Bloomberg on European MMF Reforms
Bloomberg wrote the article, "EU's $1.1 Trillion Money-Fund Market Faces Stricter Regulation." (See our June 16 News, "European Money Fund Reform Deal Poised to Pass; CNAVs to Be LVNAVs.") It says, "The European Union is moving closer to imposing tighter restrictions on money-market funds after years of wrangling, while stopping short of restrictions the industry said would upend the 1 trillion-euro ($1.1 trillion) market. The plan set for approval by EU finance ministers on Friday would require funds to toughen up risk management and invest in more liquid assets that can be easily traded in volatile markets should investors rush to pull out their money. It offers a way for many funds to continue quoting a fixed share price, known as a constant net-asset value, to banks, corporations and other investors who rely on them for short-term funding." Bloomberg continues, "The money-fund market in Europe is roughly split at the moment between constant and variable net-asset value funds with the asset-management arms of JPMorgan Chase & Co. and Goldman Sachs Group Inc., as well as Amundi SA and BlackRock Inc., among the top fund managers, according to data compiled by Fitch Ratings and Bloomberg. The market is heavily concentrated in Ireland and Luxembourg, which are both home primarily to constant value funds, and France, which is largely home to variable funds." It adds, "Under the member states' proposal, constant-value funds could remain if they invest almost entirely in government debt. The funds could also transition to become so-called low-volatility net-asset value funds, which would retain a constant share price so long as they meet curbs on investments and maintain sufficient liquidity to meet redemptions. The European Parliament also suggested the low-volatility concept, but would bar their authorization after five years. The member states dropped that so-called sunset clause, after opposition from lobbying groups such as the Institutional Money Market Funds Association, which represents constant value funds in Europe. "We believe the compromise text on LVNAV would make them a workable alternative option to current CNAV funds," Alastair Sewell, head of fund and asset manager ratings in Europe and the Asia-Pacific region at Fitch Ratings, said in an interview.... The debate will now turn to differences in the proposal about what kinds of assets the fixed and variable funds can invest in.... The issue of liquidity proved a late sticking point in member states' negotiations, when the U.K., Ireland and Luxembourg squared off against France and Germany over whether to allow government debt to be used for a liquidity buffer. While this obstacle was overcome, the Luxembourg Finance Ministry said the compromise text has "a number of shortcomings, notably -- but not only -- in the area of the liquidity requirements." These will need to be addressed when talks begin with the European Parliament, a ministry spokesman said. Neena Gill, lead lawmaker in the EU assembly on this bill, also pointed to liquidity requirements as an issue where member states and the parliament don't see eye to eye. The member states' removal of the sunset clause on low-volatility funds is another, she said. Still, Gill said she hopes for a final agreement on the legislation in early autumn."
