Money Market Giants Denounce Change

NEW YORK (TheStreet) -- Money market fund leaders like Federated(FII Quote) and Fidelity have survived one economic crisis only to be faced by another.

These money market giants, along with other industry leaders like Vanguard, face new challenges as they battle SEC proposals that would result in "floating NAVs."

Both Vanguard and Fidelity have come out strongly against these proposals in public comment letters denouncing the changes to Rule 2a-7. Vanguard has proclaimed that, "a floating NAV would eviscerate a successful and important product for investors."

Fidelity noted that floating NAVs would cause "significant shareholder outflows, destabilizing money market mutual funds and overall money markets." In its letter, Fidelity cites research that suggests that 69% of institutional investors would stop using money market funds if the NAV rules are changed.

Despite challenges from the SEC and administration advisers like Paul Volcker, the money market industry is flourishing. Launched in 1971, money market funds have accumulated $3.5 trillion in assets. These funds, which are not included in the regulated banking industry, provide short-term funding to firms at rates that are lower than traditional loans.

Historically, money market mutual funds have maintained a stable price of $1 and offered investors returns that are generally higher than a typical savings account. These "ultra-safe" mutual funds track highly liquid securities like commercial paper and government debt. Many investors have turned to money market mutual funds for the "cash" portions of their portfolios, using the traditionally stable instruments to anchor their portfolios.