The Wall Street Journal-20080117-SEC Requests Money-Market Data
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SEC Requests Money-Market Data
The Securities and Exchange Commission is sending out examination letters requesting information from mutual-fund companies about how they value and assess their money-market fund holdings.
Letters have been sent to several firms in recent weeks to gather details on short-term debt and other investments that have come under pressure amid the subprime-mortgage downturn. The SEC says it is seeking to better understand how fund advisers are responding to current conditions in the credit markets, and how funds have complied with Rule 2a-7, which is the investment regulation that guides money- market fund operations.
In particular, the SEC says it is focused on asset holdings, valuation and board oversight for the funds.
Fund firms wouldn't confirm receiving such letters, but some that are considered recipients include Fidelity Investments and Federated Investors Inc. Others that have grappled with issues at money-market or similar funds in recent months include Bank of America Corp. and SunTrust Banks Inc.
The so-called sweep examination is an early fact-finding effort that could help inform the SEC about if it should potentially modify money- market rules and what would need to be changed. The review is being conducted mainly from the Office of Compliance Inspections and Examinations at the SEC, with some input from the regulator's division of investment management. The SEC is seeking information on funds' fair-value procedures, stakes in thinly-traded securities, and reports to boards and board committees on the funds.
Money-market funds seek to maintain a $1 net asset value per share and are typically known as conservative investments. More recently however, some "enhanced" cash funds, which seek more yield than typical money funds, have struggled with securities issued by structured investment vehicles, which are offerings that have seen demand wane amid the credit crunch. Some SIVs have faced downgrades by credit agencies and thin trading, forcing some fund firms to scramble to buy out such related holdings to prevent declines.
As a result, the SEC is also requesting fund financial information including market values and amortized costs from July to December of last year "for all investments issued by SIVs which are either directly, or indirectly backed by mortgage debt," said one letter.
The move is the latest sign of how regulators are reaching out to fund firms to gauge the way they're valuing and reviewing thinly- traded securities. It also fits with efforts from other groups, such as the Consumer Federation of America, Financial Planning Association, AFL-CIO and fund advocate Fund Democracy.
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Kara Scannell contributed to this article.
