[ by Melanie Gretchen ]

Money-market funds may finally get an overhaul, 4 years after the September 2008 collapse of the $62.5 billion Reserve Primary Fund.  A few weeks ago, Republican SEC commissioner Daniel Gallagher said he would likely support a measure forcing the industry to abandon its marquee $1 share price.  If passed, the measure would require money funds to have a fluctuating share price – to the dismay of the mutual-fund industry, led by Boston-based Fidelity Investments and Pittsburgh-based Federated Investors Inc. (FII).

• SEC Chairman Mary Schapiro has argued that the funds’ $1 share price encourages investors to flee at the first sign of trouble. That’s because those who act quickly can sell shares at $1 each even if the net asset value has dropped below that level.
• Mr. Gallagher in an interview said his support of a floating share price was contingent on the SEC "fully understanding and addressing" the tax and accounting issues that could arise.  He said a fluctuating share price may need to be coupled with other protections, such as the freezing redemptions option that he and Republican commissioner Troy Paredes had suggested.
• Setting up a Fed-run lending program for money funds during an emergency would help the largest banks continue to fund their own operations via the short-term credit markets while not protecting the companies and individual investors who rely on money funds as a safe place to park their cash, the commissioner said.

• The industry has maintained that a floating share price would make money funds unworkable for many investors by saddling them with new accounting and tax obligations.  In addition, insurers, municipalities and other large users of money funds are often legally bound to invest assets they account for as cash in funds with a stable share price.
• The Investment Company Institute believes "a thorough SEC analysis of forcing money market funds to float" their share price would conclude that it "is an untenable option," Ianthe Zabel, a spokeswoman for the Washington-based mutual fund trade association, said in e-mail.