On Tuesday, the Committee of European Securities Regulators issued a Consultation Paper entitled, "A common definition of European money market funds." The release, which follows guidelines proposed in July by the European Fund and Asset Management Association (EFAMA) and the Institutional Money Market Funds Association, says, "The key purpose behind a harmonised definition of 'money market fund' is improved investor protection. A common definition will also help provide a more detailed understanding of the distinction between funds which operate in a very restricted fashion and those which follow a more 'enhanced' approach." European regulations currently do not define the term "money market fund".
The paper says, "CESR proposes a two-tiered approach for a definition of European money market funds: Short-term money market funds ... which operate a very short weighted average maturity and weighted average life, and longer-term money market funds, which operate with a longer duration and weighted average life. The definitions will apply to harmonised (UCITS) European money market funds. CESR recommends that the same approach is followed at national level for non-UCITS money market funds which are authorised by the Member States."
Its summary continues, "In both cases specific disclosure should be required to draw attention to the difference between the money market fund and investment in a bank deposit. It should be clear, for example, that an objective to preserve capital is not a capital guarantee. Longer-term money market funds should be required to provide sufficient information to explain the impact of the longer duration on the risk profile.... Existing European money market funds will have a transitional period of 12 months after the introduction of the guidelines to comply with criteria set out in the agreed definition. The proposed definitions of short-term and longer-term money market funds are set out in Appendix 1 to this paper."
Finally, "CESR invites responses to this consultation paper by 31 December 2009. All contributions should be submitted online via CESR's website under the heading 'Consultations' at www.cesr.eu. All contributions received will be published following the close of the consultation, unless the respondent requests their submission to be confidential." We encourage readers to oppose the CESR's two-tiered definition, which we believe would cause confusion worldwide, and to urge European regulators to adopt a strict, U.S.-style definition of 'money market mutual fund'.
In other earnings conference call news, Northern Trust, which manages $67.04 billion in money market funds, President & CEO Frederick H. Waddell said, "We waived approximately $8 million in money market mutual fund fees [the previous quarter 'wasn't big enough ... to talk about'] due to the extremely low level of short-term interest rates and our desire to not have this impact our clients. We monitor fund yields continuously to insure that none of our clients experience a negative yield. If necessary, an immediate waiver of fees occurs in order to maintain a positive yield for the fund."
The Daily Herald's "Northern Trust posts $187.9 million in net income" article said, "The earnings, equal to 77 cents a share, compared with a loss of $148.3 million, or 66 cents a share, a year earlier, when Northern Trust spent $353.2 million to bail out clients who invested in money-market funds and auction-rate securities, the Chicago-based company said today in a statement."
