To Securities and Exchange Commission chairman Mary L. Schapiro's mind, the current state of the money market fund business is "living on borrowed time."

Meaning: Change is coming soon. Because it is already late.

Her point of reference: September 2008, when the Reserve Primary Fund - the nation's oldest money market fund - saw the value of its assets fall below the fabled $1 a share that is the bedrock of the industry.

"It was a shock that reverberated across the market and compelled us to take action," she told the Practising Law Institute in Washington, D.C., on February 24.

That action two years ago meant adopting regulations making the mix of investments money market funds can hold less risky. But now comes the proposal, widely expected and foreshadowed by Schapiro herself, that money market funds should routinely "break the buck."

That will be more realistic, according to Shapiro.

"The fact is investors have been given a false sense of security by money market fund sponsor support and the one-time Treasury guarantee,'' in 2008 that shored up the industry against the run it experienced, she said. But "funds remain vulnerable to the reality that a single money market fund breaking of the buck could trigger a broad and destabilizing run."

Unlike 2008, there will be no Exchange Stabilization Fund the next time to stop the run. Congress eliminated that option when it passed the Troubled Asset Recovery Program legislation during the credit crisis.

"Today, the money market fund industry and, by extension, the short-term credit market, is working without a net,'' she said.

As an alternative, the SEC also is likely to propose that funds have capital requirements, like banks, that provide a buffer against runs on funds. The softener: such buffers would be combined with limitations or fees on redemptions of shares.

"It's hard to miss the hue and cry being raised by the industry against either of these approaches,'' she offered.

But not all parts of the fund industry are screaming.

Michael W. Roberge, president and chief investment officer at MFS Investment Management, said at the 2012 NICSA Annual Conference that wouldn't necessarily be bad.

According to Roberge, the net asset value would "float so little'' that it wouldn't matter to the retail investor.

And retail investors do not dominate money market fund investing. As of the start of February, $926.5 billion was held in retail money market mutual funds, according to Investment Company Institute statistics, compared to $1.7 trillion held by institutions.

That money should go into bank accounts, anyway, where deposits have some federal guarantees, Roberge argued.

Indeed, the SEC "should celebrate that the Reserve Primary fund broke the buck" in 2008, when the value of Lehman Brothers assets it held fell dramatically, said Michael J. Niedermeyer, chief executive officer of the Asset Management Group at Wells Fargo & Company.

If it's clear that the values of assets fluctuate and the SEC allows the net asset value to float, investors can make clearer comparisons between funds, Niedermeyer said. And opt to buy into funds based on whether the sponsor will back the assets up, in the event of a run, or not.

But the Investment Company Institute, which represents operators of money market mutual funds, is not so sanguine.

In its book, a stable net asset value, where the value of a share of a money market fund is always $1, has benefits to investors.

To wit, in ICI's book:

Tax events are avoided. If money market funds had a floating net asset value, it points out all share sales would become events that have to be reported to the Internal Revenue Service.

With a floating NAV, companies and other organizations would have to:

* Regularly "mark to market'' the value of their money market fund shares;

* Track the costs of their shares; and

* Determine how to match purchases and redemptions for purposes of calculating gains and losses for accounting and tax purposes.

Features can be rich, with the existing rules, ICI maintains. Without a stable net asset value, broker-dealers could not offer their retail investors a range of features including ATM access and check writing, among other features.

A floating net asset value "will undermine the core features of money market funds that investors seek-stability, liquidity, and convenience,'' contends ICI's chief executive Paul Schott Stevens. "They will drive retail investors back to the fixed, low rates paid by banks...institutional investors to less regulated, higher-risk alternatives...and fund companies out of the business.''

Individual investors who write checks on their money market funds want to know that their shares are worth $1.00, he maintains. If their share values floated, they'd lose that benefit-and they would have to treat every money market fund transaction as a taxable event, a huge accounting and tax headache.

Moreover, many institutional investors are required to put their cash in stable-value accounts. They would avoid funds with floating values, he said.

And capital buffers?

"The cost of building or paying for capital buffers would come from investors' yields-yields that have been near zero for more than 30 months,'' he said.

That, too, would be, if not a killer, at least a non-starter.

"Indeed, corporations are allowed to carry these funds as cash equivalent investments without having to track and report on the daily fluctuations in the value of their portfolio,'' according to a white paper by Institutional Cash Distributors, which offers offshore money funds to corporations domiciled in Europe. "Were the funds to change to a floating NAV, corporations would have to begin monitoring their mark-to-market value and report on any minute gains or losses."

That means, ICD says, that money in money market funds could and would move outside the United States. "For corporate investors looking to preserve this accounting treatment, the other alternative would be to pursue Money Market Funds offshore, outside of the jurisdiction of the SEC,'' it said in February. "The offshore fund market has experienced fairly consistent growth over the past few years; a trend that would continue and indeed accelerate if U.S.-based investors can no longer find the right investment products domestically."

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