It's an obscure rule that few people understand, but its backershope it will correct a crucial flaw in a $2.7 trillion market whosecollapse in 2008 froze financial transactions around the world.

There's one snag: the relentless bulldogs at FederatedInvestors Inc.

The family-run investment manager that oversees $367.2 billionin assets has outlasted larger firms like BlackRock Inc. andFidelity Investments in the fight to persuade Congress that theregulation should never take effect. Federated has built asophisticated lobbying operation, bankrolling lawmakers' politicalcampaigns and recruiting state officials to press its case.

While the effort faces long odds, the push has producedsuccesses. Congress is currently considering bipartisan legislationto reverse one of the most sweeping post-crisis financial reforms —one governing money-market mutual funds. There's some urgency, asthe rule is set to go on the books in October.

“This is a bill for one company: Federated,” said Peter Crane,president of Crane Data LLC, which tracks the industry. “This fighthas gone on for years, but they're the only ones stilllobbying.”

With coziness to Wall Street a political liability this electionyear, Federated's campaign and the role that surrogates have playedshows what's required for a financial firm to get what it wants inWashington. The struggle also reignites debate over regulators'efforts to address the risks posed by money-market funds, part ofthe shadow banking system that officials including Democraticpresidential nominee Hillary Clinton have vowed to make safer.

Oversight of the industry has wide implications in the world offinance. Money-market funds are the biggest source of short-termloans to businesses and provide low but reliable returns toinvestors, who range from retirees to investment firms to localgovernments. Unlike savings accounts, they're not insured, but likebank deposits, withdrawals are easy.

In September 2008, easy withdrawals created a big problem.

Reserve Fund

An investment in the failed Lehman Brothers Holdings Inc.sparked a run on the $62.5 billion Reserve Fund, pushing it to thebrink of failure, known as “breaking the buck.” At the time, moneyfunds maintained a constant $1 share price — called stable netasset values, or NAV. The Reserve Fund panic spread to othermarkets, worsening the credit crunch.

To ensure that never happens again, the Securities and ExchangeCommission adopted a measure in 2014 requiring the riskiest fundsto use fluctuating share prices — a floating NAV. Federated andother opponents say the floating NAV will destroy demand for primeinstitutional funds, which invest in corporate debt and make up abig part of their business. The firms favor stable NAVs in partbecause they're spared the expense of calculating share valuesdaily.

“Federated has long supported the utility of money-market fundsfor issuers, investors and market liquidity,” Ed Costello, aFederated spokesman, said in an e-mailed statement. Legislation tochange the SEC rule is needed because funding costs for services,infrastructure and job creation have already risen over the lastseveral months, “with further increases likely to follow,” hesaid.

Pittsburgh-based Federated, the fourth-biggest U.S. money-marketfirm, spent $960,000 on lobbying this year and $1.37 million lastyear on lobbyists inside and outside the company, the most in atleast a decade, according to public filings.

Republican Senator Patrick Toomey introduced legislation lastyear that would reverse the SEC rule. He's locked in a close racein Federated's home state of Pennsylvania and has been the firm'stop recipient of campaign cash, according to data from the Centerfor Responsive Politics. Federated was Toomey's third-biggestcontributor the last five years, the data show.

To help recruit a Democratic co-sponsor, Federated turned to anetwork of lobbyists including Hutton Strategies' Michael Hutton,according to people with direct knowledge. Hutton, Federated'shighest-paid outside lobbyist, is former chief of staff to SenatorRobert Menendez, who was indicted last year on corruption charges.Menendez has denied wrongdoing.

Hutton told congressional staffers that Federated assisted indrafting the legislation and that he spoke with Menendez aboutco-sponsoring it, according to people familiar with the matter.Federated is Menendez's fourth-biggest contributor over the pastfive years and the New Jersey Democrat ultimately did sign on tothe bill.

Toomey, Hutton and Menendez didn't respond to requests forcomment.

The unique part of Federated's lobbyingstrategy is the company's role in building a network of stateofficials to press its case. Many of them are members of theCoalition to Protect Investor Choice, which advocates forlegislation to reverse the money-fund rules. The alliance getsfunding from Federated and has spent $148,500 on federal lobbyingsince its inception in November.

Federated executives have routinely briefed state officialsabout the potential impact of the SEC's rule, leveragingrelationships the firm has established as an adviser to severalgovernment investment funds. A growing number of trade groups havealso lobbied lawmakers and urged state officials to getinvolved.

It was at a conference sponsored by the National Association ofState Treasurers about two years ago that Ron Crane, Idaho's statetreasurer, said he first learned about the issue from a Federatedexecutive.

Crane said the executive warned him that the floating NAV wouldincrease borrowing costs for governments, lead to less demand fortheir debt and reduce yields on their investments. That could cutinto programs that fund health care providers, affordable housingand other state services, Crane said.

So he helped persuade Idaho Senator Mike Crapo, a member of theSenate Banking Committee who's up for re-election this year, tosign on to Toomey's bill.

“The senator did his homework and I was very impressed,” saidCrane, adding that Idaho's borrowing costs have already skyrocketedin anticipation of the SEC rule.

Cajoling Senators

Federated executives haven't always been as successful. Theytried several times to cajole Virginia state Treasurer ManjuGaneriwala to appeal to Democratic Senator Mark Warner, accordingto people familiar with the matter. While Ganeriwala hasn't taken aposition on the bill, Warner has said publicly that he has “graveconcerns” about the legislation.

Senator Elizabeth Warren's staff has also heard from the officeof the Massachusetts treasurer — whose investment pool is managedby Federated, other people said. Warren hasn't taken a position onthe legislation.

Making floating NAVs a public-interest issue for states was asavvy strategy, according to Andy Green, a former SEC official andSenate Banking staffer now at the Center for American Progress.“Many lawmakers don't know this is a bill for Wall Street,” Greensaid.

Still, it's not yet clear what impact tougher rules for moneymarket funds will actually have on local economies. The GovernmentAccounting Standards Board, a state regulator, issued guidance inDecember that would exempt some funds from the SEC regulations. Andmuch of the industry has already adopted business models inanticipation of the new requirements, potentially making a changeback a costly pain in the neck.

“It's kind of hard to unring the bell at this point,” saidRobert Plaze, a former SEC attorney who helps represent funds atlaw firm Stroock & Stroock & Lavan. “Why would you want topoke a stick in a hornet's nest?”

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