Fidelity, in a letter to the SEC on Friday, said that in a survey of its customers, 57 percent of institutional clients - such as businesses that use money markets as a safe place to store cash - and nearly a majority of individual investors would move their funds elsewhere if regulators allowed the accounts to float in valuation, or “break the buck.’’
Fidelity is the nation’s largest manager of money market mutual funds, with $433 billion under its watch in 10.9 million accounts. The company said regulators had already adopted sweeping changes after the financial crisis that strengthened money market mutual funds.
The failure of one money market fund, the Reserve Primary Fund, caused a wave of panic selling in 2008. The fund’s value dropped below $1 a share because its significant holdings in Lehman Brothers Holdings Inc. became worthless when the Wall Street bank collapsed that year.
Since then, regulations have been tightened to require money markets to hold safer, shorter-term paper.
Karrie McMillan, general counsel for the Investment Company Institute, a Washington group that lobbies on behalf of mutual fund companies, said the $2.6 trillion money market industry proved it was in better shape during last summer’s turmoil in Greece and with the euro.
“This summer we faced a whole lot of challenges,’’ McMillan said. “We feel that we had a good stress test.’’
Yet the two proposed rules being floated would either require investment firms to abandon the $1 a share standard or to set aside more capital, as well as hold back 3 percent to 5 percent of customers’ withdrawals for 30 days to prevent a run on deposits.
Fidelity said customers reacted negatively to the threat of losing full access to their money. Whether some of their funds would be tied up for a period, or a fee imposed to withdraw funds, a majority of customers said they would be inclined not to use those products.
“Given the importance retail investors place on the liquidity feature of money market mutual funds, it is not surprising that investors reacted so negatively,’’ Fidelity wrote in its report.
