SEC proposes radical money markets reform The Securities and Exchange Commission has proposed sweeping changes to the structure of money market funds, setting the stage for a final battle with the asset management industry in a key test of new chairman Mary Jo White. Almost five years after a rush of withdrawals from money market funds helped to freeze bank and corporate funding markets during the crisis, and three years after initial partial reforms, the proposals are the culmination of a long push by regulators to reduce risks posed by the $2.9tn money fund industry. IN Markets Regulation Mary Schapiro, former SEC chairman, was unable to secure the support of fellow commissioners last year to even publish proposals and the SEC required the intervention of other regulators to push the reform agenda forward. It has been a journey to get to this point. Commission staff have spent literally years studying different reform alternatives and performing extensive economic analysis in arriving at these recommendations," said Ms White. The SEC has proposed two key reforms as either alternatives, a move welcomed by the industry, or as a combination that would mark a more significant change to the structure of funds. The regulator proposes that so-called "prime funds," the largest part of the industry able to invest in a range of short term debt issued by banks, companies and governments, be forced to let the share price of each fund "float." At present funds maintain a stable price of $1 per share and it was the risk that a fund might "break the buck" and pay back less than $1, which precipitated the rush of withdrawals by institutional investors in 2008. Funds that invest at least 80 per cent of their assets in cash or government debt would be exempt from the change, as would funds designated purely for retail customers, which would be required to restrict withdrawals by any one customer to $1m per day. Commission staff have spent literally years studying different reform alternatives Mary Jo White, chairman, Securities and Exchange Commission The alternative is that prime funds keep the stable $1 share price, but would be required to impose liquidity fees on withdrawals and impose restrictions on withdrawals in times of stress, once certain thresholds covering the type of assets held are crossed. The SEC said it was considering whether to combine both measures "into a single reform package," and requested feedback as part of a 90 day public comment period. The Investment Company Institute, a trade group, commended the research undertaken by the SEC and the inclusion of liquidity fees and withdrawal restrictions. "We also welcome the inclusion of fees and gates as a standalone option in the proposal,," the ICI said. The largest money fund sponsors, Fidelity and JPMorgan, declined to comment pending a detailed consideration of the proposals. The Treasury praised the SEC "for continuing the work to address remaining vulnerabilities to our financial system presented by money market funds." The SEC also proposed more regular and detailed disclosure by funds, faster publication of fund holdings and extending reporting requirements to private "liquidity fund advisers" managing more than $1bn to "better monitor" any movement of funds to more opaque vehicles in response to the reforms.