As we mentioned in yesterday's "Link of the Day," the European Union has formally approved changes to money market fund regulations which will impact funds domiciled in Ireland, France and Luxembourg when they go into effect at the end of 2018. Today, we excerpt from a couple of articles on the changes, and quote from the latest version of the rules. The Wall Street Journal explains in "Corporate Treasurers Assess Impact of European Money Market Fund Reform," "Corporate treasurers are taking stock of their cash holdings in preparation for new European Union money market fund rules. The European Council, one of the main EU decision-making bodies, on Tuesday approved reforms that impose stricter liquidity requirements and limit redemptions on money-market funds."
The article continues, "Investors and corporations view these funds as an alternative to cash because, like a bank deposit, they can be quickly converted to cash. Around E1.2 trillion ($1.33 trillion) is currently invested in European money market funds, according to the Institutional Money Market Funds Association." (See our March 23 News, " European MMF Regs Moving.")
The Journal quotes Fiona Rose, Group Treasurer at Burberry Group PLC, which has "hundreds of millions of pounds" invested in money market funds, "We are at the moment looking at it and are preparing the board," quoting her at "a conference of the Association of Corporate Treasurers in Manchester, U.K."
The piece explains, "The legislation is expected to be published in the EU's statute book towards the end of the second quarter, and would go into effect in 2018 or 2019. Similar reforms in the U.S. triggered hundreds of billions of dollars in outflows from certain types of funds as finance chiefs and corporate treasurers overhauled how they invested their cash."
It adds, "Burberry has not yet decided whether to make changes to its money market fund investments, Ms. Rose said. The firm has used these funds 'for many years', she said, but could also opt to invest some of that money in other products. 'We will have to look at where to deposit our cash,' she added."
Finally, the Journal says, "The new rules prescribe mandatory liquidity fees as well as redemption hurdles, or so called gates. These additional fees, in combination with the European Central Bank's negative interest rate policy, are expected to make so-called constant net asset value funds less attractive.... Companies that want to keep their cash in constant net asset value funds despite the new fees and structural changes will need to seek board approval to alter their investment mandates, said Jane Lowe, Secretary General of the Institutional Money Market Funds Association." (See more on MMF Reform on IMMFA's web site and a recent presentation on European MMF Reforms.)
Website MondoVisione's Exchange News Direct writes, "Council Of The European Union: Money Market Market Fund Rules Adopted." It tells us, "EU rules are to be introduced on money market funds, aimed at supporting the role that the E1 trillion market plays in financing the economy. On 16 May 2017, the Council adopted a regulation to ensure the smooth operation of the short-term financing market. This follows initiatives by the G20 and the Financial Stability Board."
They too quote Edward Scicluna, minister for finance of Malta and current EU president, "These rules will go a long way in improving supervision and regulation of a largely unregulated sector. Whilst money market funds are vital to investors and issuers alike, the crisis showed us that they can also be vulnerable to shocks."
The piece explains, "The regulation lays down rules and common standards to: ensure stability in the structure of money market funds; guarantee that they invest in well-diversified assets of a goodcredit quality; and, increase the liquidity of money market funds, to ensure that they can face sudden redemption requests."
They add, "It was adopted at a meeting of the General Affairs Council, without discussion. The European Parliament approved the text on 5 April 2017, following an agreement between Council and Parliament representatives on 7 December 2016. Most provisions will apply 12 months after entry into force."
The full 100-page "Regulation of the European Parliament and of the Council on Money Market Funds" posted April 26, 2017, says, "This Regulation lays down rules for money market funds (MMFs) established, managed or marketed in the Union, concerning the financial instruments eligible for investment by a MMF, the portfolio of an MMF, the valuation of the assets of an MMF, and the reporting requirements in relation to an MMF. This Regulation applies to collective investment undertakings that: (a) require authorisation as UCITS or are authorised as UCITS under Directive 2009/65/EC or are AIFs under Directive 2011/61/EU; (b) invest in short-term assets; and (c) have distinct or cumulative objectives offering returns in line with money market rates or preserving the value of the investment. 2. Member States shall not add any additional requirements in the field covered by this Regulation."
