Regulators on both sides of the Atlantic have been looking at ways of making the money market fund industry more robust, and one of the options they've focused on is moving from a stable, or constant, net asset value (CNAV) model to a floating or variable (VNAV) model.

The prospect of a move to floating NAV faltered in the U.S. in August when Securities and Exchange Commission Chairman Mary Schapiro called off a vote on proposed reforms to money-market funds that included moving to a floating NAV and imposing a capital buffer. Nevertheless, regulators in both the U.S. and Europe continue to focus on a floating NAV as a possible outcome. In October, the International Organization of Securities Commission published a report that suggested, among other things, that stable NAV funds should be converted to floating NAV where workable.

Floating NAV funds do not maintain a share price of $1 (or €1 or £1), unlike stable NAV funds. Instead, the price fluctuates in line with mark-to-market valuations. While some believe this type of fund is more robust and less susceptible to redemptions during a liquidity crisis, the floating NAV model is unpopular among many corporate treasurers. Numerous surveys have shown the majority of treasurers would shift assets out of money market funds if the only type available were the VNAV model. But are their fears justified?