WASHINGTON - The securities and Exchange Commission said yesterday that it will vote publicly Dec. 15 on whether to propose rules aimed at tightening credit quality standards for tax-exempt money market funds.
The agency formally announced the upcoming vote on revising its money market Rule 2a-7 one week after agency sources said the SEC had tentatively selected the Dec. 15 date. The rule sets standards for the quality and diversity of commercial paper and other bonds held by tax-exempt funds.
"The proposed amendments would tighten the risk-limiting conditions imposed on tax-exempt money market funds by Rule 2a-7 under the Investment Company Act of 1940, impose additional disclosure requirements on tax-exempt funds, and make ... other changes to the commission's rules and forms applicable to all money market funds," the agency said in its daily news digest.
If adopted by the four current members of the commission, the rule would be printed in the Federal Register for public comment in late December or early January.
The SEC issued final rules two years ago that tightened standards for taxable money market funds, but the measure did not cover tax-exempt money market funds. Staff members from the agency's investment management division said then that they needed more time to study the tax-exempt market before drafting a proposed rule.
SEC Chairman Arthur Levitt Jr. said Nov. 10 that the upcoming rule will probably recommend that different standards be adopted for paper issued by cities and other government entities and for conduit bonds. Levitt said the revisions will be designed to give investors in tax-exempt funds the same degree of safety of principal that Rule 2a-7 now provides for taxable funds.
SEC member Richard Roberts told the Municipal Analysts Group of New York last week that he has backed away from a controversial requirement for secondary market disclosure that he had sought in the upcoming amendments. Roberts proposed in 1991 that money market fund managers be barred from holding the bonds of issuers that do not pledge to provide secondary market disclosure. He said last week that his plan may have been too harsh.