The Securities and Exchange Commission will be proposing new rules for supporting the $2.7 trillion money market mutual fund industry. It has already instituted a number of changes backed by the industry to strengthen the market’s stability. The new rules will be much stricter than the previous ones. For instance, the SEC wants to eliminate the funds’ fixed $1 net asset value and allow the funds to fluctuate the way other mutual funds do. In addition, the SEC wants the funds to increase their capital to guard against losses if the economy takes a turn for the worse.
Paul Schott Stevens, president of the Investment Company Institute, an industry trade group, argues that the regulatory changes will “harm investors, damage financing for businesses and state and local governments, and jeopardize a still-fragile recovery.”
Industry representatives are unhappy because a floating rate could reduce the appeal of investing in a money market mutual fund among investors seeking safety, and more capital would eat into mutual fund returns.
On the other hand, Chris Farrell, economics editor for Marketplace Money, contends, “A money market mutual fund is a reasonable alternative to short-term bond funds and similar investments depending on market conditions. The risks to investors that the SEC is trying to address are real. The goal is to head off a reprise of the 2008 run on the industry that contributed to the worsening global credit crunch. Without these reforms, money market mutual funds can’t be called an ultra-safe parking place for the average middle class saver.”
What do you think? Will stricter regulation help or hurt money market mutual funds?