WASHINGTON -- The Securities and Exchange Commission is expected to vote today to tighten its standards for the quality and diversity of debt that tax-exempt money market funds can hold in their portfolios.
The agency voted in February 1991 to put a 5% cap on the amount of less than top-grade paper that funds that invest in taxable instruments can hold. The agency also said a taxable fund can invest no more than 5% of its assets in securities of any one issuer and no more than 10% in securities backed by any one bank.
The agency also limited a taxable fund's holdings in "split paper," which is an issue rated differently by various rating agencies.
But the SEC delayed proposing tighter standards for tax-exempt money market funds until it had studied the area more closely.
"The commission [staff] did an extensive examination of those markets and we are now presenting the commission with our recommendations on the extent to which and the manner in which the Rule 2a-7 risk-limiting [provisions] should be tightened for tax-exempt money market funds," Robert Plaze, assistant director for investment management division of the SEC, said in an interview yesterday.
The intent is for tax-exempt money market fund shareholders to have protections similar to those enjoyed by investors in taxable money market funds, Plaze said.
SEC Chairman Arthur Levitt Jr. told a congressional panel Nov. 10 that the agency will probably recommend different standards for paper issued for conduit bonds and paper issued by cities and other government entities.
