[ by Howard Haykin ]

Report coming out of the SEC say that the Agency has internally released the draft version of a new money market fund rule.  Staff at the SEC are circulating this long-awaited draft that promises to impose new reforms on the $2.6 trillion money market fund industry, people familiar with the matter told Reuters.

If that's true, and the draft proposal appears "to have teeth," then former SEC Chairman Mary Schapiro must be in an elated mood.  Ms. Schapiro, a lifelong regulator, spent all of her political capital trying to push through money market reform.  When she failed to get the support of her commissioners, she became a lame duck official - and had no choice but to step down in December 2012. 

Details on the exact contents of the roughly 500-page proposal could not be immediately obtained.

Attendant Issues.   SEC staff generally have been considering whether or not to target only prime funds, which are seen as more risky and more likely to experience runs. One such prime fund - the Reserve Primary Fund - spooked investors in 2008, forcing a panic and a run on the fund, after it was announced that the funds "broke the buck" following the collapse of Lehman Brothers.  Lehman securities in the The Reserve Primary Fund's portfolio immediately became worthless - at least on a temporary basis. 

There is widespread expectation that the the draft will address, in some form or another, whether to require only certain target prime funds to float their NAV, or "net asset value," an idea that previously had been suggested by major money fund players, including Charles Schwab, in an effort to strike a compromise.

Yet, when Mary Schapiro sat atop the the SEC, she pushed for tougher measures, including capital buffers and redemption holdbacks.  A more dramatic notion from Mary Schapiro was the idea of adopting a floating net asset value on an industry-wide basis - in place of the existing sacrosanct $1.00 a share price that currently is standard.

Draft Delivered Shortly After Chairperson White Addressed the ICI.   The lengthy money fund draft arrived in SEC officials' in-boxes on Friday afternoon, just hours after new SEC Chair Mary Jo White publicly addressed the fund industry's largest trade association, the Investment Company Institute.  In that speech, Ms. White was coy about what the proposal will contain and its timing, saying only it would be balanced and unveiled in the "near future."

The draft rule is tentatively scheduled for a 30-day review period. However, draft rules are often penciled in for a one-month review period and frequently get extended so commissioners can get more time to consider them.  [ Reuters, 5/8/13 ]