U.S. Securities and Exchange Commission Chairman Mary Schapiro is weighing whether to allow money-market mutual funds to charge a fee on customers who take out money from the firms during a liquidity crisis, according to a person familiar with the discussions.
Such a measure, which HSBC Holdings PLC (HSBA) has advanced in recent months, could replace other ideas Schapiro has proposed and the industry has fought, including one that would prevent money fund customers from completely withdrawing their money for 30 days.
SEC staff hasn’t finalized any of the proposed measures, including how much the liquidity fee might cost and the circumstances in which it might be proposed, said the person, who declined to be identified because the deliberations aren’t public.
John Nester, an agency spokesman, declined to comment.
Once considered among the safest investments, money market funds have been a focus of regulators including Federal Reserve Chairman Ben S. Bernanke since the September 2008 collapse of the $62.5 billion Reserve Primary Fund, which triggered a broader run in global financial markets. The withdrawal fee could blunt a lobbying campaign backed by the U.S. Chamber of Commerce and internal divisions at the SEC that have blocked Schapiro from acting.
Other proposals that money-market funds are fighting are still under consideration. For instance, the SEC could require money-market funds to float their net asset value in addition to holding more capital and imposing the liquidity fee, the person said.
In its initial response to the Reserve Primary Fund’s collapse, the SEC adopted rules that imposed liquidity minimums on money-market funds along with average maturity limits and new disclosure requirements.
The Wall Street Journal reported today that money market firms are considering the liquidity fee option after discussing it with SEC officials on May 8 in Washington.
Schapiro has struggled to overcome internal division over new rules for money market funds. The two Republicans on the five-member commission, Troy Paredes and Daniel Gallagher, are opposed to new rules and Luis Aguilar, a Democrat, is uncommitted and seen as the swing vote in the debate.
Schapiro has also faced an intense lobbying campaign from the industry. The Chamber of Commerce bought all of the advertising space in a subway station near the SEC’s Washington headquarters to argue against new rules.
House Financial Services Committee Chairman Spencer Bachus and Representative Jeb Hensarling, a Texas Republican, wrote a letter to Schapiro questioning why she is devoting time to the proposal when the SEC has missed multiple deadlines in the implementation of the 2010 Dodd-Frank regulatory overhaul.
“I’ve been the subject of lots of vitriol about even raising this issue,” Schapiro told lawmakers during a hearing on April 25.
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