Unfinished business from the tenure of former Securities and Exchange Commission Chairman Mary Schapiro, new rules governing the operation of money market funds, may finally head to a vote on Wednesday.

The Commission has scheduled an open meeting on to the matter at 10 a.m. on June 5. Beyond the market implications of the vote, the meeting, and likely vote, will be an early test for new Chairman Mary Jo White as she attempts to break a longstanding impasse.

It was nearly a year ago that Schapiro's push for structural reforms to the $2.4 trillion domestic marketplace were derailed by dissent voiced by three commissioners. In response, she turned to other policymakers, including the Financial Stability Oversight Council, to step in.

“The financial crisis of 2007–2008 demonstrated that money market funds are susceptible to runs and can be a source of financial instability with serious implications for broader financial markets and the economy,” Timothy Geithner, then Secretary of the Treasury, wrote at the time, urging the FSOC to pressure the SEC into taking a vote and proceeding with public comments.

Money market funds exist as a result of a special exemption granted by the SEC three decades ago. It allows them to seek to maintain a stable $1 net asset value by using penny rounding and amortized cost accounting. These funds do not have to comply with the mark-to-market valuation standards required for all other mutual funds, but must follow strict limitations on their investments.

The longstanding sense of stability has led retail investors to use them as substitutes for checking accounts and institutional investors to rely upon them as a cash management tool. During the financial crisis, however, the Reserve Primary Fund broke the buck and panicked investors redeemed more than $300 billion from prime money market funds across the country. Short term credit markets froze and many companies were unable to effectively fund their daily operations, and the Treasury Department was forced to temporarily guarantee investments.

Among the proposals under consideration is floating the net asset values (NAVs) of money market funds by removing the special exemption that allows them to utilize amortized-cost accounting and rounding to maintain stable NAVs. Instead, they would be required to use mark-to-market valuation to set share prices, like other mutual funds. Intended to allow the value of investors' shares to track more closely the values of the underlying instruments held by money market funds, this was among the scenarios promoted by Schapiro.

Schapiro also pitched a “tailored capital buffer” to absorb day-to-day variations in the value of a money market fund's holdings. In times of stress, it would be combined with a minimum balance at risk requirement. Investors would be allowed to redeem up to 97 percent of their assets in a given money market fund, but there would be a 30-day holdback of the final 3 percent.

Yet another option would entail imposing capital and enhanced liquidity standards, potentially coupled with liquidity fees or temporary “gates” on redemptions that may be imposed as an alternative to a minimum “balance at risk requirement.

The reluctance of three commissioners – Troy Paredes, Dan Gallagher, and Luis Aguilar – was rooted in their desire for a greater economic analysis. The impact on investors, and the suitability of a proposed capital buffer for funds, were also cited as concerns. Aguilar, a likely swing vote on any rule proposal, fretted last year that the floating net asset value option pitched by Schapiro could “be a catalyst for investors moving significant dollars from the regulated, transparent money market fund market into the dark, opaque, unregulated market”

“Many large investors in SEC-registered money market funds have emphasized that the mere publication of this SEC proposal would be the trigger for the movement of monies,” he wrote. “Such transfers could cause significant damage to the country's short-term capital markets.”

Details of the draft proposal that will be debated next week have not yet been made public.