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Money funds to be exempt from rules curbing risk

U.S. securities regulators are preparing to exempt a majority of money market mutual funds from a central plank of rules intended to curb risks in the $2.6 trillion market, the Wall Street Journal reported, citing people familiar with the matter.

Last June the SEC put forth a plan, mostly focusing on prime funds for institutional investors, which called for two alternative proposals that could be adopted alone or in combination.

The first piece would require prime funds used by institutional investors to transition from a stable $1 per share to a floating NAV, while the second proposal would give fund boards for institutional and retail funds the authority to impose so-called "liquidity fees and redemption gates" during times of stress.

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However, under a broad exemption being discussed, the SEC could allow retail money market funds to maintain stable $1 share prices instead of floating share prices, the Journal said.

Money funds invest in short-term debt instruments and are designed to be safe and readily accessible to investors, who buy and sell money market shares at a fixed price of $1 even though the actual net asset value (NAV) per share may vary by a few hundredths of a percent.

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Investors' lack of information about the value and quality of fund assets helped create a wave of panicked withdrawals from money funds after Lehman Brothers went bankrupt in 2008.

Regulators say such a panic could recur unless more changes are made, such as ending the fixed $1 per share price policy and moving to floating share prices, like all other mutual funds.

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The idea of a floating NAV is that investors are able to see the fluctuations in a fund's value and can decide whether to be more tolerant of the changes or leave the funds.

Last year, several U.S. money market fund managers, including BlackRock and Fidelity Investments, agreed to start posting daily fund asset values as the industry comes under growing pressure from regulators for more transparency.

The SEC was not available for comment outside regular U.S. working hours.

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