Fidelity to federal regulators: ‘Take no further action’ on money market funds

By Beth Healy, Globe Staff

Fidelity Investments sent a letter to federal regulators Thursday, the latest missive in its concerted effort to ward off new regulations of money market mutual funds.

A love note it was not.

Boston-based Fidelity, the nation’s largest manager of money market funds, said its message to the Financial Stability Oversight Council was simple: “Take no further action” on money market funds at this time. Fidelity said the Securities and Exchange Commission should be the regulator to decide on the matter. Former SEC chief Mary Schapiro was unable to garner support from the agency’s commissioners for reforms she was seeking last year.

The firm said that while it opposes any further regulations, any reforms that are implemented should be limited to so-called prime money market funds, used mainly by large institutional investors. Concerns about a “run” on money market funds, fueled by events in the financial crisis in 2008, “do not apply to all types of money market funds,” Fidelity said.

Fidelity said new regulations imposed in 2010 were sufficient to strengthen the sector. The firm went on to argue that the Oversight Council’s proposals “would actually increase systemic risk” and force operational and recordkeeping adjustments at firms that run money market funds that would make them less appealing to investors.

The regional presidents of the Federal Reserve Bank, led by Boston chief Eric Rosengren, weighed in on the measures earlier this week, insisting that new rules are critical to the safety of the financial system. Specifically, the Fed presidents favor requiring a floating share price for money market funds, representing the actual value of the investments instead of the traditional stable $1 per share value. Other options, they said, would be to require a capital cushion against losses and to impose measures to prevent large investors from sweeping out huge sums of cash during a crisis, leaving other investors holding losses.