Fitch Ratings "published proposed changes to its global criteria for rating money market funds, primarily focusing on 'prime' funds, says a company press release. Fitch will host a teleconference on Thursday, Jan. 29, at 9:00 a.m., to discuss the changes in criteria. "Intended for `constant net asset value (CNAV) and variable net asset value (VNAV) cash management funds, irrespective of jurisdiction and domicile," these changes include: "a more direct recognition of potential institutional support; a closer alignment of portfolio liquidity and the potential for high investor redemptions in times of stress; introduction of new diversification guidelines and a Portfolio Credit Factor (PCF) matrix that offers a more sensitive assessment of credit risk; and, a revised ratings scale that adds a MMF subscript and eliminates existing Volatility ratings for money market funds."

Roger Merritt, Managing Director, Funds and Asset Managers, says, "These criteria changes have been under consideration since last year, after reflecting upon the stresses the industry faced. These proposals are offered against a backdrop of other industry and regulatory initiatives to examine whether changes to the money market fund industry are needed."

"The potential for institutional support, as gauged by willingness and ability to provide support during periods of financial stress, is an important change to Fitch's ratings methodology," says Nathan Flanders, Regional Head, U.S. Funds and Asset Managers. Fitch adds that "Financial Institutions analysts will play an integral role in assessing whether support is likely to be forthcoming. Where institutional support is viewed as less likely, Fitch is proposing more conservative rating criteria."

The release also says, "To address redemption risk, the proposed criteria more explicitly aligns overnight and one-month portfolio maturities with a fund's largest investors. The challenges that money market funds faced last year were exacerbated by investors risk aversion. Significant redemption activity placed additional pressure on the ability of funds to preserve the value of invested capital."

Fitch "is proposing to alter its rating scale for money market funds to provide market participants with more transparency as to the level of risk assumed. Fitch proposes to add an 'MMF' subscript to its money market fund ratings in an effort to highlight for investors, regulators and other market participants that these ratings are distinct from those assigned to higher risk bond funds. Fitch is seeking market feedback on the proposed criteria changes over a 60-day comment period. (The dial in number for the teleconference is 1-866-723-3590 and the conference ID is 83011266.)

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