Dechert Attorneys David Geffen and Joseph Fleming recently published, "The Systemic Risk of Money Market Funds: Another Approach". It says, "Various federal regulators, including the Securities and Exchange Commission (SEC), appear ready to regulate money market funds further because these funds' susceptibility to runs, analogous to bank runs, is deemed to pose a systemic risk. This article describes why money market funds are perceived as posing a systemic risk and offers an alternative to mitigate this risk that differs from those proposed by the SEC and the President's Working Group on Financial Markets.... An alternative interpretation is offered here. Rather than attributing the systemic risk engendered by money market funds susceptibility to runs to the structure of money market funds, the systemic risk could be deemed to arise from institutional shareholders, which can demand liquidity when money market instruments in which money market funds invest are experiencing a period of exceptional illiquidity.... The alternative suggested here is that, during a period of illiquidity, as declared by a money market fund's board (or, alternatively, the SEC or another designated federal regulator), a money market fund may impose a redemption fee on a large share redemption approximately equal to the cost imposed by the redeeming shareholder and other redeeming shareholders on the money market fund's remaining shareholders."
