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SEC to take second look at money market fund regulation

The US Securities and Exchange Commission is again seeking a study of money-market regulations after ChairmanSchapiro’s bid to advance new rules fell short. SEC Republican commissioners Gallagher and Paredes, together with Democrat Aguilar, sent a letter yesterday to Schapiro and SEC Chief Economist Craig Lewis reiterating a call for an analysis of whether certain rules could disrupt money-market funds and short-term credit markets, said the person, who asked not to be identified because the matter isn’t public.  John Nester, an SEC spokesman, declined immediate comment.

The request for the study comes about three weeks after Schapiro canceled a vote on staff proposals for new money-market rules, saying that the SEC “will not act” because three of the five commissioners did not support them. The statement, in which Schapiro dismissed the need for additional study, marked the start of an unusually public spat among the commissioners.  Schapiro, backed by the Federal Reserve, has worked to make money funds more stable in the wake of the collapse of the $62.5 billion Reserve Primary Fund in September 2008.

Its closing triggered a wider run on money funds, helping to freeze global credit markets. Schapiro’s Aug. 22 announcement marked a victory for the mutual-fund industry, which lobbied against new rules.

The plan called for funds to abandon their traditional $1 share price or adopt capital buffers and redemption restrictions, changes executives said would destroy products that manage $2.6 trillion for U.S. companies and households.  […] In an Aug. 28 response to Schapiro’s statement, Gallagher and Paredes said they supported an alternative proposal that would allow firms running money funds to prohibit withdrawals to stop investor flight in the event of a run.