Fidelity Investments joined a chorus of financial firms opposing new rules that the US Securities and Exchange Commission has proposed for money market mutual funds, saying the changes would be costly and could be unfair to investors.
Boston-based Fidelity is the world’s largest money market fund manager, with $425 billion in its portfolios. The firm, along with others in the industry, has been arguing against changes in money market rules that the SEC is seeking to avoid a repeat of the panic that occurred during the last financial crisis, when customers overwhelmed funds with requests for their money.
The SEC has proposed two alternative rules, which also could be adopted in combination. One would require that the daily valuation of certain money market funds to reflect the actual value of the securities in their portfolios. Traditionally, money market funds report a stable value of $1 a share, even though they incur tiny losses and gains with the moves in the market.
The second proposed rule would to impose fees and other restrictions that would limit redemptions by institutional investors trying to withdraw massive sums of cash all at once in a crisis.
In both cases, the SEC is trying to target so-called “prime” money market funds, which are generally used by large, institutional investors, and not retail, or individual investors. As a cutoff point the SEC would define an institutional investor as anyone trying to cash out $1 million or more per day.
But Fidelity said a dollar threshold could unwittingly affect retail customers, whom it says should not be hit with any restrictions on their money because they were not the source of problems during the finacial crisis. Instead, Fidelity said a simple way to exempt retail customers is to make sure the new rules do not apply to any accounts that have a personal social security associated with them.
“The data shows that back in 2008 and 2011, retail funds had very normal shareholder behavior,’’ said Nancy Prior, president of the Money Market Group at Fidelity, in an interview. “There were not large, sudden redemptions out of retail funds.”
The Boston mutual fund giant said implementing the changes, or a combination of them, would cost Fidelity $37 million. The firm said it likely would not offer tax-tax exempt money market funds with the SEC’s proposed redemption caps.
Fidelity and other groups also urged the SEC to exclude tax-exempt municipal money markets, which invest in local and state securities, saying they are not susceptible to withdrawals that could destabilize the markets. Vanguard Group, the Valley Forge, Pa.-based mutual fund firm, also objected to imposing the new rules on municipal money market funds.
Separately, the Massachusetts Municipal Association, which represents cities and towns across the Commonwealth, also recently objected to the SEC’s proposal for a floating daily share value for funds.
“We are very concerned that the proposals would harm local governments by taking away an important cash management tool, increasing market instability, and making municipal bonds less attractive to investors,’’ the association’s executive director, Geoffrey Beckwith, wrote in a letter to the SEC.
He said cities and towns both invest in money market funds as a safe place to keep cash as well as a market to sell their debt to other investors through these funds. If the muni bond market were to become less attractive to investors due to the SEC’s changes, Beckwith wrote, “This would have a major chilling effect on local capacity for growth and development.”
Beth Healy can be reached at Beth.Healy@globe.com