The London-based Institutional Money Market Funds Association, or IMMFA, which is the "trade association representing the European triple-A rated, constant net asset value (CNAV) money market funds industry," published a press release late yesterday, which says, "As the debate about the EC's proposed Money Market Fund Regulation enters a new phase, IMMFA has released a collection of papers which explain the background to their position on the key issues. The European Commission made its proposal for a Regulation on Money Market Funds in September 2013. The MEPs in the European Parliament had their first exchange of views on this topic in the ECON Committee yesterday (4th November 2013)."
"Money market funds are an important tool for everyday businesses in the broader economy, helping them to safely manage their surplus cash and diversify their risk," said Susan Hindle Barone, Secretary General of IMMFA. "Decisions will be taken in Europe which will profoundly impact the benefits MMFs provide to a very wide range of investors, such as corporates, pensions providers and local governments. We want to be sure that those decisions are as well-informed. These documents are designed to explain the fundamental issues presented by the European Commission's proposal as simply as possible."
IMMFA's release explains, "The documents address the following points: IMMFA Fact Sheet on Money Market Funds; The Problem with Capital Buffers; The Use of Amortised Cost Accounting; Definition of Liquidity Requirements; Fund Level Ratings; Credit Process and Internal Rating Scale; Reverse Repurchase Agreements; Eligible Securitisations -- Asset-Backed Commercial Paper; As well as providing an overall summary of IMMFA's views on MMF."
The release includes links to two papers -- IMMFA Summary Views on MMF Reform - October 2013 and IMMFA Position Papers on MMF Reform - October 2013. It also includes links to documents which "provide more extensive background on many of the points made above: IMMFA Position on Capital Buffers - May 2013; IMMFA Summary Paper on Money Market Funds - February 2013; The Use of Amortised Cost Accounting in Money Market Funds – January 2013; and, Bank Runs, Money Market Funds and the First Mover Advantage - January 2013."
The IMMFA Summary, entitled, "The Institutional Money Market Funds Association's (IMMFA) Views on The European Commission's Proposed Regulation on Money Market Funds (MMFR)," explains, "European domiciled money market funds (MMFs) provide a valuable service to investors, issuers and the 'real economy'. Investors: Corporations, pension funds and other institutional investors have vast liquid portfolios. They are not protected by government guarantee schemes and are very risk sensitive. They value MMFs for their credit diversification, access to professional credit management, transparency and the efficiencies they provide their day-to-day operations....`Issuers <b:>`_: CNAV MMFs provide a small but relatively stable source of cross-border funding for European banks and, to a lesser extent, companies.... European companies: MMFs represent approximately 50% of all investments in Asset Backed Commercial Paper (ABCP) in Europe. ABCP improves the working capital of large companies such as Telecom Italia, Lafarge and Volkswagen."
It says, "Many regulators have concluded that MMFs did not cause the financial crisis in 2007/2008. The November 2012 SEC staff report on MMF states that academic literature characterises redemptions from MMFs as a 'flight to quality' as many investors switched their bank credit exposure in prime MMFs into sovereign risk in Government Liquidity MMFs. Nervous investors reduced their exposure to bank credit during the 2008 credit crisis whether they were invested in MMFs, had money on deposit with banks or invested directly in bank debt instruments."
Finally, IMMFA writes, "Nevertheless regulators remain concerned over the role MMFs played in transmitting the financial crisis via client redemptions and sponsor support. IMMFA recognizes these concerns and supports many of the provisions of the EC MMFR proposal, including that MMFs should have: Even greater transparency so investors have a full view of how a fund is performing; Minimum percentages of liquid assets ... Minimum asset diversification limits to minimise exposure to individual issuers [and] Robust monitoring of the investor base and stress testing to ensure MMFs can anticipate redemption requests in adverse market conditions. IMMFA believes that redemption gates and fees will be more effective in mitigating client redemptions than capital requirements (the European Commission's proposal)."
