SEC seen voting on stricter rules for tax-exempt money funds.

WASHINGTON -- The Securities and Exchange Commission is likely to vote soon on a plan to tighten credit quality standards for tax-exempt money market funds, SEC Chairman Arthur Levitt told a congressional panel.

Mr. Levitt made the announcement last week at an oversight hearing on the nation's $1.9 trillion mutual and money market fund industry that was conducted by the Senate Banking subcommittee on securities.

"The commission will soon consider further revisions to its money market fund rule to set forth appropriate diversification standards for funds investing in tax-exempt instruments," Mr. Levitt told the panel, whose chairman is Sen. Christopher Dodd, D-Conn.

Equal Protection

"The revisions will likely include credit quality standards for tax-exempt funds designed to address, among other things, the differences between instruments issued by a governmental entity, such as a city, and conduit bonds in which the underlying obligor is a corporation or other nongovernmental project." Mr. Levitt said.

"These revisions will be designed to provide investors in tax-exempt funds the same degree of safety of principal that the rule provides for taxable funds," he said.

Last year the SEC issued final rules that tightened its standards governing the quality and diversity of commercial paper and other securities held by money market funds.

Proposal Expected by Yearend

The revisions to the agency's Rule 2a-7 applied largely to taxable funds because the commission's staff said it needed more time to study the tax-exempt market.

Robert Plaze, assistant director for investment management at the SEC. said in a telephone interview that the staff probably will send a proposal to the commission for review by the end of the year.

The commission then would conduct an open meeting -- "soon." Mr. Levitt said -- at which it would vote on whether to propose the standard for public comment.

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