Money Market Fund Safety and Regulations

Before investing in a money market fund, an investor should carefully read all of the fund’s available information, including its prospectus, or profile if the fund has one, and its most recent shareholder report.  A mutual fund’s prospectus explains to potential investors the fund’s investment objective.  The investment objective describes the types of securities the mutual fund invests in.  This helps to you to evaluate the investment risk of the fund.  Important information on a fund’s expenses is also included in the prospectus.  A mutual fund publishes its investment objective in its prospectus.  The Securities and Exchange Commission requires every mutual fund that sells its shares to the public to publish a prospectus. You should always read the prospectus before investing in a fund.

Like stocks and bonds, the Securities and Exchange Commission regulates the mutual fund industry.  However, unlike bank deposits such as CDs or money market accounts.  The FDIC does not guarantee mutual fund investments.  Money market funds are regulated primarily under the Investment Company Act of 1940 and the rules adopted under that Act, particularly Rule 2a-7 under the Act.

The U.S. Securities and Exchange Commission (SEC) is the main federal agency responsible for regulating mutual fund activities.  The SEC monitors fund compliance with the chief federal statute governing mutual funds: the Investment Company Act of 1940.  The 1940 Act imposes restrictions not only on mutual funds and the subcategory of money market funds but also on the investment advisers, directors, principal underwriters, officers, and employees that carry out the business of the fund.  The SEC also monitors how funds comply with other federal statutes, including the Investment Advisers Act, the Securities Exchange Act of 1934, and the Securities Act of 1933. 

The SEC Division of Investment Management oversees and regulates funds specifically, and also considers changes to the securities laws affecting funds and other investment companies.  Working within the guidelines of the 1940 Act, the SEC Division of Investment Management: works to prohibit conflicts of interest to ensure funds serve only the interests of their shareholders; maintains strict standards on leveraging so that funds do not take undue risks with fund assets; ensures that funds maintain an effective system of self -governance; requires understandable and full disclosure to investors and works to eliminate fraud and abuse; interprets laws and regulations for the public and for SEC inspection and enforcement purposes; reviews funds’ required filings with the SEC; reviews enforcement matters involving mutual funds and money market funds; and develops new rules and amendments to adapt regulation to new circumstances.

Office of Compliance Inspections and Examinations.  The SEC Office of Compliance Inspections and Examinations (OCIE) administers a nationwide examination and inspection program for mutual funds, their holdings, including money market funds and other investment companies.  OCIE inspects funds to promote compliance with the 1940 Act and other securities laws, detects possible law violations, and keeps the SEC informed of developments in the fund industry.

Office of Investor Education and Assistance.  The SEC Office of Investor Education and Assistance (OIEA) serves individual investors directly, ensuring that their problems and concerns are known throughout the SEC and considered when the agency takes action.  OIEA investor assistance specialists answer questions, analyze complaints, and seek informal resolutions.  This office also publishes free brochures and other educational materials on numerous investing topics including money market funds.

Resources are available by contacting the SEC.

Securities and Exchange Commission
Office of Investor Education and Assistance
450 Fifth Street, NW
Washington, DC 20549
800/SEC-0330
www.sec.gov/oiea1.htm

If an investor believes they have been subject to improper business practices involving a mutual fund, money market fund, broker, or brokerage firm, NASD Regulation, Inc. (NASDR) advises that investors to contact the money market fund, the broker, and the manager of the broker’s office in writing.  If the response is unsatisfactory, the investor may choose to file a customer complaint.  Complaints may be filed by sending a letter to the nearest NASD district office or online through the NASDR’s website.  The NASDR main address is:

NASD Regulation, Inc.
1735 K Street, NW
Washington, DC 20006
202/728-8958
www.nasdr.com

An investor who is wronged may also wish to contact your state securities agency for information on a money market fund, mutual fund, a brokerage firm and its brokers, and whether there is a history of regulatory violations, disciplinary actions, or investor complaints. For a directory of securities agencies by state, call the North American Securities Administrators Association, Inc. (NASAA) at 202/737-0900, or visit their website at www.nasaa.org.

This entry was posted on Tuesday, January 6th, 2009 at 3:32 pm and is filed under Mutual Funds. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.