Consulting firm Treasury Strategies just posted "An Open Letter to Members of the European Parliament – Regulation of European Domiciled Money Market Mutual Funds, which contains a "European Money Market Mutual Fund Survey on Regulation." It says, "We are writing to share important information with respect to the current debate in Parliament regarding European domiciled money market mutual fund (MMF) regulation. As you know, MMFs are an important tool for corporations and institutions to effectively manage their daily cash flows. They also provide critical short-term credit to borrowers in the financial markets."

Authors Tony Carfang and Cathy Gregg explain, "Treasury Strategies is a leading consulting firm in treasury and cash management for corporations and financial institutions. We regularly survey our clients about their financial practices and concerns. With this letter, we submit the results of our survey "European Money Market Mutual Fund Survey on Regulation - February 2013". The findings are consistent over time with other surveys we have conducted in Europe and other regions of the world."

They tell us, "Our survey findings raise a serious concern that we bring to your attention: If proposed regulations restricting the operation of constant net asset value MMFs (CNAV) are enacted, corporate treasurers will greatly reduce their investments in these funds and transfer their cash into already swollen deposits at commercial banks. This will lead to increased concentration and risk in the banking sector while also depriving investors of an important liquidity management tool."

The Treasury Strategies letter continues, "The MMF industry in Europe is a significant one, and includes both CNAV funds and variable net asset value (VNAV) funds that fluctuate in value each day. Together these account for 25% of total corporate cash investments in Europe. For a variety of reasons, 61% of corporate treasurers in our survey invest company cash in CNAV funds only, while 30% use a combination of VNAV and CNAV funds. Proposed regulations will diminish the viability of the CNAV funds."

It adds, "In short: If CNAV funds were impaired by the proposed regulations, 69% of investors who invest only in CNAV funds would reduce or discontinue using MMFs. These investors represent 91% of the portfolio value reported in the survey. 72% of CNAV investors would substitute European bank deposits as an alternative to some of their investment in MMFs. 39% of CNAV investors would substitute bank deposits in other jurisdictions as an alternative to some of their investment in MMFs."

Finally, the letter writes, "The survey results further support the conclusions that MMFs have become a significant cash management tool for European institutions, that CNAV MMFs represent a large portion of MMF holdings by European institutions, and that changing European MMF regulations to require VNAV would significantly reduce investment in European MMFs. We are pleased to share this information as you debate these proposed regulations. We encourage you to carefully consider the ramifications of impairing CNAV MMF usefulness, and thus further increasing banking sector concentration."

The attached study's "Executive Summary" says, "Treasury Strategies ... is pleased to present the results of a recent survey we conducted to assess the potential impacts of changes to calculating the net asset value (NAV) of Money Market Mutual Funds (MMFs) within Europe. We surveyed unique corporate, government, and institutional investors in November of 2012. The respondents are sophisticated investors (corporate treasury executives) with nearly 60% representing organizations that have annual revenues exceeding E1 billion."

It adds, "Our survey results indicate that any attempt to eliminate the constant net asset value (CNAV) methodology for pricing MMFs in Europe would generate a negative reaction among investors. A large segment of respondents surveyed indicated that if enacted, they would either decrease or discontinue their use of money market funds. Analyses by industry and by company size show that this sentiment is pervasive. There were no material differences by respondent sector. In order to test whether the behavior and attitudes varied depending upon the region in which a company was domiciled, we compiled the results in two parts. Part I is comprised of all companies participating in the survey, irrespective of the country of domicile. Part II is comprised of only those companies domiciled in Europe."

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