The U.S. Securities and Exchange Commission was presented with a337-page staff proposal to require the $2.5 trillion money-marketfund industry to float share prices or hold more capital and curbredemptions, according to a person familiar with the proposal.

The proposal may put the SEC on course for a clash amongcommissioners and with the industry. The plan won't advance if thethree commissioners who have already raised concerns about itsimpact on money funds hold firm. If SEC Chairman Mary Schapiro winsenough support to release the proposal for public comment, theagency will face renewed opposition from the U.S. Chamber ofCommerce and Federated Investors Inc. Chief Executive ChristopherDonahue, who has threatened to sue if a rule is ultimatelyadopted.

SEC staff delivered the measure to the five commissioners onJune 25, two people said. It tracks with provisions Schapirooutlined in testimony last week before the Senate Banking Committeeand includes multiple questions for the public, the peoplesaid.

The two Republican commissioners, Troy Parades and DanielGallagher, are opposed to additional regulation for money-marketfunds and Luis Aguilar, a Democrat, has expressed concern about theimpact on the industry of changes in money-market fund rules.

John Nester, an SEC spokesman, declined to comment on theproposal.

Since November, Schapiro has spoken of the need for money fundsto float their share price, which would be more realistic than thecurrent fixed $1 share price. State, municipal and corporatetreasurers, which often rely on investments that carry astable-value, have joined the industry in criticizing themeasure.

Money funds would have the option under the proposal of keepingtheir stable share price. If they chose that path they would haveto raise capital and prevent customers from withdrawing all theirmoney at once.

Washington business groups including the Investment CompanyInstitute and the U.S. Chamber of Commerce have led the fightagainst the changes sought by Schapiro. They have argued thatrequiring net asset values to float or preventing full redemptionscould make the funds less valuable to investors.

The Chamber of Commerce has been especially vocal, blanketing aWashington subway station adjoining SEC headquarters withadvertisements questioning the need for a regulatory overhaul andreleasing a study last week suggesting that even proposing changescould roil markets. The chamber said the study concluded that therules would lead commercial paper users to seek financing frombanks, where rates are almost 14 times higher.

Lawsuit Threatened

Donahue, head of Pittsburgh-based Federated Investors Inc., thethird-biggest U.S. money-fund provider, said Jan. 27 that his firmwould sue the SEC if it went forward with a proposed rule. Donahueand John McGonigle, Federated's chief legal officer, met withAguilar on June 22 to discuss the money fund proposal, according toan agency memo.

Federal Reserve Chairman Ben Bernanke and Treasury SecretaryTimothy F. Geithner have sided with Schapiro in her bid to rewritemoney-fund rules. She told the Senate Banking Committee last weekthat even with rules the SEC adopted in 2010 to improve liquiditystandards at money funds, she is concerned that the industryremains vulnerable to runs.

“Every morning when I pick up the newspaper and read about anearthquake in Japan or problems in European financial institutions,the first question I ask our staff is, 'What is money market fundexposure to these incidents and to these institutions?'” she toldthe Senate panel.

Money-market funds were once considered among the safestinvestments available. Financial regulators grew more concernedafter the September 2008 collapse of the $62.5 billion ReservePrimary Fund contributed to a freeze in global financial markets.The run calmed after the Treasury Department temporarily guaranteedmoney-fund shareholders against losses and the Fed began buyingfund assets at face value to help them meet redemptions.

SEC members could meet as soon as next month to vote on sendingthe proposal for public comment. The agency would have to holdanother vote before completing the rule.

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