Bloomberg News

Mutual Funds Group Calls Financial Advisers to Money Fund Fight

February 17, 2012

Feb. 16 (Bloomberg) -- Paul Schott Stevens, president of the Investment Company Institute, called on financial advisers to join his trade group in fighting money market mutual fund reforms being drafted by the U.S. Securities and Exchange Commission.

The SEC’s plans “won’t reduce risks or help investors,” Stevens said, according to the draft of a speech he delivered today to an audience of registered investment advisers at a conference in New York organized by Bloomberg Link. “Instead, they will harm investors, business and state and local government, and the economy.”

The mutual funds industry and the U.S. Chamber of Commerce are fighting the SEC proposals, expected to be made public by next month, saying they would destroy the $2.6 trillion money fund business. Regulators have debated how to make the funds more stable since the September 2008 collapse of the $62.5 billion Reserve Primary Fund, which triggered an industrywide run on funds by clients and helped freeze global credit markets.

“They will drive retail investors back to the fixed, low rates paid by banks, institutional investors to less regulated, higher-risk alternatives, and fund companies out of the business,” Stevens said of the proposals.

While Chairman Mary Schapiro “is pleased with the initial reforms the SEC has put in place, she believes we still must address the structural weaknesses that make money market funds susceptible to runs that can create risks for the entire financial system,” John Nester, an agency spokesman, said in an e-mailed statement. “That is why we are continuing to focus on additional reforms.”

Floating Value

The first of two proposals being worked out by the SEC’s staff would force money funds to abandon their traditional $1 share price, adopting a so-called floating net-asset value. Industry executives have fought the idea for at least three years.

The second plan would require funds to build a capital cushion designed to absorb potential losses, and to hold back at least 3 percent of client withdrawals for 30 days.

“The redemption freeze would strike directly at the convenience and liquidity that money market fund investors want,” Stevens said.

He urged investment advisers to speak out against the plans.

Both proposals are likely to receive initial approval from commissioners before a period of public comment. Final passage of either proposal would require approval from at least three of five commissioners.

--Editors: Josh Friedman, Steven Crabill

To contact the reporter on this story: Christopher Condon in Boston at ccondon4@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net -0- Feb/16/2012 16:44 GMT


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