SOURCE: Treasury Strategies, Inc.

Treasury Strategies, Inc.

April 02, 2014 09:00 ET

Treasury Strategies Delivers Important New Conclusions Regarding Proposed Money Market Fund Changes

CHICAGO, IL--(Marketwired - Apr 2, 2014) - Treasury Strategies, Inc. has used game theory analysis to assess the June 2013 SEC proposals for Money Market Fund reform. The paper, delivered to the SEC yesterday, develops some striking new conclusions.

"Proposed Money Market Fund Regulation: A Game Theory Assessment" concludes that when implemented properly, the fee/gate alternative would effectively halt and even prevent runs from taking place. It also concludes that requiring Money Market Funds (MMFs) to use a variable NAV (vs. today's constant NAV/$1 per share structure) would neither prevent nor stop runs.

Game theory is a well-established body of thought used to model competitive economic behavior. According to Tony Carfang, Partner at Treasury Strategies, "Game theory lets us explore the issue of run risk under the proposed alternatives in a way that has not been done so far. These findings should contribute greatly to the MMF regulatory debate."

Additionally, the analysis concludes that combining fees/gates with a fluctuating NAV would not materially reduce run risk beyond the fee/gate alternative alone.

The nuances of fee or gate implementation are critical to their effectiveness. Fund boards would need latitude to be sufficiently preemptive and to implement fees or gates when they deem necessary. "We believe effective run prevention is attainable within the approaches contemplated by the SEC, while requiring that fund boards have discretion to take protective action," says Cathy Gregg, a Partner at Treasury Strategies.

The paper describes these issues in detail, both with regard to framing the final rule and in stating the requisite powers and responsibilities of directors. "The SEC policy debate needs to incorporate this perspective of how fees and gates provide a robust policy solution and adequately protect investors from first mover risks," adds Carfang. He notes the need to include other public policy objectives not addressed by game theory, such as MMF effectiveness in capital markets.

To view the MMF Game Theory paper, click here to download.

About Treasury Strategies, Inc.
Treasury Strategies, Inc. is the leading Treasury consulting firm working with corporations and financial services providers. Our experience and thought leadership in treasury management, working capital management, liquidity and payments, combined with our comprehensive view of the market, rewards you with a unique perspective, unparalleled insights and actionable solutions. Visit for more information.

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