The SEC has dropped plans for new regulations on money market accounts after a majority of commission members announced they would vote against the proposal.
NEW YORK (CNNMoney) -- In a setback for advocates of Wall Street reform, a proposal to regulate money-market mutual funds has been tabled by the Securities and Exchange Commission because there weren't enough votes to approve it.
SEC chairman Mary Schapiro expressed regret for the proposal's withdrawal. In a statement Wednesday night, she said the 2008 financial crisis highlighted the need for the reform proposal, which was two years in the making.
"I consider the structural reform of money markets one of the pieces of unfinished business from the financial crisis," she said. She urged other policymakers to take up the effort.
Money market mutual funds, which invest in Treasuries and other debt securities, played a big role in the 2008 crisis. Shortly after Lehman Bros. filed for bankruptcy in September of that year, one key fund fell below the $1 level -- a move known as "breaking the buck." That triggered a $300 billion run on other money market funds that led to a virtual freeze in financial markets.
The SEC staff had proposed two reform alternatives to try to reduce the threat of runs on the funds and the need for more federal intervention in the future.
But investment firms that offer money market accounts fought the proposals. The Investment Company Institute, an industry trade group, charged that the new rules would "harm investors, damage financing for businesses and state and local governments, and jeopardize a still-fragile economic recovery."
Schapiro's statement did not identify which three members of the 5-member commission opposed the reforms. Besides the two Republican members long seen as opponents, Luis Aguilar, a Democratic member, was quoted by The Wall Street Journal and The New York Times as believing the SEC staff had not adequately studied the issue.
Before being appointed by President George W. Bush in 2008 and reappointed by President Obama, Aguilar served as general counsel, executive vice president and corporate secretary of the investment firm Invesco (IVZ).
Among investment firms that trade shares, Federated Investors (FII) rose 5.3% in early trading.
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