(Updates with Vanguard’s position in fifth paragraph, ICI’s starting in 10th.)
Sept. 17 (Bloomberg) -- Fidelity Investments, the largest U.S. provider of money-market mutual funds, urged regulators to narrow an already scaled-back plan for making the $2.6 trillion industry safer.
A proposal offered by the U.S. Securities and Exchange Commission in June would force funds holding 65 percent of the industry’s assets to adopt a floating share price, not 30 percent as the SEC estimated, Boston-based Fidelity said today in a comment letter filed with the agency. Regulators, who proposed excluding retail funds from the floating share price rule, should narrow how they define retail funds and should exclude funds that focus on municipal debt, the company said.
“The SEC grossly underestimated the industry assets that would be impacted,” the company said in the letter signed by Scott C. Goebel, Fidelity’s general counsel.
The SEC’s proposals are aimed at preventing a recurrence of the run on money funds that helped freeze global credit markets in September 2008. That panic was triggered by the closure of the $62.5 billion Reserve Primary Fund, whose shares fell below $1 on losses from debt issued by Lehman Brothers Holdings Inc., becoming the second fund ever to break the buck. Former SEC Chairman Mary Schapiro had sought to force all money funds to adopt a floating share price or build bank-like reserves. Her plan was blocked by fellow commissioners last year.
Vanguard Group Inc., the fourth-biggest U.S. provider, said today in its own comment letter that it backed the SEC’s plan for a floating net-asset value, or NAV, for institutional funds, with retail funds and those focused on government debt excluded.
Fidelity joined New York-based BlackRock Inc., the world’s biggest asset manager, in urging the SEC to redefine the line between retail and institutional funds by requiring retail shareholders to have a social security number. Commissioners have proposed that retail fund shareholders be allowed a maximum daily withdrawal of $1 million.
Fidelity said a floating share price wouldn’t succeed in discouraging investor runs. The firm said it supported the commission’s second proposal to allow funds to halt redemptions and impose withdrawal fees during times of stress, though not in conjunction with a floating share price. Commissioners have said they may approve either plan or both.
Vanguard, based in Valley Forge, Pennsylvania, became the largest provider to lend its full support to the SEC’s floating NAV plan. San Francisco-based Charles Schwab Corp. also backs the proposal.
Vanguard, like Schwab, Fidelity and BlackRock, said municipal funds should be allowed to retain a fixed share price. It urged commissioners to raise the daily withdrawal limit for retail funds to $3 million.
The Investment Company Institute also filed a comment letter today calling on municipal funds to be exempt from a floating NAV. The fund industry’s trade group backed the idea of restricting retail funds to investors who possess a social security number.
The ICI, based in Washington, urged the SEC not to impose the floating NAV plan in conjunction with withdrawal restrictions.
“Virtually every ICI member tells us, however, that no investor would purchase a floating-value money market fund that was also subject to constraints on liquidity,” ICI President Paul Schott Stevens said in a press release accompanying the group’s letter.
Fidelity manages $427 billion, or about a quarter of its $1.77 trillion in assets under management, in U.S.-registered money funds, according to Crane Data LLC in Westborough, Massachusetts. Vanguard manages about $174 billion in money-fund assets.
--Editors: Josh Friedman, Christian Baumgaertel