Fidelity, Federated Lead Charge Against Money Fund Reform

It is not surprising, then, that the mutual fund industry continues to argue no new changes are needed. No companies appear to be working harder at making that point than Fidelity and Federated. Fidelity is the largest money market fund manager in the U.S., according to Thomson Reuters.

Since November 2010, representatives from Fidelity have met with SEC officials nine times and sent four comment letters related to a 2010 President's Working Group report on money market reforms, according to information on the SEC's website. Federated representatives have sent 12 letters and held one meeting over that time.

"Fidelity is an industry leader and we believe that it is important to take a leadership position and engage with policymakers on important matters, such as the prospect of further money market mutual fund changes, which may significantly affect investors, the economy, our company and our industry," wrote a spokesman via e-mail. A Federated spokesman declined to comment on the company's lobbying activities.

While the issue is clearly of great importance to the entire mutual fund industry, other companies do not appear to have been nearly as active as Federated and Fidelity in their lobbying efforts. Next most active after those two companies are BlackRock Inc.(BLK) and the Investment Company Institute (ICI), the chief lobbying organization for the mutual fund industry. BlackRock officials have sent three letters and held one meeting with the SEC, while the ICI has sent two letters and held two meetings.

At issue is special accounting treatment granted to the money market fund industry in 1982, contributing to an illusion that money market funds "were as safe as bank accounts," as former Treasury Secretary Hank Paulson put it in his 2010 book "On the Brink: Inside the Race to Stop the Collapse of the Global Financial System"

The accounting rule allows money market funds to report to investors that their investment in the fund hasn't declined in value as long as it hasn't changed by more than .5%. When the funds decline by more than that amount, they may have to seek outside support or report the decline, known as "breaking the buck."

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"Funds that broke the buck were as good as dead: investors would withdraw all their money," Paulson wrote.