Reuters on EU Reform Compromise
Reuters published an article, "Dutch propose more flexible EU money market funds rules." It says, "European Union plans to phase out up to half of the bloc's 1 trillion euro ($1.14 trillion) money market funds (MMFs) could be watered down under a compromise proposed by the Dutch." (See our April 26 News, "European Compromise Moves MMF Reforms Closer; Sterling MFs Jump.") Reuters' piece explains, "EU member states with a strong fund industry presence such as Ireland, Luxembourg and Britain have been battling to prevent the European Parliament phasing out so-called constant net asset value or CNAV funds, which account for half of the MMF market. The new proposal by the Dutch EU presidency, which has also been spurred by policymakers desperate to fuel economic growth, comes after three years of wrangling over the funds, which are used by thousands of companies for their day-to-day funding. Some regulators say CNAVs lack transparency as their share price remains unchanged even when markets rise or fall, unlike the share price of variable net asset value (VNAV) funds. The Dutch presidency has proposed giving CNAVs two years to switch into lower risk public debt instruments, or convert into a VNAV. CNAVs could also convert into a new type of hybrid money market fund known as low volatility net asset value (LVNAV). The European Parliament, which has joint say with EU states on the draft law, wants CNAVs to convert once the rule comes into force, with LVNAVs losing authorisation within five years under a so-called sunset clause, unless further action is taken. But under the Dutch EU Presidency compromise, which was seen by Reuters, CNAVs would have two years to make the changes, and LVNAV authorisations would not automatically lapse after five. Instead, there would be a review of the rules to see how they affect markets and investors before any further changes. "We hope that the outcome will be one which recognises the important role played by MMFs, facilitates the needs of investors and enables MMFs to provide much needed funding in the economy," Pat Lardner, chief executive of Irish Funds."
