Number of U.S. prime funds seen dwindling: iMoneynet

August 24, 2016 4:01 PM EDT

Traders work at desks on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., August 23, 2016. REUTERS/Brendan McDermid

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NEW YORK (Reuters) - The number of prime money funds in the $2.7 trillion industry, which can invest in corporate debt in addition to government securities, is forecast to fall to 264 from 492 last August after new rules from the Securities and Exchange Commission go into effect on Oct. 14, research firm iMoneynet said on Wednesday.

Since July, some U.S. prime money market funds, which had been major holders of commercial paper and other bank debt, have changed over to funds that hold only government securities.

Government-only money funds are exempt from rules on share value and fees from the upcoming SEC rules on net asset values (NAV) and fees during times of market turbulence such as the global financial crisis.

"As the switch mandated to bond-fund-like floating net asset values has propelled many of their investors to move their cash into stable-NAV Government Institutional funds, boosting their overall assets by 40.5 percent," iMoneynet said in a statement.

The ranks of government-only funds are forecast to grow to 587 in mid-October from 476 a year earlier.

Meanwhile, state-specific tax-free money funds for institutional investors will cease to exist by the October deadline due to the new NAV rule, it said.

At the end of July, there were 38 of them worth $3.6 billion, compared with 86 worth $8.07 billion in August 2015.

(Reporting by Richard Leong; Editing by Steve Orlofsky and Sandra Maler)

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