[ by Howard Haykin ] When major money market sponsors met with SEC Chairman Mary Schapiro last month, they expressed a willingness to consider a compromise on a key issue that had been delaying a new regulatory plan for the $2.6 trillion money-market mutual-fund industry. That key issue relates to an SEC plan to limit how quickly investors can withdraw their money - and the fund groups said they'd consider supporting a watered-down version.  Officials from fund giants BlackRock Inc., Vanguard Group Inc., JP Morgan Chase & Co.  and Invesco Ltd. were in attendance at the meeting. The SEC, which called the meeting, was receptive to the idea.  Now, if the two sides can come together, it would represent a major turning point in SEC Chairman Mary Schapiro's long-running campaign to beef up regulation of money funds. Another meeting is scheduled in June.  The talks still could fall apart. SEC Proposal vs. Companies' Counter-Proposal. At issue is Ms. Schapiro's plan to allow investors to redeem only 95% to 97% of their holdings at once, with the rest payable after 30 days.  The fund industry has resisted the 30-day rule, saying it would effectively kill their businesses because investors will go elsewhere if they don't have immediate access to their money. The companies would prefer a weaker measure - i.e., rather than lock up a portion of investors' money for 30 days, the companies would charge investors a fee to withdraw money during a "liquidity event," such as the 2008 financial crisis, according to people familiar with the matter.  The details, including what would constitute a liquidity event, haven't been settled, according to these people. The fund groups pitched the SEC on the idea late last year, but the SEC resisted, according to people familiar with the matter.  European money funds take a similar approach, calling it a "dilution levy." Yet, SEC Chairman Mary Schapiro has been pushing for further oversight of the money-fund industry ever since the giant institutional money fund, the Reserve Primary Fund, "broke the buck."  An investor panic ensued and the government had to intercede and provide guarantees. Yet, Ms. Schapiro is a practical politician who understands that she has been negotiating while holding a "rather weak hand."  She's had trouble lining up support among her 5 Commissioners - which is what ultimately led to Ms. Schapiro becoming more willing to negotiate, according to a person familiar with the matter. An End to Fixed $1 NAV. Mary Schapiro also would like to end the "break the buck" issue, by proposing to have funds adopt "floating" net asset values rather than stick to the fixed $1-per-share NAV the funds seek to maintain.  The SEC move is designed to show investors the true value of the funds at any given time. A third idea, designed in tandem with the 30-day rule, would force firms to keep more money on hand to protect against a run on money funds. Fund companies generally remain opposed to those ideas. SEC Approval. Eventually, Ms. Schapiro's plan will need 3 votes to pass, but three commission members issued a rare joint statement earlier this month in opposition to a report highlighting the need for additional money-market fund reforms.  The statement said that the report issued by the International Organization of Securities Commissions "cannot be considered to represent the views" of the full SEC. Reforms pushed through in 2010 restricted the securities money funds could hold.  Ms. Schapiro, however, still believes money-market funds are at risk of suffering large outflows if securities they own suddenly deteriorate in value and has sought additional reforms. The industry has opposed further regulation, and lobbied the SEC and politicians to reject the floating NAV and the withdrawal-holdback plan in particular. Government and industry officials are exploring other ways to bridge their differences, according to people familiar with the matter. A spokesman for Vanguard declined to comment. A spokesman for Invesco said any further regulation would "have harmful unintended consequences." A spokesman for BlackRock said the company "is committed to maintaining an open dialogue to help find a solution that protects investors, preserves money-market funds, and addresses the concerns of regulators." A JPMorgan executive said the firm was "very supportive" of previous reforms but hopes that "any further reform would be preceded by a thorough analysis of the short-term markets." Top Fed and Treasury Department officials have urged the SEC not to back down, warning that money funds remain a major risk to the financial system, particularly through exposures to European assets.   [WSJournal, 5/25/12]