SEC pitches tightened rules for money-market funds

WASHINGTON -- Federal regulators on Wednesday proposed tightened rules for money-market mutual funds that would require them to hold some assets that could be easily converted to cash and to invest only in the highest quality securities.

The Securities and Exchange Commission action came after a $60 billion money fund "broke the buck," exposing investors to losses that could ultimately reach about 8 cents on the dollar.

The value of the Primary Reserve Fund's assets in September fell to 97 cents per investor dollar -- below the dollar-for-dollar level needed for full repayment.

The SEC voted 5-0, to issue the proposed rule changes for the popular money-market funds, which hold about $3.8 trillion in assets, for public comment. The new rules could be approved sometime after that 60-day period.

The funds are a mainstay of financial management for U.S. families and companies, holding themselves out as safe and easily accessible investments that offer returns exceeding those of conventional savings accounts.

"I believe that the proposal ... will go a long way toward better protecting investors and making money-market funds more resilient to short-term market risks," SEC Chairman Mary Schapiro said before the vote.

Money funds that cater to retail investors would be required to hold at least 5 percent of their assets in cash, Treasury bonds or other instruments that could be sold for cash within a day.

At least 15 percent of the retail funds' assets would have to be convertible to cash within a week. There currently are no such liquidity requirements.

The change would make it easier for investors to redeem their money from the funds amid a rush of demand.

The liquidity requirements for money funds marketed to institutional investors would be stricter, and the maximum maturity of bonds that money funds can invest in would be shortened to 60 days from 90 days.