ICD's Comment Letter to ESMA
Another entry to the "Response form for the Consultation Paper on the EU Money Market Fund Regulation – legislative review" comes from online money market fund trading portal ICD. Their comment letter to European regulators says, "Institutional Cash Distributors (ICD), LTD is a UK-based entity providing an agnostic investment portal to institutional investors, namely treasury professionals in corporations and local authorities who use money market funds and other short-term instruments as safe, liquid investments for cash balances. Our trading platform is used by more than 400 clients across 65 industries in 43 countries. In the U.S., ICD is head-quartered in San Francisco as Institutional Cash Distributors, LLC. ICD brings together institutional investors with more than 40 fund companies offering money market products. We service over $5 trillion in money market trading annually across the UK, Europe and the U.S. It is from this vantage point that ICD offered comments to the Securities Exchange Commission in response to their Request for Comment on Potential Money Market Fund Reform Measures in the President's Working Group Report (File No. S7-01-21) and to the Financial Stability Board (FSB) and International Organization of Securities Commissions (IOSCO) during a 21 April 2021 Virtual Stakeholder Outreach Meeting on Enhancing the Resilience of Money Market Funds. ICD was the only money market trading portal invited from the private sector to take part in that meeting." The comment explains, "From our unique vantage point today, we respond to ESMA's Consultation Report: EU Money Market Fund Regulation – legislative review. In short, ICD believes that by looking at the U.S., ESMA already has evidence that funds perform worse where reforms have been enacted for eliminating stable NAV and strengthening the tie between liquidity and suspensions or gates. In responding to ESMA, ICD has addressed select questions on these areas of reform and their impact on the resilience of money market funds, the effects on investor behavior, effects on fund managers, and the broader impacts on stability and functioning of short-term markets." It adds, "ICD supports decoupling regulatory thresholds from suspensions/gates. When the commercial paper market seized in mid-March 2020 in the U.S, prime MMFs had ample liquidity to cover significant redemptions. As redemptions outpaced purchases, however, the weekly liquid assets (WLA) of some funds were heading towards 30%. Many of our clients decided to redeem their prime MMFs because they were concerned a gate would be imposed if weekly liquidity fell below 30%. From an early March high, our client average daily balance of U.S. Prime assets on ICD Portal dropped 80% by the middle of that month. In Europe, where the fees and gates provision are less onerous, the outflows and asset rotation from our platform was not as significant, decreasing 30% over that same period. A more direct tying of fees and gates to 30% liquidity in the U.S. caused greater stress around the market liquidity crisis. Further decoupling would make it much easier for MMFs to tap into that liquidity buffer should they need to do so. If there are still concerns about liquidity, increasing liquidity buffers could help offset some of the concerns around the potential to drop below thresholds and enable funds to dip into those liquidity buffers more regularly."
