Sauter said the Squam Lake plan had advantages and disadvantages compared with the Fidelity proposal. "Certainly it's more expensive, and so would create some drag on performance," he said.
Floating Share Price
A government panel, charged with gauging systemic risks under last year's Dodd-Frank financial overhaul law, directed the SEC on July 26 to focus on three potential regulatory reforms for money funds. In its annual report, the Financial Stability Oversight Council, known as FSOC and headed by Federal Reserve Chairman Ben S. Bernanke, singled out proposals for a floating share price, capital buffers and steps that would deter fund investors from redeeming shares.
FSOC's members also include SEC Chairman Mary Schapiro and Treasury Secretary Timothy Geithner.
The Investment Company Institute's money-fund working group has scheduled a meeting with regulators for the second week in August, two of the people said.
"The ICI remains open to ideas to strengthen money market funds further, including ways to enhance liquidity and minimize the risks of a fund breaking a dollar," Ianthe Zabel, a spokeswoman for the Washington-based trade group, said yesterday in an e-mailed statement.
'Enhance Liquidity'
ICI members have repeatedly warned that customers, especially institutional investors, would abandon money funds if they lost their stable share price.
Funds maintain a steady $1 share price by recording holdings at their expected value at maturity and by rounding to the nearest 1 cent. That means the fund can ignore small fluctuations in the market price of holdings and suffer a loss of less than half a cent without breaking the buck.
Groups including the FSOC and the Squam Lake economists have said the stable share price also can induce investor runs. Small losses grow as a proportion of a fund's assets as investors withdraw, giving shareholders an incentive to redeem shares before others, they say. Advocates for a floating share price include former Fed Chairman Paul Volcker and Sheila Bair, former chairman of the Federal Deposit Insurance Corp.