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• Third, would they reduce the likelihood that official sector interventions and taxpayer
support will be needed to halt future MMF runs or address stresses in short-term
funding markets more generally?
Assessment of the MMF reform options. An assessment of the effectiveness of reform
options in achieving these goals should take into account: (a) how each option would address
MMF structural vulnerabilities and contribute to the overarching goals; (b) the effect of each
option on short-term funding markets and the MMF sector more broadly, including through its
effects on the resilience, functioning, and stability of short-term funding markets, as well as
whether the reform option would trigger the growth of existing investment strategies and
products, or the development of new strategies and products, that could either exacerbate or
mitigate market vulnerabilities; and (c) potential drawbacks, limitations, or challenges specific to
each reform option. The reform options considered in this report seek to achieve the goals in
different ways. For example, some are intended to address the liquidity-related stresses that were
evident in March 2020, while others also touch on potential credit-related concerns. This menu
of options reflects the possibility that future financial stress events may affect the liquidity of
short-term investments, their credit quality, or both.
(a) How the reform options would seek to achieve the goals.
1) Internalize liquidity costs of investors' redemptions, particularly in stress
periods. Some options would impose a cost on redeeming investors that rises as
liquidity stress increases to reflect the costs of redemptions for the fund. These
options, particularly swing pricing and the MBR, could reduce or eliminate first-
mover advantages for redeeming investors and protect investors who do not redeem.
2) Decouple regulatory thresholds from consequences such as gates, fees, or a
sudden drop in NAV. Some options, such as those that revise fee and gate thresholds
or introduce the floating NAV for retail prime and tax-exempt MMFs, could
eliminate or diminish the importance of thresholds (such as 30 percent WLA or an
NAV of $0.995) that may spur investor redemptions. By diminishing the importance
of thresholds, these options could also give MMFs greater flexibility, for example, to
tap their own liquid assets to meet redemptions.
3) Improve MMFs’ ability to use available liquidity in times of stress. In March
2020, some prime and tax-exempt MMFs may have avoided using their liquid assets
to meet redemptions. Options such as countercyclical WLA requirements or revisions
to fee and gate thresholds could make MMFs more comfortable in deploying their
liquid assets in times of stress.
4) Commit private resources ex ante to enable MMFs to withstand liquidity stress
or a credit crisis. When prime and tax-exempt MMFs have encountered serious