BlackRock has issued a paper exploring two commonly mentioned options for money market fund reform, redemption restrictions and floating NAV.
In response to the question, "Can redemption restrictions work for MMFs?" the paper states, "BlackRock does not believe this structure will work for three critical reasons: i) Clients will not invest in MMFs with these redemption restrictions; ii) this approach may increase the likelihood of a run; and iii) there are enormous operational challenges in implementing this structure." These points are more fully examined in the paper.
In response to the question, "Can a floating NAV work for MMFs?" the paper states, "We continue to believe that a floating NAV will not eliminate the risk of runs in money market funds and will substantially contract the industry." Should regulators continue to consider floating NAVs, the paper advocates exemptions, such as allowing government funds, security lending pools and common trust funds to remain at a stable NAV.
The paper goes through many of the reasons why regulators could legitimately conclude that no more needs to be done in the money market fund area, and concludes by saying:
Ultimately, when contemplating additional change, it is critical to ensure that the reforms, both those implemented and those currently proposed, achieve the objective of protecting MMFs and the shareholders who invest in them without inadvertently destabilizing financial markets or increasing systemic risk.
The BlackRock paper can be found here: https://www2.blackrock.com/webcore/litService/search/getDocument.seam?venue=PUB_IND&source=GLOBAL&contentId=1111160117