The Securities and Exchange Commission's proposed regulations for the money fund industry would entail significant changes for prime funds that target institutional investors, changes that could discourage treasurers from using such funds. If the regulations are adopted, many treasuries are expected to shift cash out of prime funds to government or treasury money market funds, or to alternatives like bank accounts.

The SEC put forward two alternatives last week. One would require prime funds—those that invest in short-term corporate debt—for institutional investors to adopt a variable net asset value (NAV), instead of the constant, $1-a-share NAV that's now standard for money market funds. The requirement wouldn't apply to government money funds or funds for retail investors, which are defined as those that limit shareholder redemptions to $1 million a day.

The second proposal would require money funds to impose a 2% liquidity fee on redemptions if their minimum liquidity went below 15%; it would also allow the boards of funds to temporarily suspend investor redemptions in that situation.