the Investment Company Institute.
