IMMFA Comments to ESMA on EU Regs
As we mentioned in yesterday's "News," a host of comment letters have been posted in response to the European Securities and Markets Authority's (ESMA's) "Consultation on EU Money Market Fund Regulation - Legislative Review." Today, we excerpt from the Institutional Money Market Fund Association's response. They write, "The Institutional Money Market Funds Association (IMMFA) is the trade association which represents the European money market fund (MMF) industry. IMMFA's mission is to promote and support the development and integrity of the MMF industry by engaging with and informing policy makers and, amongst other things, providing a primary point of contact. IMMFA currently has 27 members, consisting primarily of asset managers but also custodial banks and other firms.... IMMFA MMFs are primarily institutional funds. IMMFA MMFs currently have EUR812bn Euro equivalent in assets under management (AUM). This number represents a 27% increase since the implementation of EU Money Market Fund Regulation (MMFR) in March 2019. At the end of the first quarter 2021, the most recent period for which a total market number is available, IMMFA AUM totalled EUR798bn, which represented 57% of the European MMF industry. The IMMFA share of total European MMFs remains fairly constant. Within the IMMFA universe of funds there are 3 main currencies: USD, GBP and EUR. USD is the largest currency, (USD501bn), followed by GBP, (GBP233bn), and lastly EUR, (EUR118bn). The split between currencies also remains fairly constant. Although the overwhelming majority of IMMFA MMFs are LVNAV or PDC-NAV, IMMFA represents all fund types and many of our members offer a range of funds." IMMFA's summary says, "We feel strongly that questions of how MMFs fared should be considered in the context of the broader ecosystem and that any proposed solutions should take this symbiosis into account, rather than isolating MMFs. The March crisis was the first test of the reforms introduced under EU MMFR. Those reforms proved instrumental in providing MMFs with the increased resilience which enabled them to pass this test. We note that MMFs continued to serve their purpose in preserving capital and providing liquidity, with no MMFs imposing gates or fees, and all IMMFA MMFs staying within their collars. Having considered the experiences of last March, we conclude that fund structure was not the overriding issue. In the consultation, ESMA singles out CNAV and LVNAV MMFs, in particular, inviting our views on their elimination, whereas the evidence shows that both VNAV (US Prime Institutional and Euro denominated Standard VNAV) and LVNAV MMFs came under strain. The crisis clearly demonstrated that there are areas of money market regulation which could be improved upon, in order to strengthen MMFs further. In particular, enabling MMFs to utilise their liquidity buffers when it is in the best interests of investors to do so, should be facilitated by the delinking of regulatory liquidity thresholds from the potential imposition of fees, gates and suspensions.... We are strongly opposed to the application of swing pricing to MMFs on the basis that it would remove the ability to offer intra-day liquidity or same day settlement, which we regard as a key component of their utility to our investor base. Additionally, swing pricing brings no incremental benefit over the use of redemption fees." They add, "Those reform options which would drive MMFs investors to seek alternatives could, in fact, be counter-productive by shifting risk elsewhere in the system into products which are significantly less transparent and regulated than MMFs. We would include the options to eliminate CNAVs and to impose swing pricing in this category.... We do not share ESMA's concerns about the role of the credit rating agencies and the use of ratings. While fund ratings are an important complementary element to the IMMFA investor base, they were not a key driver of fund behaviour.... In our view, the option of a liquidity exchange facility is extremely problematic, and we question whether this would be economically or logistically viable. With regard to stress testing and reporting, we think additional measures would not be effective tools in addressing the challenges observed in March. In conclusion, we remain committed to efforts to build on the positives of the EU Money Market Regulation and to engaging with regulators and policy makers to secure the best possible outcome for all stakeholders."
