Reuters: Regulatory News: UPDATE 3-BlackRock, others in talks on money market compromise

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UPDATE 3-BlackRock, others in talks on money market compromise Oct 27th 2012, 01:22 Fri Oct 26, 2012 9:22pm EDT * About 10 money fund firms meet regulators over reform * BlackRock, Fidelity, Vanguard among attendees * Federated CEO says "constructive dialogue continues" By Jessica Toonkel and Ross Kerber NEW YORK/BOSTON, Oct 26 (Reuters) - Officials from BlackRock Inc, Fidelity Investments and other mutual fund operators met Friday with U.S. regulators to discuss a potential compromise for reform of the $2.5 trillion money market industry. BlackRock, the world's largest money manager, and Fidelity, the largest manager of money market funds, had opposed a prior proposal from U.S. Securities and Exchange Commission Chairman Mary Schapiro aimed at making the funds more stable in times of financial crisis. But renewed pressure from regulators since Schapiro's plan died in August have stimulated another effort to find a compromise. The meetings with officials from the SEC and the U.S. Treasury Department were to discuss what they see as an "industry supported solution," BlackRock Chief Executive Laurence Fink said Friday in an interview on CNBC. Regulators are concerned that fund investors may grow panicky during a crisis, sparking a run of withdrawals from the industry and freezing a significant source of lending across the economy, as happened in 2008. The industry proposal appeared to focus on giving funds the ability to discourage withdrawals during times of crisis. Recently, BlackRock publicly proposed a plan to charge investors an extra fee to withdraw money when a fund was under stress, discouraging hasty departures. The fee would go back into the fund, encouraging others to stay put. Schapiro's earlier efforts offered the industry two options: funds could abandon their fixed $1 per share net asset value and offer floating share prices, like most other types of mutual funds, or the funds would have to maintain capital against losses while forbidding full withdrawals by customers during a crisis. The new industry plan does not include a floating share price or capital buffers, according to a person involved in the process who spoke on condition of anonymity because the talks are still private. COSTLY FIGHT The industry considered the earlier proposals too expensive and likely to drive away investors, money fund analyst Peter Crane, who runs the cranedata.com website, said. Still, companies would rather settle the dispute than have the debate drag on and annoy fund investors. "It's like settling a lawsuit," he said. "You're probably going to win, but it's going to be a costly fight." Representatives from most of the 10 largest money fund managers attended the talks on Friday, reflecting a broader group of top firms than in similar meetings held in May, the person involved in the process said. In May, BlackRock, Vanguard Group and others sought a compromise, but Fidelity did not participate in those efforts. Vanguard also attended Friday's talks. "Vanguard has been very engaged in the industry's discussions regarding additional money fund reform," spokesman John Woerth said. The fund industry's primary trade group in Washington, the Investment Company Institute, said current talks should expand on reforms the SEC passed in 2010, with industry backing, that tightened credit standards for fund investments. "ICI and the fund industry are engaging directly with the Securities and Exchange Commission in a united effort to constructively build on the success of the 2010 reforms," the ICI said in a statement. Fidelity spokesman Vin Loporchio confirmed that Fidelity representatives were attending Friday's talks. He declined to comment on details of the meetings. "Representatives of the ICI and the fund industry today made a presentation to the Chairman and the staff of the SEC," SEC spokesman John Nester said in an email. "While there were many questions asked, neither the Chairman nor the staff gave any indication of their views on the presentation." Calls to the Treasury Department were not immediately returned. A spokeswoman for JPMorgan Chase, the second-largest U.S. money fund manager, declined to comment. CONSTRUCTIVE DIALOGUE Regulators started looking at money market funds in September 2008 after the Reserve Primary Fund, one of the largest money funds at the time, suffered losses on Lehman Brothers debt and could not maintain its $1 per share net asset value, an event known as "breaking the buck." The event ignited a run of withdrawals from investors across the industry, forcing the government to step in and back the funds. In August, the Financial Stability Oversight Council, the federal multi-agency regulator established by the Dodd-Frank reform act to oversee financial risk, took up money market reform after Schapiro said she did not have enough backing from her fellow SEC commissioners to advance her proposed reforms. A letter from Treasury Secretary Tim Geithner last month offering potential reforms stimulated further talks, according to Christopher Donahue, chief executive of Federated Investors , the third-largest manager of U.S. money funds. "Constructive dialogue continues," he said on Friday on a call with analysts. The company declined to comment on whether it attended Friday's meeting. Several money market fund providers said they were unhappy that news of the meeting was made public. The leak was "counterproductive" to the negotiations, according to one executive at a money market fund firm who requested anonymity because of the sensitivity of the discussions. Under its recent public proposal, BlackRock said money market funds, which typically have 30 percent of their holdings in assets that can be converted to cash within five days, would be frozen if liquidity fell to 7.5 percent. At that time, investors wanting to pull money out of the funds would have to pay a fee that would go back into the fund, according to a September paper published by BlackRock outlining the proposal. News of the meeting was first reported by Bloomberg. Link this Share this Digg this Email Reprints

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