FT on Leaked EU MMF Plan
Sunday's Financial Times writes "Brussels plan will 'kill off' money funds". It says, "Europe's E490bn fixed value money market fund industry will be "killed off" by tough reform proposals drafted by the European Commission, industry figures have said. The clampdown could also undermine the larger variable net asset value money fund sector, potentially increasing risks for investors. The leaked draft forms part of a global regulatory backlash against constant NAV money funds, which invest in high-quality, short-term money market instruments and trade at a fixed E1 or $1 a share except in extreme circumstances. Brussels argues constant NAV funds are susceptible to "massive and sudden redemption requests", which can create systemic risks given that money market funds hold 38 per cent of short-term debt issued by European banks.... The commission's draft proposals state that constant NAV funds must maintain a 3 per cent cash buffer to absorb losses, amounting to E14.7bn. All money market funds would also be barred from accepting collateral with a maturity of longer than 397 days to back repo trades. This will eliminate 80-90 per cent of the collateral currently used, say industry sources. It could potentially force funds to switch excess cash into unsecured commercial paper."
