Investment managers including BlackRock Inc., under pressure topre-empt action by a new super-committee of regulators, are seekingto end an impasse over money-fund reform, according to three peoplewith knowledge of the matter.

Officials from several firms, as well as representatives fromthe Investment Company Institute, the industry's trade group, arescheduled to meet with the Securities and Exchange Commission todayto discuss proposals for a potential compromise, said the people,asking not to be identified because the information is private. Theindustry helped block a plan in August that was backed by SECChairman Mary Schapiro.

The firms are pushing for an agreement amid the threat of actionfrom the Financial Stability Oversight Council, or FSOC, amulti-agency panel of senior regulators formed by the Dodd FrankAct. FSOC's most powerful figures, Treasury Secretary TimothyGeithner and Federal Reserve Chairman Ben S. Bernanke, have saidmoney funds are a systemic threat to global financial markets. Thebody could intervene and submit money funds to direct regulation bythe Fed.

“BlackRock has tried before” to find a resolution thatregulators and fund providers can agree on, Karen Shaw Petrou,managing partner of Washington-based research firm FederalFinancial Analytics Inc., said in an interview. “Maybe now withFSOC breathing down everyone's neck it will work.”

Regulators have been working to make the $2.6 trillion industrysafer since the 2008 collapse of the $62.5 billion Reserve PrimaryFund, which triggered a run by money-fund investors. The run abatedonly after the Treasury guaranteed shareholders against default fora year and the Fed began financing the purchase of fund holdings.The Treasury and Fed have since been restricted from repeatingthose bailouts.

BlackRock, the world's largest asset manager, has held talkspreviously with SEC staff over a proposal that would includetemporary withdrawal restrictions when money funds are understress, said two people familiar with the matter, who asked not tobe identified because the discussions were private.

BlackRock published an outline of its plan in a Sept. 27 paper,proposing that money funds, under some circumstances, impose“stand-by liquidity fees” on investors who withdraw money. The feewould be triggered only when a fund's liquidity failed to meetexisting minimums, or when a fund's mark-to-market share valuedipped below a certain level.

The plan also calls on regulators outside the U.S to adoptrequirements for asset quality, duration and liquidity similar tothose adopted by the SEC in 2010. Duration refers to the pricesensitivity of an asset to changes in interest rates.

'Sensible' Approach

“We have always sought to be constructive and there is nothingnew here,” Bobbie Collins, a spokeswoman for New York-basedBlackRock, said in an e-mailed statement. “We were at SEC to renewour commitment to a dialog.”

HSBC Holdings Plc, Europe's biggest bank, has also been inmeetings with senior SEC officials to talk about ideas foroverhauling money-fund rules, according to a person familiar withthe meetings who spoke on condition of anonymity.

“We continue to look for opportunities to engage in discussionsabout liquidity fees as a reform proposal that can be embraced byinvestors, regulators and providers,” said Robert Sherman, aspokesman for HSBC in New York, who said his company is looking fora “sensible” approach.

Schapiro's plan would have forced money funds to choose betweenreplacing their traditional $1 share price with a floating value,or building capital buffers to absorb potential losses and holdingback a percentage of all fund withdrawals for as much as 30 days todiscourage flight.

Fund executives fought the proposal, arguing that capitalbuffers would be either too small to be effective or too large toafford, and that investors would reject a floating share price andwithdrawal holdbacks.

BlackRock Chief Executive Officer Laurence D. Fink hasconsistently tried to position his firm as a conciliator on theissue, even chiding his peers when debate with regulators turnedconfrontational.

Industry opposition to money-fund overhaul “does not instill thesort of trust we need,” Fink wrote Oct. 9 in an opinion piece inThe Wall Street Journal about restoring investor confidence infinancial markets.

“We have been, remarkably, one of the only firms to aggressivelybelieve that we need money-market reform, working with the SEC to asensible industry and client-oriented solution,” Fink said during aconference call with analysts in April.

Temporary 'Gates'

BlackRock, which managed $140 billion in U.S. money-marketmutual funds as of Sept. 30, has made previous proposals to the SECon money funds, including a plan in August 2011 that mentionedredemption fees, and one in February 2010 suggesting funds be runas “capitalized special purpose entities.”

