By Tim McLaughlin
BOSTON, Feb 14 (Reuters) - Fidelity Investments, the largest
U.S. money market fund provider, said on Thursday redemption
fees on stressed institutional prime funds could be a way to
avert the kind of scare that roiled the industry during the 2008
If regulators proceed with reforms, they should limit them
to prime money funds purchased by large institutions, Fidelity
said in a letter to the Financial Stability Oversight Council.
Fidelity and other money fund providers have been fighting
reform on all fronts, but now they are making concessions as a
way to contain any new regulation.
"The concerns that the FSOC has identified regarding
susceptibility to runs do not apply to all types of (money
market funds) and, therefore, there is no justification for
further reforms to Treasury, government, tax exempt, or retail
prime (money market funds)," Fidelity said.
Boston-based Fidelity had $430 billion in money market fund
assets under management at the end of 2012. That was 16 percent
of the money fund assets in the $2.6 trillion U.S. industry and
more than 9 percent worldwide.
The FSOC is led by the U.S. Treasury Department and includes
officials from the Securities and Exchange Commission and the
Officials from all three bodies have been pushing for
further reforms because, as major debt holders, money funds play
a key role in the financial system. The industry's problems
threatened to freeze up global markets during the 2008 financial
The biggest scare came when investors rushed to pull cash
from the well-known Reserve Primary Fund in the fall of 2008
because of its heavy holdings in the collapsed Lehman Brothers.
The fund was unable to maintain its $1 per share value, known as
"breaking the buck." Support from other fund companies kept at
least 21 prime funds from a similar fate, a later Fed study
Fidelity said regulators could impose redemption fees on
prime institutional funds during times of market stress.
Imposing a redemption fee on redeeming shareholders would
"compensate (money market funds) and the remaining investors for
the potential cost of withdrawing this liquidity from the fund,
Fidelity said in its letter.
Another option would be for the SEC to modify its rules to
require institutional prime money market funds to maintain a 50
percent minimum allocation to government securities, which would
reduce risk, Fidelity said.
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