Regulators are preparing to take a crucial step toward overhauling some parts of the widely used money market fund industry.
The five members of the Securities and Exchange Commission are scheduled to vote Wednesday morning on a proposal that could eventually do away with the stable dollar-a-share value that has long defined money market funds, according to people briefed on the proposal.
The proposal suggests that it may be necessary to eliminate the fixed share value only on money funds used by big institutional investors, not those used by small investors, and only on so-called prime money funds that invest in corporate debt, not on money funds that invest in government and municipal debt. The affected funds are the ones that were hit the hardest during the financial crisis in 2008.
The long document to be voted on Wednesday is only a proposal, and if it is passed it will face months of public comment before a final vote.
The proposal, developed by the commission’s staff, suggests that an end to the fixed share value on some types of money market funds may be enough to put to rest investors’ worries about a fund’s “breaking the buck†and prevent a run if some funds’ share values fell below $1 routinely. But the proposal also puts forward many additional options that could be considered in the coming months, people briefed on the report said.
The vote is something of a milestone in the effort to revamp the $2.6 trillion money market fund industry. It is a campaign that has moved in fits and starts and has been the subject of intense industry lobbying.
Money funds are supposed to be one of the safest investments. But during the financial crisis, there was a run on the industry after one of the largest funds fell below $1 a share. The market recovered only after winning unusual government guarantees.
The former chairwoman of the S.E.C., Mary L. Schapiro, tried to bring her own proposal to a vote last summer but called it off at the last minute after it became clear that three commissioners were opposed to opening the proposal to comment.
A top council of regulators came together last fall to urge the commission to take action, given what they said were lingering systemic risks.
Even before she took over in May, the current chairwoman, Mary Jo White, made it clear that moving ahead quickly with changes was a top priority. Commissioners who opposed Ms. Schapiro’s proposal have indicated they are likely to vote for the current efforts.
The industry bitterly fought Ms. Schapiro’s efforts and has, in the past, generally opposed moving any funds to a floating net asset value. Industry executives have said that big institutions would stop using money funds if they had a floating share value, posing accounting headaches.
The industry has continued to lobby vigorously on the issue. Members of the commission have had nearly 30 meetings with representatives of the industry this year, according to S.E.C. records.
Recently, many in the industry have struck a more conciliatory note and acknowledged that a floating share value on some funds may be the best option.
The limited nature of the proposed rules could result in opposition from some critics of the industry who have called for a more sweeping overhaul. The Systemic Risk Council, which is made up of many former regulators, has said that all money funds should go to a floating share value.
David Scharfstein, a professor of finance at Harvard, is one of many specialists who have called for money fund managers to put aside capital to protect funds from potential losses. Mr. Scharfstein said that forcing only some funds to use a floating share value would not stop future runs.
“I’m somewhat skeptical that it will really move the dial in terms of risk taking and run prevention,†Mr. Scharfstein said.
