A press release sent out yesterday morning says, "Fitch Ratings has updated its global rating criteria for money market funds (MMF). The criteria update, which is part of Fitch's periodic review of all rating criteria, provides added transparency in light of the globally evolving regulatory landscape for MMFs. The report clarifies and updates certain elements of Fitch's MMF rating criteria. However, the core analytical framework, as outlined by Fitch in October 2009, remains unchanged. As such, no rating actions are expected as a result of the updated criteria. The criteria primarily focus on 'prime' MMFs, although it is also applicable to MMFs investing in sovereign, agency, and tax-exempt obligations."
The release continues, "Key changes to the criteria include: Expanded rating criteria to encompass the portfolio and operating parameters of MMFs rated 'AAmmf' and 'Ammf', which may be particularly relevant in light of the pan-European definition of MMFs; Updated diversification criteria for direct, indirect and collateralised exposures in MMFs, including exposures to the fund's sponsor or parent; An update of those assets recognised for daily and/or weekly liquidity and explicit recognition of committed liquidity facilities, when available; and, Clarified treatment of counterparty risk in repurchase agreements."
Fitch's statement adds, "Key elements of Fitch's ratings criteria are largely consistent with regulatory changes and enhancements to the MMF industry that were announced and/or implemented in 2010. For example, the U.S. Securities and Exchange Commission adopted a number of important enhancements to the regulatory framework for US MMFs. The Institutional Money Market Funds Association, the trade association representing 'AAA' rated constant net asset value (CNAV) MMFs outside of the US, reviewed its Code of Practice outlining how these MMFs manage credit, liquidity, and market risk. The Committee of European Securities Regulators, which was recently replaced by the European Securities and Markets Authority, published guidelines for harmonised MMF definitions across Europe. These definitions are viewed as a major step towards greater market transparency and comparability of European MMFs and have already led to significant reshuffling of product ranges, notably in Continental Europe. 'AAmmf' and 'Ammf' criteria will predominantly serve European funds."
Fitch's updated "Global Money Market Fund Rating Criteria" explains, "A Fitch MMF rating is primarily based on a review of the fund's portfolio holdings with respect to: credit quality; diversification and maturity; market and interest rate risk; and available liquidity relative to the fund's shareholder base. In addition, consideration is given to the capabilities and resources of the fund's investment advisor and sponsor, including the sponsor's ability and willingness to financially support the fund, if needed, in times of extreme stress. Fitch recognizes there is no contractual obligation on a part of the sponsor to support a fund. Therefore, the concept of support is implicit rather than explicit. Historically, support has been forthcoming from strategically motivated sponsors that had sufficient financial resources."
It adds, "Fitch relies on information provided by the investment manager and the fund administrator, supplemented by other third-party sources of information to the extent available and judged to be reliable. When assigning ratings, Fitch does not perform due diligence but undertakes reasonable checks on the information provided by the fund management company. MMF ratings may not incorporate 'event risk'. Event risk is defined as an unforeseen event which, until the event is known, is not included in the existing ratings. Prominent event risks for funds include sudden, dramatic and unexpected changes in market conditions due to unforeseen circumstances, such as a natural disaster or adverse regulatory decisions, litigation, fraud or other unforeseeable breakdowns in control and governance, among others."
For more details, visit www.fitchratings.com. For a list of Fitch rated money market mutual funds (and other AAA rated funds), see our Money Fund Intelligence XLS or Money Fund Wisdom products.
