BlackRock, the 2nd largest manager of money market funds in Europe, is the latest to disclose changes and plans for its fund lineup in preparation for European Money Market Fund Reforms. They posted several documents on a new "European Money Market Fund Regulatory Reform Centre," including a "European Money Market Fund Reform Product Details brief and a "European Money Market Fund Reform Frequently Asked Questions publication. The former says, "As we prepare for the implementation of European Money Market Fund (MMF) Reform, we reflect on all we have learned - from both regulators and our clients – about the future of the MMF landscape and its impact on our products. Whilst several details of the EU MMF Reform remain outstanding and must be addressed before plans can be finalised, we believe it is important that we are as transparent as possible about our intended future plans and wish to reinforce our long-standing commitment to satisfying your cash management needs." (Note: Register soon for Crane Data's upcoming European Money Fund Symposium, which is Sept. 20-21 at the London Tower Bridge Hilton.)
BlackRock writes, "Under the new regulations, the biggest change will be the offering of new product types. The final regulatory text of the European MMF Reform importantly preserves Constant Net Asset Value (CNAV) for public debt MMFs, while introducing a new type of fund, the Low-Volatility NAV (LVNAV) MMF. LVNAV will replicate the stable NAV and intraday liquidity utility of CNAV MMFs, which is intended to have greater sensitivity to market pricing, and additional safeguards and controls built into the fund structure."
They explain, "Our goal is to continue offering our clients the breadth and depth of product options that their varying MMF needs may require. Importantly, based on client feedback to date, we currently plan to migrate our existing range of CNAV Prime Institutional Liquidity MMFs to the new LVNAV structure.... Whilst acknowledging many clients' preference for LVNAV, the `negative interest rate environment in euros makes the CNAV and LVNAV structures dependent on continued regulatory approval of the Reverse Distribution Mechanisms. Regulatory discussions in this regard are ongoing and we will accordingly inform clients of any required adjustments to our product line-up in the coming months."
BlackRock adds, "It is our intention to transition to the new rules during Q4 2018, in advance of the 21 January 2019 date at which compliance with the European MMF Regulation for existing funds is mandatory. We believe this early transition will allow for a more seamless conversion with lower risk of disruption to shareholders, and reduce the risk of complications at year-end, when liquidity pressures may increase.
BlackRock's FAQ tells us, "European money market fund reform has been prominent in the minds of cash investors and managers alike for years now. It is only recently, however, that the conversation has pivoted from 'what if' scenarios to 'how and when' scenarios. BlackRock Global Cash Management has been working tirelessly to absorb the new regulations and make decisions about the future of our platform such that it is best positioned to meet the needs of our diverse clients, and to ensure a smooth transition to the new regulatory regime."
The update asks, "Will you offer intraday settlement for both LVNAV and ST VNAV MMF structures?" It answers, "Yes, it is our intention to offer intraday settlement, as we do today, for our short-term money market funds.... [S]ettlement frequency is likely to be higher for the LVNAV MMFs."
Next, they state, "We will have migrated our funds to the new structures on Monday 14 January 2019. Our operational processes will be ready and tested in fourth quarter 2018 and we feel confident that this time frame provides the best solution for our clients.... We anticipate that our existing prime CNAV funds will migrate to LVNAV MMFs as a 'default' option but clients will have the option to move into ST VNAV MMFs in the ICS plc fund range if preferred. Our public debt CNAV funds will retain their CNAV structure."
BlackRock asks, "Will the Reverse Distribution Mechanism still exist for negative-yielding currencies?" They answer, "It is our intention to continue offering the utility of LVNAV MMFs and public debt CNAV funds in negative-yielding currencies. Whilst acknowledging many client's preference for LVNAV, the negative interest rate environment in euro makes the CNAV and LVNAV structures dependent on continued regulatory approval of the Reverse Distribution Mechanism. Regulatory discussions in this regard are ongoing and we will inform clients accordingly of any required adjustments to our product line-up in the coming months. We fully intend to continue offering intraday liquidity to euro clients through all CNAV, LVNAV and ST VNAV structures."
They tell us, "The daily mark-to-market (MTM) NAV will be available on the website at blackrock.com/cash. We will also disclose the difference between the constant and MTM NAV for LVNAV and CNAV MMFs on the website.... Please refer to BlackRock's 'Classification of Money Market Funds" for information on funds' "cash and cash equivalent status."
When asked, "Will BlackRock be able to manage LVNAV MMFs to the 20 basis point (bp) threshold?" They tell us, "Yes, we anticipate that we should be able to manage to the 20bp threshold in all but the most stressed of market environments, thus maintaining a constant NAV of 1.00."
Finally, when asked, "Will you impose liquidity fees and redemption gates?" BlackRock comments, "We would not anticipate implementing liquidity fees or redemption gates except in extraordinary circumstances or systemic shock. There are no prescribed liquidity fee or redemption gate provisions outlined in the regulation for ST VNAV or standard VNAV MMFs, though they retain the powers available under UCITS. However, there are prescribed scenarios for public debt CNAV and LVNAV MMFs under which liquidity fees and/or redemption gates may be implemented subject to certain liquidity thresholds being breached."
The Q&A adds, "The prescribed scenarios are as follows: If weekly maturing assets of the fund fall below 30% of total assets AND daily net redemptions exceed 10% of total assets on a single working day, the Board has the discretion to implement liquidity fees and/or redemption gates or take no action; If the weekly maturing assets of the fund fall below 10% of total assets, the Board is obliged to decide whether to implement liquidity fees and/or redemption gates."
For more on European Money Market Fund Reform plans from money fund managers, see our August 14 News, "SEC Shows Private Liquidity Funds Up in Q4; HSBC's European MF Plans," our July 17 News, "Morgan Stanley European MMF Reform Plans; Offshore Port Composition," our March 16 News, "JPMAM European MMFs Plan for Nov 2018 Conversion; MF Assets Plunge, and our Nov. 16, 2017 News, "JP Morgan To Offer All European Fund Options; ICI MMF Holdings Update."
