Our recent participation at the Securities and Exchange Commission (“SEC”)1 roundtable discussion on money market funds and systemic risk gave us the impression that the government is moving closer to a policy draft on money market fund reform. Despite overwhelming complaints, the floating net asset value (“NAV”) approach remains a top choice for the regulators. The industry’s leading solution of a liquidity facility faces internal skepticism and possible failure in receiving government backstop liquidity. Although elegant and simple from a theoretical angle, the floating NAV approach requires the government to address asset flight risk, loss of short-term funding concerns, and the shift of systemic risk to the banking system.

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