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July 28, 2011 at 10:12 AM
Money market funds “breaking the buck” rattle markets and scare investors who think of the funds as a cash equivalent and safe haven from volatility. To minimize the impact of this rare event, some in the SEC are pushing for the equivalent of money market “reserve requirements,” according to Bloomberg.
“Money-market mutual funds would be forced to create capital buffers equaling 1% to 3% of assets to protect against losses under a plan now favored by staff at the U.S. Securities and Exchange Commission,” the news service reports.
Citing three people briefed on the regulator’s deliberations, “top SEC officials, seeking to make money funds safer, prefer the plan over another capital buffer idea crafted by Fidelity Investments and calls to eliminate the funds’ stable share. The concept is based on recommendations submitted to the agency in January by university economists known as the Squam Lake Group.”
“Some variant of the Squam Lake proposal would be a significant improvement that would reduce the risk that money market funds pose systemic problems in the future,” Eric Rosengren, president of the Federal Reserve Bank of Boston, told Bloomberg.
