Regulation

The Federal Reserve announced Tuesday it will buy up to $1.3 trillion of the top-rated asset-backed and unsecured commercial paper in the markets—virtually a business loan bailout due to frozen money markets, the closest the government has come to making loans to businesses directly.

NEW YORK—In the wake of the ongoing credit crisis and illiquid money market, much of it due to the failure of a single money market mutual fund, the Securities and Exchange Commission plans to overhaul Rule 2a-7. Separately, the Department of the Treasury is looking into creating a market stability regulator with omniscient powers across the "entire financial system."

Investors in the now-defunct Primary Fund got their first indication of when they can expect redemptions last Monday, when Reserve Management announced it would return 32% of the fund's assets as of Sept. 15, or $20 billion, on Oct. 13.

WASHINGTON—The House reversed Monday's rejection of a bill to stabilize the financial markets approving the measure on Friday with a vote of 263 to 171.

In response to scrutiny over its ratings of instruments tied to subprime mortgages, Fitch Ratings has increased its own scrutiny over fund of hedge fund managers, warning that many such funds may not be able to meet redemption requirements if their risks are not closely monitored.

The Reserve will liquidate its Primary Fund and begin returning cash to shareholders, according to an announcement on Monday.

After three hours of contentious debate, the U.S. House unexpectedly rejected a bill for a $700 billion rescue package on Monday — 228 to 205 — that would create a government facility to buy troubled assets from banks. The Dow Jones Industrial Average dropped 777 points on the news.

Canadian securities regulators have begun on-site reviews of money market funds, fearing their exposure to devalued securities.

Recent moves by the U.S. government to prop up ailing money market funds seems to be helping stem the recent massive run on the funds, another fund implosion like the Reserve's Primary Fund can't be ruled out; managers may be holding investments that turn out to be worthless.

The Department of the Treasury opened its money market mutual fund guarantee program Monday and provided details on how the $50 billion program, designed to stem a run on the $3.4 trillion money market fund industry, will work.