BlackRock's newest plan was unveiled the day Geithner, acting asFSOC's chairman, increased pressure on the industry and the SEC byinstructing the new panel to take up the money fund issue.Geithner, outlining potential recommendations for the SEC, listedthree options, with the first two based on Schapiro's proposal.

His third option referred to “capital and enhanced liquiditystandards” with no mention of a capital buffer. He also mentioned“liquidity fees or temporary 'gates' on redemptions,” as apotential alternative to the always-on withdrawal holdbacksenvisioned by Schapiro.

Suzanne Elio, a spokeswoman for the Treasury Department,declined to comment.

Geithner's letter began the process by which FSOC can urge, butnot force, the SEC to adopt new rules on money funds. Geithner saidhe is hopeful FSOC would vote on a draft of that recommendation inNovember.

FSOC would then ask for public comment on the draft for at least30 days, and possibly longer, before voting on a finalrecommendation. The SEC would then have 90 days to adopt therecommendation or explain its refusal in writing.

Geithner's letter also urged FSOC members to prepare for themore severe action of declaring funds or fund companiessystemically important entities, and thus subject to Fedoversight.

Mary Miller, Treasury's undersecretary for domestic finance anda former industry executive, has since been calling companyleaders, hoping to spur discussion on what options might beacceptable to all sides, according to three people familiar withthe calls. Miller was director of Baltimore-based T. Rowe PriceGroup Inc.'s fixed-income division before joining the Treasury atthe start of 2010.

'Watchful Eye'

FSOC was charged by Congress with monitoring the country'sfinancial stability. Should it supersede the SEC, the primaryregulator of mutual funds, that could damage both the industry andthe agency.

It could leave funds subject to regulation that companyexecutives are convinced would destroy the product. It could alsoundermine the regulatory authority of the SEC on a subject Schapirohas called “the most important for us to tackle.”

“I'd have to believe the commission doesn't want to give up itsprincipal jurisdiction over a financial product that has developedunder its watchful eye,” Barry Barbash, head of theasset-management group at law firm Willkie Farr & Gallagher LLPin Washington and a former director of the SEC's investmentmanagement division, said in an interview.

Geithner and Federal Reserve Governor Daniel Tarullo have saidthe SEC is best positioned to implement money-fund changes. Inaddition, FSOC's pathway to trumping the SEC's oversight of moneyfunds would be long, complicated and subject to legalchallenge.

The renewed push for a compromise comes just over four yearssince the financial crisis transformed the way regulators viewedmoney-market funds. The largest collective buyer of short-term debtin the U.S., money funds were previously seen as a stable place forcompanies and individuals to park cash.

The SEC enacted new rules, some of them first proposed by theindustry, in 2010, creating liquidity minimums, imposing shorterceilings on the average maturity of holdings, tightening creditstandards and forcing the funds to disclose more information onholdings.

Schapiro called the changes a good start. Her staff worked fortwo additional years on a plan that was ready in August.

The industry enlisted the U.S. Chamber of Commerce in amonths-long lobbying campaign aimed at swaying SEC commissioners,members of Congress and money fund investors and borrowers againstthe plan. Its key victory came over Democrat Commissioner Luis A.Aguilar, who told Schapiro in August he wouldn't support the plan,joining two Republicans who opposed it.

Aguilar's Vote

Aguilar, along with Daniel Gallagher and Troy Paredes, has saidhe wants to see more study on the impact of the SEC's 2010 reformsand the potential consequences of Schapiro's plan. Schapiroresponded by appealing to FSOC to act.

The issue is complicated by the Nov. 6 elections because aRepublican victory may end the push for new rules. Two recentdepartures from the SEC's division of investment management meanthat companies are already dealing with different officials whendiscussing money funds. Eileen Rominger, the division's director,left in July, and Robert Plaze, the deputy director, retired at theend of August.

Two industry executives who asked not to be named said theircompanies, each among the top 15 providers of U.S. money funds,might accept temporary withdrawal restrictions if they werecontrolled by fund boards or triggered by specific conditions.Other changes fund executives have said they might accept includedhigher liquidity minimums and more disclosure on holdings.

HSBC's suggestions include giving the funds the power to charge“liquidity fees” — a point it argued in a position paper last year.The bank also says sponsors shouldn't be allowed to bail outfaltering funds and that funds should be permitted to limit thescale of investors' redemptions during a crisis.

HSBC manages $75 billion in money funds and institutional cashproducts, including $13 billion in U.S. money funds.

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