A press release from IMMFA, the London-based Institutional Money Market Funds Association, entitled, "Disappointment in the ECON vote on amendments to the Money Market Fund Regulation," explains, "This morning the Economic and Monetary Affairs Committee (ECON) of the European Parliament passed a set of proposed amendments to the Money Market Fund Regulation (MMFR) which had originally been put forward by the European Commission in September 2013. The money market fund industry in Europe has approximately E1 trillion assets under management. If implemented, the changes suggested by the European Parliament would have wide-ranging and long-term ramifications for both the constant net asset value (CNAV) and variable net asset value (VNAV) sectors of the money market fund market. A great deal of effort has been expended over the last few years.... Bearing this combined effort in mind, it is regrettable that the ECON Committee has decided upon a set of proposals which would impinge on the usefulness of many of the money market funds products and as a result would negatively impact the funding supply which money market funds inject into the short term capital market. This in turn has implications for the many businesses and banks which fund themselves in this market. It is a positive development that the measures passed this morning recognized that the capital buffer originally suggested by the European Commission was not a viable proposal for an investment product. It is also worth noting that many of the good market practices which IMMFA funds already adopt voluntarily under the IMMFA Code of Practice, such as credit diversification, prescribed levels of liquidity and a high level of transparency, have been incorporated into the future regulation of money market funds in Europe. However the options presented to the CNAV industry are disappointing. The Retail CNAV and EU Public Debt CNAV options are limited in scope, and certainly under current market condition together account for less than 10% of the CNAV AUM.... The proposed LVNAV option could operate as a substitute CNAV product providing the funds invest only in extremely short duration debt instruments (<90 days). However under a so-called 'sunset clause' the authorisation of these funds would lapse 5 years after the Regulation comes into force.... The agreement by the Parliament is effectively stage 2 of a 4-stage process. The proposed text from the ECON Committee will now be subject to plenary ratification by the full European Parliament -- this is expected to take place sometime in April. The next phase requires the Council of Ministers, made up of senior representatives from each of the 28 Member States, to agree their version of how the future regulation of money market funds should be effected. Once each of these 3 bodies (the EC, the EP and the CoM) has their own version of the MMFR, the fourth and final stage, the Trilogue, takes place. The Council of Ministers still has the opportunity to express their vision of how money market funds regulation should be implemented, and this view along with those of the European Parliament and the European Commission will be considered in the Trilogue process. IMMFA remains committed to working with all parties involved in the regulatory debate and hopes that in the long run a pragmatic approach will prevail. Reuters reports in "EU Lawmakers Back Revamp of Money Market Funds," "Europe's money market funds will not have to hold costly capital to shield them from financial shocks following a vote by European Union lawmakers to soften proposed new rules for the trillion-euro industry.... It has adopted a new approach similar to rules introduced in the United States, where the funds would have fees and "gates" aimed at making it harder for investors to withdraw their cash in a crisis.... The new plans also create three new categories of CNAVs, one for holding only European Union government debt and another for just retail investors.... Under the version backed by lawmakers on Thursday, all money market funds, including variable net asset value funds, must meet minimum liquidity requirements and limit how much can be invested in any given asset. No money market fund would be allowed to receive external support at any time, including from their sponsors, making it clear what would happen in a crisis." In other news, ICI's latest weekly "Money Market Mutual Fund Assets" report says, "Total money market fund assets increased by $10.28 billion to $2.69 trillion for the week ended Wednesday, February 25."
