The Institutional Money Market Funds Association, a "trade association which represents, promotes and supports the development of the European money market fund (MMF) industry," published "IMMFA Position Paper on Money Market Funds last month. They explain, "This IMMFA Position Paper outlines the impact of the COVID-19 pandemic on the European Money Market Funds (MMFs) sector. Focusing in particular on IMMFA MMFs, the paper highlights that while MMFs, like many other fund sectors, were adversely affected by the market-wide lack of liquidity, the reforms introduced under the 2017 European Money Market Fund Regulation ensured that MMFs remained resilient in these challenging circumstances." The paper tells us, "IMMFA Member funds consist primarily of Low Volatility Net Asset Value (LVNAV) and Public Debt Constant Net Asset Value (PDCNAV) MMFs which are AAA rated by one or more credit rating agency.... As the COVID-19 virus rose to pandemic proportions in March 2020 financial markets experienced unprecedented volatility that put pressure on all segments of the financial system, including MMFs. Despite the exceptional challenges caused by these exogenous factors, LVNAV and PDCNAV MMFs remained resilient under testing market circumstances, demonstrating their robust structure and the effectiveness of the enhanced investor protection mechanisms introduced in European Money Market Fund Regulation (MMFR). Funds met redemptions in full and no fund was required to take any further action under the Regulations. The sizeable increase in assets under management since March, in the LVNAV sector in particular, demonstrates continued confidence in the MMF sector and the fundamental soundness of the LVNAV fund category." The brief continues, "Following the introduction of the MMFR, assets under management (AUM) in LVNAV and PDCNAV (i.e. constant NAV) funds continued to climb, demonstrating the value of the regulatory framework to investors around the globe. The total European MMF market was €1.279bn at the end of the first quarter of 2020, of which IMMFA funds constituted 56% and VNAV funds 44%." It adds, "While the fundamentals of MMFs remained unchanged in relation to their structure and the high-quality of assets in which they invest, the sector was tested by the almost complete lack of market-wide liquidity in secondary markets. Despite the unprecedented and exceptional pressure, LVNAV MMFs remained robust, highlighting the effectiveness of the framework provided by the MMFR. In addition, the MMFR sets out a strict threshold for LVNAV funds in the form of a NAV collar. In the event that an LVNAV breaches the collar (i.e. its marked-to-market NAV deviates by more than 20 basis points from the constant NAV), the MMFR requires the fund to value its assets using variable pricing and the pricing convention to move to 4 decimal places for the purposes of the next redemption or subscription. Despite the market volatility caused by COVID-19, all IMMFA LVNAV funds remained within their 20 basis point collars. This is a further example not only of the robust performance of LVNAVs, but also of the enhanced protections codified under the MMFR, for the interests of investors." IMMFA's paper concludes, "The system wide liquidity crisis caused by the COVID-19 pandemic presented significant challenges for financial markets. Whilst MMFs were impacted by this, they were neither the source of market dysfunctionality, nor did they directly contribute to it, since, as shown, they continued to serve their purpose and to meet investors' needs for cash. The data and analysis undertaken reflect the resilience of MMFs, particularly LVNAV and PDCNAV funds, and the effectiveness of the EU MMF Regulation. The enhanced investor protection provisions of the MMFR ensured that funds continued to provide liquidity and full transparency to investors on a daily basis, including a full mark-to-market valuation of the LVNAV and PDCNAV portfolios. As highlighted, LVNAV and PDCNAV MMFs were tested during the recent crisis but continued to fulfil their regulatory obligations and were able to satisfy all investor redemption requests in full. In Europe, the operational effectiveness of MMFs was maintained without recourse to various asset purchase facilities implemented by Central Banks, given the lack of asset eligibility. The growth of total European AUM, which now exceeds pre-crisis levels, demonstrates that investors continue to have confidence in MMFs, in particular the LVNAV category which continues to grow."

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