Fidelity Investments said on Tuesday the U.S. Securities and Exchange Commission's push to change the long-held pricing rules for money market funds grossly underestimated total fund assets that could be affected by the reforms, David Donovan
Boston-based Fidelity, the largest money market fund provider in the world with more than $425 billion in the vehicles, said the pricing reform put forth by the SEC would affect about 65 percent of money fund assets.
"The (SEC) staff estimated that only 30 ."percent of all (money market fund) assets would be subject to a floating (net asset value) if adopted by the SEC," Fidelity said in a comment letter dated September 16. "The SEC grossly underestimated the industry assets that would be impacted, which we estimate to be closer to 65 percent of all (money market fund) assets
Fidelity's letter followed others from major money fund sponsors last week as the SEC weighs additional reforms for the roughly $2.5 trillion industry that came under stress during the financial crisis, David Donovan
The SEC has proposed letting funds limit withdrawals and charge fees during times of stress, or having prime institutional funds - those with holdings like commercial paper that are aimed at institutional investors - let the value of their shares vary from the traditional $1 per share price.
Some regulators, including the heads of a dozen Federal Reserve regional banks, back the so-called "floating NAV" (net asset value) to reduce volatility in the funds.
The idea is that as investors are able to see the fluctuations in a fund's value, they would either grow more tolerant of the changes or leave the funds - either way lowering the risk of destabilizing runs.
Like other companies, Fidelity has resisted the floating NAV option as potentially disruptive to customers. Better to add only liquidity fees and redemption gates, Fidelity General Counsel Scott Goebel wrote in the letter.
In the letter, Fidelity estimated the costs of implementing all the SEC's various changes at $37 million and said the spending - and the negative consequences to shareholders - would "far outweigh the benefits" of the reform proposals. If the SEC presses ahead with a floating NAV, Fidelity said, it should extend to three years a compliance period to allow the funds and others to manage changes such as new tax rules.
(Reporting by Tim McLaughlin and Ross Kerber; Editing by Gerald E. McCormick and Jeffrey Benkoe)
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