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Rekenthaler Report

Small Is Beautiful

The SEC tips its cap to retail investors.

Stabilizing Influence
Small investors are generally portrayed as being prone to herding. Ask George Bailey, who pledges $2,000 of his honeymoon funds to placate frightened customers making a run on the old Building & Loan. Consider also the retail fund buyer, frequently blamed in the 1980s for pushing up Treasury prices when buying long government bond funds in the mid-80s, then for pushing Treasury prices down when they later sold those funds. Circa 2000, mutual fund owners were widely regarded as the biggest threat to stock market stability because, it was believed, at the first sign of trouble the novice 401(k) owner would panic and sell stocks into a downturn.

Yesterday, however, the SEC reversed the image of the lemming retail investor. In a statement on money market fund regulations, SEC Chair Mary Jo White said, "The first proposed alternative [to current rules] would require that all institutional prime money market funds operate with a floating net asset value (NAV) ... This floating NAV proposal specifically targets the funds where the problems during the financial crisis occurred: institutional, prime money market funds. Retail and government money market funds--which have not historically faced runs in even the worst of times--would be exempt from the proposed floating NAV requirement." Yes, that's right, the SEC said that individuals are less apt to herd than are institutions.