Bettinger’s article, along with the SEC staff study, became an important factor because it signaled a compromise acceptable to key people in the industry, according to a person familiar with the SEC’s deliberations, who asked who asked not to be named because negotiations over the rule were private. A retail exemption was also favored by some commissioners, including Walter.
Hallway Diplomacy
When Walter stepped into the chairman’s job in December, she began by holding individual meetings with each commissioner, a type of walk-the-halls diplomacy that Schapiro rarely practiced. Gallagher and Paredes gave her a list of must-do issues, which included a new proposal for money funds, according to two people familiar with the matter.
From the start, Walter expected she would have to find a way to bridge diverging views on the commission. Gallagher and Paredes were united against the idea for a capital buffer, though they were open to changing the fixed-share price.
The Republican commissioners also liked an idea favored by the Investment Company Institute. ICI wanted to give money funds the ability to put down “gates,” or suspend withdrawals, when a fund was under stress, and to impose fees on redemptions, which would help rebuild a fund’s liquidity.
New Dynamic
Walter also worked with a new director of investment management, the SEC division developing the rule. Champ, who joined the SEC in January 2010 from hedge-fund manager Chilton Investment Co., was less enamored of capital buffer, according to two people familiar with the matter who asked not to be named.
Champ worked side-by-side with Craig Lewis, the SEC’s chief economist, whose division had produced the study showing how investors fled prime funds and rushed into those that held U.S. Treasury debt.
By late December, Champ had produced a two-page summary that didn’t include a capital buffer or other costlier reforms championed by the Federal Reserve and systemic-risk regulators.
“Norm Champ brought an openness and willingness to engage in dialogue that was missing,” Aguilar said in an interview. “He was instrumental in turning the tide toward a constructive process.”