January 28, 2013 - There’s some good news on the regulatory front for the little investor. First up: Looks like the biggest players in the money market industry are backing down a bit from their ferocious opposition to proposed Securities and Exchange Commission rules designed to protect investors, Bloomberg News reports.
Why do investors in money market funds need protection, you ask? Because you can LOSE money with them. They’re touted as safe, you can write checks just like a regular checking account and some folks believe -- mistakenly -- that the accounts are insured against loss like bank checking products.
Surprise, they’re not. And the value of the assets in the funds floats and changes every day. Most days the spread between the fund's net asset value and the $1 a share price is pretty close and no big deal for the mutual fund company to cover regular redemptions. In times of stress (like 2008) when everyone wants their money and the company has to dump holdings to cover redemptions, things can get out of whack very quickly and suddenly there isn’t enough cash to cover everyone.
Some of the proposed rules include limiting redemptions to prevent runs on the funds; making the funds companies hold more capital to cover withdrawals, and the most contentious -- letting the share price float so investors know exactly what their account is worth every day. It’s unclear at this point which proposals the SEC will adopt.
The other investor news comes via the Municipal Securities Rulemaking Board, which oversees the state and local government bond market. Bloomberg reports that the board plans to provide benchmark yields available on its website that will help individual investors determine the fairness of prices. Little investors need that transparency because the muni bond market is incredibly opaque and it’s very hard to know whether the price being quoted is high or low since there’s no central exchange as there is for stocks. Investors can expect this change in the next three months, the board said.