You remember September 2008 vividly. Lehman Brothers collapses. The Reserve Primary Fund finds itself holding the bag on a lot of Lehman assets, which plunge suddenly in value. The nation’s oldest money fund “breaks the buck,’’ telling investors it can’t pay out $1 for each share they hold for which they had been promised would always be worth $1.

There’s a run on money funds. SEC chairman Mary L. Schapiro later puts the run at $300 billion and, after the first set of reforms, says the federal government can never again step in guarantee assets held in the funds.

Top of the list of potential reforms: Allowing – that is to say, forcing – the stated value of assets in funds to float. To vary, day by day. To be severed from the $1 a share promise that makes them competitive with bank accounts.

Now comes Fidelity Investments, the icon of mutual fund investing, to say: Exclude most types of money funds from further reform.

Nancy Prior, the president of Fidelity’s Money Market Group, argued this Monday at the 2013 Operations Conference of the Securities Industry and Financial Markets Association in Boca Raton, Fla., that there is “growing consensus” that money fund that invest in U.S. Treasuries should be excluded from further reform. So should funds that put their holdings in other government and municipal bonds. There’s almost no risk of runs on those funds, she argues.

What the SEC needs to “solve for” is a potential run on the prime funds that large institutions put their money in, which are general purpose money funds.

Restrict redemptions on these. If they hold 30% of assets in cash or cash-like instruments, thrown down a gate when 15% of those liquid assets are pulled out. Then, charge a 1% liquidity fee, on any additional redemptions.

One percent should more than cover costs, which Fidelity says has been calculated at closer to 40 basis points, in actuality, or four-tenths of a percent.

What would Mary Schapiro think? Doesn’t matter. She threw in the towel last August on further money fund reform. But the Financial Stability Oversight Council has taken the cudgel back up. Now the Investment Company Institute is pushing to make sure that any further reform comes out of the SEC, which it says has the expertise to handle the issue, and not the FSOC.

Will the new chairman, Mary Jo White, a litigator instead of a market structure wonk like Schapiro, take on the flashpoint of floating the net asset value or other reform?

You just might find out, before this conference is over.

White will make her first address to the fund industry since becoming chairman, on Friday at 8 a.m.

Has Prior managed to schedule breakfast ahead of time with White, to tell her of the “growing consensus”?


But advocates of carefully targeted reform may want to stay in D.C., after breakfast time, to get White’s ear.

Depending on what she says.


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