European regulators just issued some new guidance on parts of the recently implemented European Money Fund Reforms, though we couldn't understand a word of it. A press release entitled, "ESMA readies stress testing requirements for money market funds" tells us, "The European Securities and Markets Authority (ESMA) has today issued two sets of guidelines regarding the stress testing of money market funds and reporting on money market funds to national competent authorities (NCAs), aimed at ensuring a coherent application of the Money Market Fund (MMF) Regulation." We quote from the release below, and we also review an article on global money funds and remind readers about our upcoming European Money Fund Symposium in Dublin (Sept. 23-24).
ESMA's release continues, "The Guidelines on stress testing establish common reference parameters of the stress test scenarios MMFs or managers of MMFs should include in their stress scenarios. The Guidelines on reporting provide guidance on how to fill in the reporting template on money market funds that managers of MMFs will transmit to competent authorities as of Q1 2020."
ESMA Chair Steven Maijoor comments, "Money market funds offer high liquidity at lower risk than other funds, contributing to the funding of banks, governments and corporates. However, due to their important role in the money market, any disruption affecting MMFs may impact financial stability. Stress testing is an important tool to assessing and mitigating potential stability risks. Our guidance will ensure that the same level of care, risk management, and stress testing is applied across the European MMF sector -- allowing investors to benefit from similar safeguards across different countries."
The release adds, "MMFs and managers of MMFs are expected to measure the impact of the common reference stress test scenarios specified in the Guidelines, the results of which should be shared with regulators through the reporting template with their first quarterly reports for Q1 2020. Therefore, the Guidelines include stress test scenarios in relation to hypothetical changes in MMFs': liquidity levels; credit and interest rate risks; redemptions levels; widening/ narrowing of spreads among indexes to which interest rates of portfolio securities are tied; and macro-economic shocks."
Finally, ESMA says, "The guidelines will be updated at least every year and will take into account the latest market developments. The current guidelines include the calibration of the stress test scenarios for 2019. Today's publication includes reporting validation rules and the XML schemas of the candidate ISO 20022 messages to be used by MMF for their reporting."
In related news, Asian investment news source The Asset talks with HSBC Global Asset Management's Jonathan Curry in their article, "Money market funds growing in Asia despite low returns." They write, "In Asia, the Chinese money market fund Tianhong Yu'e Bao has become the world's largest with assets of about 1.56 trillion yuan (US$233 billion). The reason for the huge growth of this asset class ... is that more investors are seeking greater capital preservation and liquidity on their assets rather than performance. 'Managing investors' cash is all about preservation of capital and provision of liquidity. A return is important but it's a secondary factor against those two primary objectives,' says Jonathan Curry, global CIO Liquidity & CIO America of HSBC Global Asset Management."
The article continues, "HSBC GAM manages a total of US$80 billion in money market funds across a range of developed market and emerging market currencies for institutional and corporate investors. 'In this asset class it is less about asset allocation decisions being driven by the macroeconomic picture. It's less about markets being driven by geopolitical issues that might change an investor's asset allocation. Now clearly that may have an impact on their cash allocation but that isn't really what drives the investors to use money market funds,' Curry says."
The Asset quotes Curry, "What we are seeing is a wider range of different client types that are now using money market funds as a way of managing some of their cash. In Asia, the range of users isn't as broad as in the US but it's growing.... It depends on the client in terms of how they use the funds because one of the key premises about them is the provision of liquidity. You get some investors that use that liquidity frequently, so they'll be going in and out of the fund regularly. You get others that might be building cash out for a specific purpose and then redeeming it. But that will be a long-term period where they will be holding the fund. And then you have investors that have a long-term cash allocation and they don't have significant liquidity needs. So they will be a very stable investor in the fund."
The article adds, "In Asia, money market funds have been established longer in some markets particularly Hong Kong (HKD), India (INR), and Korea (KRW).... More recently established but fast-growing money market fund industries are in Australia (AUD), China (RMB), and Singapore (SGD). HSBC GAM's RMB money market fund is about 16 billion yuan (US$2.33 billion) and growing steadily. HSBC GAM's single biggest money market fund is its US dollar European domiciled fund with US$28 billion."
Finally, we also continue making preparations for the 7th Annual Crane's European Money Fund Symposium, which will take place Sept. 23-24 at The Hilton Dublin in Dublin, Ireland. The latest agenda is available and registrations are still being taken for the largest money market fund gathering in Europe. More details are below, and feel free to contact us for more information. We hope to see you in Dublin in September!
Last year's European Crane Symposium in London attracted 140 attendees, sponsors and speakers -- our largest European event ever. Given the recent implementation of new money fund regulations and structures in Europe, the continued "repatriation" of assets back to the U.S., Brexit and the ongoing issue of negative interest rates, we expect our show in Dublin to attract an equally high level of interest.
"European Money Fund Symposium offers European, global and "offshore" money market portfolio managers, investors, issuers, dealers and service providers a concentrated and affordable educational experience, and an excellent and informal networking venue," says Crane Data President, Peter Crane. "Our mission is to deliver the best possible conference content at an affordable price to money market fund professionals," he adds.
EMFS will be held at the The Hilton Dublin. Hotel rooms must be booked before Monday, August 21 to receive the discounted rate of E295. Registration for our 2019 Crane's European Money Fund Symposium is $1,000 USD. Visit www.euromfs.com to register, or contact us to request the PDF brochure or for Sponsorship pricing and info.
