The Securities and Exchange Commission (SEC) will unveil proposals aimed at stabilizing money-market funds in the event of another financial panic, the Wall Street Journal reported on Tuesday, citing people familiar with the matter.
The SEC looks to minimize any losses for shareholders of the money funds, which invest in short-term debt instruments. At least three of five SEC commissioners would need to approve the proposals to submit them for public comment, the newspaper said.
Under the SEC proposal, funds could boost their capital by injecting more cash from corporate coffers and issue stock or debt securities. The funds could also collect more money from shareholders, the paper said.
Investors wanting to sell all their holdings at once would be able to get only about 95 percent of their money back immediately, with the remaining 5 percent returned to them after 30 days, the paper said.
The SEC also plans to propose scrapping the fixed $1 net-asset value for money funds and make it floatable like other mutual funds.
However, the industry remains opposed to the idea. The bulk of the SEC's energies are devoted to developing a workable capital buffer, people told the paper.
Money-market funds are expected to preserve capital at all costs and investors consider the $1-a-share value sacrosanct. The funds are allowed to value their holdings at maturity — unlike others which mark-to-market — and to ignore small fluctuations in the value of their assets to maintain stability.
U.S. regulators have been working on ways to make money funds safer since the net asset value of Reserve Primary Fund, the oldest such fund, fell below the $1 mark in the wake of Lehman's collapse in 2008.
Officials at the SEC could not immediately be reached for comment by Reuters outside regular U.S. business hours.
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