Dousing a Potential Fire with Yet More Rules. More than 3 years ago, on 9/16/08, following the collapse of Lehman Brothers, Chicago-based Reserve Primary Fund lowered its share price below $1 - "breaking the buck" - because of its larges exposure to Lehman Brothers short-term debt.  This, in turn, triggered a panic among investors who began fleeing that fund and others.  The Federal Reserve intervened, muffling investor concern. SEC Objective. The $2.7 trillion money market fund industry, in the eyes of the SEC and other government agencies, is still a giant 'powder keg' that has not been stabilized.  In the coming weeks, the SEC will introduce a 2-part plan to stabilize money market funds.  The SEC's primary aim (no pun intended) is to minimize any losses for shareholders in the event of another financial panic.  Investors for months have been alarmed by the possible impact of a bond default by the Greek government;  more recently, concern has shifted to other European nations. And to think, SEC ratification requires the votes of only 3 SEC commissioners.  Not as easy as one might think.  Yet, 3 out of 5 SEC commissioners have expressed reluctance to support additional reforms for money-market funds.  Those commissioners haven't yet had a chance to carefully look at the staff's approach. Growing Opposition. The plan faces intensive opposition.  Fund-industry executives say the rules could damp returns for millions of investors, prevent them from getting all their money out during a crisis and reduce confidence instead of bolstering it. Corporations, which look to money-market funds as an important source of credit, are concerned that tighter rules on money fund capital and liquidity could affect the funds' ability to lend to corporations. Financial groups are strongly opposed, which could lead to internal tensions at the SEC, These firms would have to set aside larger capital reserves, using 1 of 3 new methods.  Investors who wish to sell all of their holdings at once would be able to get only about 95% of their money back immediately, with the remaining 5% returned to them after 30 days. Plans to Sue the SEC. Dramatics certainly play a large role in these controversies.  Take, for example, Christopher Donahue, president and CEO of Pittsburgh-based Federated Investors, which manages $256 billion of money-fund assets.  He said he plans to sue the SEC if the new regulation interferes with his firm's ability to do business, adding:  "We're going to do everything in our power to attack it." SEC's Sweeping Changes in 2010 and 2012. The SEC implemented sweeping changes in 2010 designed to make the industry more resilient, including tighter standards on the kinds of securities that funds could hold.  Currently, for 2012, the SEC will propose that funds maintain additional funds - providing enough cash on hand to meet "reasonably foreseeable redemption requests." Funds would have 3 options by which they may boost their capital levels:  (i) by injecting more cash from corporate coffers;  (ii) by issuing stock or debt securities;  or, (iii) by collecting more money from shareholders.  The SEC also would eliminate the traditional requirement (or expectation) that money market funds maintain a fixed $1 net asset value ("NAV").  In its place, NAV would become floatable, like other mutual funds. SEC's Strong Backing. Throughout the debate, SEC Chairman Mary Schapiro has received ongoing support from officials at the Federal Reserve and the Treasury Department.  They concur with Schapiro, who repeatedly has warned that additional reforms are needed, despite hesitation from some SEC commissioners and stiff resistance from the money-fund industry. Industry Opposition. None of that sits well with the fund industry or investors.  Such requirements, experts say, would be onerous for many funds.  They also foresee investors exiting money funds in greater numbers - a trend that began with the 2008 Reserve Primary panic and has remained steady as falling short-term interest rates drive short-term fund returns to next to nothing. Squeezing profits further, these experts say, will leave some funds with no alternative but to collect the capital from shareholders - in the form of upfront fees.  That, of course, could dent returns more, further. The 30-Day Rule (aka, a "liquidity fee"). This last proposal, just as controversial, would require funds to hold a percentage of clients' accounts for 30 days.  This would challenge investors to make trades - because fund balances held in brokerage accounts have always provided liquidity that drives, if not encourages, customers to trade. For further details:   [WSJournal, 2/7/12].