European money market funds continue to change fund types and tweak lineups ahead of the revised March 21 deadline for regulatory reforms. The latest fund managers to announce changes or compliance schedules are Deutsche, Fidelity and UBS. A number of firms have already converted their money funds to be compliant with the pending reforms, including Aviva (9/1/18), BNP Paribas (11/11/18), JP Morgan (11/30/18), BlackRock, Federated, SSGA (1/11/19), Morgan Stanley and UBS (1/14/19). (See our Feb. 1 News, "Fitch Discusses European MMF Reform Delay," our Jan. 22 News, "European MMF Reforms Going Live, or Not? Economist Swipes at RDM Kill Our News," and our Jan. 7 News, "BNY Mellon Converts for European MF Reforms; USD Assets Rise in 2018.")
A letter entitled, "Deutsche Global Liquidity Series plc ('DGLS') shareholder update," discusses, "DGLS money market fund conversions pursuant to Regulation (EU) 2017/1131 of 14 June 2017 on money market funds ('MMFR')." It says, "In light of fresh guidance from the Central Bank of Ireland ('CBI'), we are updating the time schedule for the proposed implementation date for MMFR in respect of DGLS and its sub-funds. In our update of 10 January 2019, which was based on earlier indications from the CBI, we informed all shareholders that the conversion of the relevant DGLS sub-funds in their respective MMFR classifications under the MMFR was intended to take place on a date in March 2019."
Deutsche explains in the January 22 update, "The CBI informed DGLS last week (along with all other money market funds authorised in Ireland) of their expectation that conversion pursuant to the MMFR must now occur in early February 2019. Accordingly, shareholders should note the following revisions to the proposed implementation timetable for DGLS: All relevant DGLS sub-funds shall be made MMFR compliant over the weekend commencing 9 February 2019 with MMFR authorisation from the CBI expected to be received on 11 February 2019."
They continue, "This will conclude the full and final conversion of (i) the Deutsche Managed US Dollar Fund and Deutsche Managed Sterling Fund to LVNAV (Low Volatility Net Asset Value) MMFs and (ii) the Deutsche Managed Dollar Treasury Fund to Public Debt CNAV (Constant Net Asset Value) MMF under the MMFR. An updated version of the Prospectus of DGLS will be published on the Conversion Date with all details of the sub-funds' operation under the MMFR. Aside from this change to Conversion Date, the parameters for conversion of all these DGLS sub-funds to MMFR compliance will remain unchanged."
The update states, "The Deutsche Managed Euro Fund will also convert to an LVNAV MMF on this date and will be permitted by the CBI to continue to operate a 'Reverse Distribution Mechanism' (RDM) provided it has ceased to do so on or before 21 March 2019.... Therefore, the revised Prospectus of DGLS as at the Conversion Date will make provision for a 'sunset clause' regarding the operation of RDM in the Deutsche Managed Euro Fund only."
It adds, "It is intended that the distributing share classes of the Deutsche Managed Euro Fund, which currently utilise RDM be re-structured as accumulating share classes. Subject to investor approval, it is intended that this be implemented over the weekend commencing 16 March 2019 with conversion to accumulating shares effective as of 18 March 2019. Further communications shall be made to affected investors in this regard in due course."
Fidelity Institutional Liquidity Fund plc writes in a "Notification of compulsory transfer of holders of Flex Distributing Shares into Accumulating Shares," "We are writing to you as a holder of Flex Distributing Shares of The Euro Fund (the "Fund"), a subfund of the Company. The purpose of this letter is to notify you of the re-designation of your Flex Distributing Shares as equivalent Accumulating Shares of the Fund on 27 February 2019 (the "Compulsory Transfer Date")."
