The U.S. Securities and Exchange Commission will soon propose revamping money market fund practices, pushing the options of a floating net asset value or capital buffers, SEC Chairman Mary Schapiro said today.
“Money market funds, while perhaps not the cause of the downward spiral of events, certainly exacerbated the financial breakdown,” Schapiro said in remarks prepared for a Securities Industry and Financial Markets Association conference in New York. The SEC is pursuing “further structural reform” in the $2.6 trillion industry, she said.
Departing from the stable $1 share price for such funds would require “dramatic” industry changes, Schapiro said. A capital buffer “could mitigate the incentive for investors to run since there would be dedicated resources to address any losses,” she said.
The failure of the $62.5 billion Reserve Primary Fund, which “broke the buck” when Lehman Brothers Holdings Inc. debt dragged it down to 97 cents per share, started a run on the industry in September 2008, at the height of the financial crisis. The run on funds was halted by government intervention and guarantees, and the SEC has since been looking into how to make the industry safer.
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