Comments have recently been posted on the Committee of European Securities Regulators' Consultation Paper, "A common definition of European money market funds." (See our Oct. 22, 2009, Crane Data News, "European Regulators Consult on Definition(s) of Money Market Fund".) The European regulator's original document "propose[d] a two-tiered approach for a definition of European money market funds: Short-term money market funds [and] Longer-term money market funds." Though we were surprised that the CESR's "two-tiered" approach didn't generate more strenuous objections from U.S. money fund providers and multinational investors, it did take some hits.
CESR said, "This paper sets out CESR's proposals for a common definition of European money market funds. The key purpose behind a harmonised definition of 'money market fund' is improved investor protection. This reflects the fact that investors in money market funds expect the capital value of their investment to be maintained while retaining the ability to withdraw their capital on a daily basis. 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."
The CESR received 18 comment letters, including responses from the ICI, the Irish Funds Industry Association, EFAMA and Institutional Money Market Funds Association, JPMorgan Asset Management, and Crane Data, among others. The vast majority supported the overall goals of "the need to implement a regulatory definition of European money market funds."
The world's largest money fund manager, JPMorgan, protested strongly, "Whilst we support many of CESR's proposals, we have serious concerns about certain of them. We believe it is critical to strengthen the European money market industry with greater clarity around definitions and at the same time ensure global consistency.... JPMorgan feels strongly that money market funds should pertain to the most conservative definition and as such would not support a two-tiered approach that allows for 'longer term' money market funds. We would argue that the long term nature of such products would be more safely and appropriately classified as short term bond funds or should use some other naming convention that does not include the words money market, liquidity or cash.... Money market funds should only encompass funds that have short duration, daily liquidity, stable NAV and invest in high quality money market instruments."
ICI says in its comment, "Our views on these issues are informed by the experiences of our members in organizing, advising, and distributing U.S. registered money market funds as well as non-U.S. money market funds. The potential for regulatory convergence or divergence strongly affects the conduct of our members' businesses as changes in one jurisdiction can, and often do, affect the conduct of asset managers in other jurisdictions. As a result, robust dialogue among international regulators and market participants is vital to the evaluation of new regulatory approaches."
Finally, Crane Data's Peter Crane writes, "I urge the Committee to reconsider the 'two-tiered' approach to defining 'money market funds,' which I believe would result in worldwide confusion over the term, and to allow only 'short-term money market funds' to use this naming.... [T]he vast majority of worldwide 'money market mutual fund' assets are based in the U.S., which has a tremendously successful 40-year history of usage. Having regulators in Europe disregards this history and define money market funds differently than in the U.S. and differently than in a number of other countries worldwide would create needless risk, cost, and confusion in the marketplace. 'Money market' in common usage means less than a year to maturity and implies stable value. It would make far more sense for Europe to conform."