Fidelity tells us, "The Prospectus provides for the automatic redemption of Flex Distributing Shares by the Manager with the aim of maintaining a constant Net Asset Value, which is a type of share cancellation/reverse distribution mechanism ("RDM") that has been utilised by money market funds in negative yield conditions. The Company is required to take certain measures to ensure compliance with the EU Money Market Fund Regulation (the "MMFR") in light of the European Commission's opinion that RDM is incompatible with the legal framework established by the MMFR. It is intended to update the Prospectus to remove provision for RDM and, given the prevailing low/negative short-term Euro interest rate environment, it will not be possible to maintain a stable Net Asset Value per Share when RDM may no longer be utilised in respect of the Flex Distributing Shares of the Fund."
They say, "As a result, in accordance with the terms of Article 4(h) of the Articles of Association of the Company, the Directors of the Company have determined to re-designate your Flex Distributing Shares as equivalent Accumulating Shares of the Fund on the Compulsory Transfer Date, as follows: Class A and Class F Flex Distributing Share Shares Series 1 and 2 will become Class A Accumulating Shares, while Class B Flex Distributing Shares Series 1 and 2 will become Class B Accumulating Shares.
Also, a February 1 UBS (Irl) Fund plc update explains, "We are writing to you in your capacity as a shareholder of UBS (Irl) Fund plc to inform you in respect of certain changes pursuant to the Money Market Fund Regulation (EU) 2017/1131 ("MMFR"). The MMFR came into force on 20 July 2017 and applies from 21 July 2018. It is a broad set of new regulatory measures that apply to money market funds ("MMFs") established, managed or marketed in the European Union. Under Article 1 of MMFR a MMF is an authorised UCITS that: (i) invests in short-term assets; and (ii) has distinct or cumulative objectives offering returns in line with money market rates or preserving the value of the investment."
It continues, "You will recall that we sent you a separate MMFR communication in respect of proposed updates to the memorandum and articles of association of the Company on 13 December, 2018. This was considered and deemed appropriate by a Special Resolution of Shareholders at an extraordinary general meeting of the Company held on 7 January 2019. As the sub-funds of the Company constitute MMFs, they are required to seek authorisation from the Central Bank of Ireland (the "Central Bank") in accordance with MMFR. The intention of the Company is to be in compliance, save for the use of certain sub-funds of reverse distribution mechanism ("RDM") as further discussed below, with all aspects of MMFR by 18 February 2019. A list of the sub-funds and their proposed and effective date of such implementation designation, once authorised under MMFR, is set out at Appendix I."
UBS comments, "The Central Bank pursuant to Article 44 of MMFR is permitting sub-funds which currently utilise RDM to continue to make use of such mechanisms up and until 21 March 2019. The Company, in respect of the UBS (IRL) Select Money Market Fund – EUR intends to make use of this extended time period and a further revision to the offering document for this sub-fund (which will remove provision for RDM and provide for accumulating T+0 share classes) will be made at a later date prior to 21 March 2019."
They add, "The change under the MMFR will be effective from the day the revised Prospectus and Supplement are approved by the Central Bank which is expected to be on or around 18 February 2019 (the "Effective Date"). Should you wish to do so, Shareholders will have the opportunity to redeem their shares prior to the Effective Date in accordance with the requirements of the Prospectus. Should you have any queries in respect of the above please do not hesitate to contact your usual contact within the Investment Manager."
For more on European Reforms, see the following Crane Data News stories: "Schwab USD LA Goes Govt Ahead of European Reforms; Weekly Holdings" (1/3/19); "Money Fund Average Breaks 2.0%, Yields Rise; BNP Splits European MMFs" (12/27/18); "Money Fund Assets Skyrocket, Break $3 Trillion; UBS on European MMFR" (12/14/18); "JPMorgan Now Live With European Money Fund Reforms; VNAVs SnP AAA" (12/4/18); and "Cash Will Be King in '19 Says GS; BlackRock Update; Europe Rejects RDM" (11/26/18). Finally, let us know if you'd like to see our latest Money Fund Intelligence International, which tracks the European money fund marketplace.
