Anniversary of European MMF Reforms
It's been one year since European Money Market Fund Reforms went live, at least for brand new funds (existing funds had until January 2019, which was then extended to March 2019). On the first anniversary, we look back at our Crane Data July 21, 2018 News, "European Reforms Go Live (New Funds)." We wrote then, "With new European money market fund regulations going into effect Saturday (July 21), both Moody's Investors Service and Fitch Ratings recently commented on the changes, one in the form of a Q&A and the other via webinar. Moody's published the report, "European Money Market Funds - FAQ on new money market fund regulation," and put out a press release entitled, "Moody's: New rules for €1.3 trillion EU money market funds to reshape industry landscape and boost its resilience." The latter says, "New European Union rules to improve the transparency and resilience of Europe's €1.3 trillion money market fund industry will lead to funds being managed more conservatively, a positive for fund sponsors and investors, says Moody's Investors Service." They add, "The new rules will apply from 21 July 2018 and will introduce a new category of fund, the low-volatility (LVNAV) money market fund, while the existing prime constant net asset value (CNAV) funds will be phased out." The report explains, "New rules designed to improve the transparency and resilience of Europe's E1.3 trillion money market fund (MMF) industry will take effect on 21 July 2018. They introduce new minimum liquidity and stress testing requirements that will make MMFs more resilient to market shocks, a credit positive for fund sponsors and investors. The rules also introduce a new category of fund, the low-volatility net asset value (LVNAV) MMF, while existing prime constant net asset value (CNAV) funds will be phased out. The rules will apply to all new MMFs from 21 July, while existing funds must comply by 21 January 2019." Moody's asks, "Will MMF managers alter their investment strategies?" They answer, "Yes. We expect the new LVNAV funds to be managed more conservatively than the prime CNAV funds they will replace. The same is true of short term VNAV funds, which will also attract some assets currently held in prime CNAV MMFs. Under normal circumstances, investors in LVNAV funds will be able to buy and sell their fund units at a constant share price of €/L/$1.00. The net asset value (NAV) per share will remain constant at 1, provided it does not deviate by more than 20 basis points from its market-based calculation.... This narrow share price volatility tolerance (CNAV funds currently operate within a wider 50 basis point corridor) will likely drive portfolio managers towards higher quality securities. We also expect them to increase their investment in shorter-dated securities (maturing in 75 days or less), which are valued using amortized accounting." For more on European Reforms, see these Crane Data News articles: Transition to New European Money Fund Regulations Low-Key Says S&P (5/2/19), S&P Global on European and Offshore MMF Metrics (4/26/19), Fitch Update on European Money Funds After Reforms; Morgan Stanley (4/1/19), Aberdeen, Fido Make European Reform Changes; Oppenheimer Merging (3/1/19), Little Movement in European Money Funds; Offshore, ICI MMF Holdings (2/15/19), Not Done Yet: European Money Funds Continue Adjusting to Reforms (2/6/19), European MMF Reforms Going Live, or Not? Economist Swipes at RDM Kill (1/22/19), 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). (Note: Register too for our European Money Fund Symposium, which is Sept. 23-24, 2019 in Dublin, Ireland.)
