Federated Investors Inc., the third-largest manager of U.S. money-market mutual funds, is planning legal action to block rule changes being contemplated by the U.S. Securities and Exchange Commission that the company said could destroy the $2.7 trillion cash-management industry.
Federated will contest the proposed rule change by both regulatory and legal means, Christopher Donahue, chief executive officer of Pittsburgh-based Federated, said Friday in a conference call with analysts.
Money-fund providers and regulators have been wrestling for three years over how to make the funds safer without destroying the appeal of the investment product, which is used by corporations and millions of households. The SEC is expected to make two proposals before the end of March.
The first plan, which the industry has long warned would lead investors to abandon money funds, would eliminate their stable $1 share price. The second would combine capital buffers and a 30-day holdback of a portion of all redemptions. Donahue said Jan. 27 that Federated would fight either of the two rules.
Donahue said he would take legal action under the Administrative Procedures Act, claiming the SEC had not done sufficient analysis of the rules’ impact. John Nester, a spokesman for the SEC, declined to comment.
Donahue added that legal action could also delay the implementation of any new rule.
The redemption restriction being planned by the SEC, according to Donahue, would require funds to hold back 3 percent of any client withdrawal for 30 days.