Money Market Managers Seek to Limit Regulation So as Not to Disrupt Short Term Paper Markets

“Three of the five largest U.S. money-market fund managers, signaling they can’t stop a second attempt by regulators to overhaul rules for the $2.7 trillion industry, are fighting instead to limit the scope of any changes.

Fidelity Investments, Vanguard Group Inc. and Charles Schwab Corp. (SCHW) are urging regulators to exempt retail-oriented funds and focus on those that cater to institutional clients and buy corporate debt, a category that absorbed the bulk of an investor run in 2008. Known as prime institutional funds, they hold $987 billion, or 37 percent of U.S. money-market mutual- fund assets, according to research firm iMoneyNet……..

Fidelity last week drew regulators’ attention to data showing funds that cater to small investors, and those that invest solely in municipal or U.S. government-backed debt, were more stable than institutional prime funds. In the four weeks after the bankruptcy of Lehman Brothers Holdings Inc., retail funds had $41 billion in withdrawals compared with $453 billion from institutional funds, according to the letter.

“If, based on findings from its study, the SEC determines that further reform is necessary, then such reform should be narrowly tailored, so as to minimize disruption to short-term markets and lessen adverse impacts on long-term economic activity,” Fidelity, the largest U.S. money fund manager, wrote in a Jan. 24 letter to the SEC….”

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