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Fidelity urges SEC not to implement new fund rules

Fidelity Investments sent a letter and report to the Securities and Exchange Commission on Friday, urging regulators not to adopt new rules for money market mutual funds that the Boston company said would drive away customers.

Fidelity is the nation’s largest manager of money market mutual funds, with $433 billion under its watch in 10.9 million accounts. Fidelity said in its report to the SEC that changes made in 2010 following the financial crisis were strong enough to keep customers’ money market funds safe.

In a survey of its customers, Fidelity said it found that 57 percent of institutional clients -- such as businesses that use money markets as a place to store cash -- would move their funds elsewhere if regulators adopted a proposed rule that would allow money market shares to float in valuation, or “break the buck,” meaning they could drop below $1.


Nearly half, or 47 percent, of individual customers in the survey said they would move some or all of their money out of the funds, Fidelity said.

Where would they take it? To the bank.

Both corporate and retail customers said they would move their funds to bank money market accounts, which are insured, or certificates of deposit. Others said they would transfer money into Treasury securities, as well as other types of cash accounts and offshore vehicles.

Fidelity also said its customers reacted negatively to other proposals the SEC is weighing, all aimed at preventing a “run” on money markets in times of market panics. Whether some of their funds would be tied up for a period, or a fee imposed to withdraw funds, a majority of customers said they would be inclined not to use those products.

“Given the importance retail investors place on the liquidity feature of money market mutual funds, it is not surprising that investors reacted so negatively,’’ Fidelity wrote in its report.