Preventing runs with fees and gates

摘要

I study whether redemption fees and gates as recently introduced into US and EU money market fund (MMF) regulations achieve their goal of eliminating the first-mover advantage, thereby making MMFs less susceptible to runs. I study both MMFs offering stable net asset value (NAV) shares and MMFs offering floating NAV shares. Conceptually, redemption fees have two roles in eliminating run equilibria: (i) they ensure that redeeming investors internalize the cost of liquidating assets and (ii) they can be used to implement a redistribution among investors that incentivizes investors to remain invested in the MMF when others run. For stable NAVs, both functions of redemption fees are relevant. For floating NAVs, only the redistributive function of fees is relevant since the floating NAV already ensures that redemptions do not impose losses on investors who remain in the MMF. Gates are less versatile than fees and, given that MMFs can charge fees, gates only have a role in preventing runs if there are (regulatory) restrictions on the level of the fee.