PWG issues report on money market fund reform options

Abstract

PurposeThis paper seeks to explain the possible options detailed in the “Money Market Reform Options” report released by the President's Working Group on Financial Markets on October 21, 2010 for consideration by the Financial Stability Oversight Council (FSOC).Design/methodology/approachThe paper discusses reform options in the areas of: floating net asset values, privately sponsored emergency liquidity vehicles, mandatory redemptions in kind, insurance for money market funds (MMFs), a two‐tier system providing enhanced protections for stable net asset value (“NAV”) MMFs, a two‐tier system reserving stable NAV MMFs solely for institutional investors, regulating stable NAV MMFs as special purpose banks, and enhancing constraints on unregulated MMF substitutes.FindingsThe Report concludes that more should be done to address systemic risks presented by MMFs and the structural vulnerabilities of MMFs to runs, and discusses various reform options for the FSOC to consider, but does not recommend any particular reform.Originality/valueThe paper provides expert advice from experienced financial services lawyers.