Money fund attorney John Hunt writes "CESR Issues Guidelines Relating to a Common Definition of a Money Market Fund," in the June 8 edition of Goodwin Procter LLP's Financial Services Alert. Hunt says, "The Committee of European Securities Regulators (CESR) recently issued guidelines relating to any European fund that calls itself or markets itself as a 'money market fund.' (See also our new June Money Fund Intelligence, which features "Money Funds in Europe: Q&A w/IMMFA's Le Coz," and our May 20 Crane Data News "European Regulators Keep Two-Tiered Definition of Money Market Fund.")

The Goodwin piece explains, "The Guidelines cover both a UCITS fund (a fund that complies with the requirements of the European directives relating to 'Undertakings for Collective Investment in Transferrable Securities') and a non-UCITS fund regulated under a national law of a European Union member state. Currently, there is no commonly accepted definition in Europe of what constitutes a money market fund. Commission Directive 2006/73/EC (commonly known as the 'MiFID Level 2 Directive') providers for a 'qualifying money market fund.'"

Hunt continues, "The Guidelines on the other hand are intended to ensure that money market funds meet investor expectations. As a result, the adoption by CESR of the Guidelines is roughly equivalent to the SEC's adoption in 1983 of Rule 2a-7 under the Investment Company Act of 1940. Although CESR guidance does not have legal status, as a practical matter, all European securities regulators apply CESR guidance."

He writes, "The Guidelines describe a two-tiered approach consisting of a 'Short-Term Money Market Fund' and a 'Money Market Fund.' The critical distinction between a Short Term Money Market Fund and a Money Market Fund is that a Short-Term Money Market Fund may purchase and sell its shares using a stable share price, but a Money Market Fund may not. This two-tier approach was recommended to the SEC by the Committee on Federal Regulation of Securities, Section of Business Law, American Bar Association (ABA) in its September 8, 2009 letter commenting on amendments to Rule 2a-7 proposed by the SEC in June 2009. (John Hunt of Goodwin Procter participated in drafting that comment letter.)"

Finally, Hunt says, "The Guidelines specify the following criteria for both types of money market funds: A fund must have as its primary investment objective maintaining the fund's principal, and must aim to provide a return in line with money market rates.... A fund must disclose in its prospectus and, in the case of a UCITS fund, its 'key information document,' whether the fund is a Short-Term Money Market Fund or a Money Market Fund. To qualify as a Short-Term Money Market Fund, a fund generally must: Limit its investments in securities to those with a residual maturity ... of no more than 397 days; and Ensure that its portfolio weighted average maturity is no more than sixty days, and its portfolio weighted average maturity life is no more than 120 days."

The Goodwin piece adds, "The Guidelines take effect on July 1, 2011. A money market fund created after July 1, 2011 will have to comply with the Guidelines immediately. A money market fund created on or before July 1, 2011 generally must comply with the Guidelines' prospectus and, if applicable, the Guidelines' key information document disclosure requirements, by that date, and is allowed a six-month transitional period with respect to investments acquired on or before July 1, 2011."

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