As we mentioned last week, over 30 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." We've quoted from a few so far, but today we quote from the two of the big European fund associations, Irish Funds and EFAMA, the European Fund and Asset Management Association. We also review our latest MFI International statistics and our MFI International Money Fund Portfolio Holdings data set below.

The first comment letter says, "The Irish Funds Industry Association is the representative body for the international investment fund community in Ireland. Irish Funds represents fund managers, administrators, depositaries, transfer agents, professional advisory firms and other specialist firms involved in the international fund services industry in Ireland. Ireland is the largest European fund domicile for money market funds, with net assets in Irish domiciled MMFs amounting to EUR 571 billion or approximately 41% of total European domiciled MMF assets (source: Central Bank of Ireland, April 2021 and EFAMA, Q4 2020). All MMF product types (LVNAV, PDCNAV and VNAV (short-term and standard) MMFs) are established in Ireland. The most predominant product type by assets is LVNAV (approximately 78% of total net assets), followed by PDCNAV (approximately 17%) and VNAV (approximately 5%).... Given the prevalence of MMFs in Ireland, this consultation is particularly important for Irish Funds and we welcome the opportunity to comment."

It tells us, "This review of the MMF Regulation is prompted not by the COVID-19 March crisis but is a scheduled review in accordance with the provisions of that Regulation. As such, it is worth taking a broader view and giving greater recognition to the fact that MMFs have proven to be resilient during the COVID-19 March crisis. As recognised in paragraph 20 of the Consultation, no EU or US MMFs had to implement liquidity fees on redemptions or redemption gates or suspend redemptions. Further, IOSCO's Thematic Note Money Market Funds during the March-April in November 2020 stated that 'deviations between stable and floating net asset values of $LVNAV widened, but the 20bps threshold was not breached.'"

Irish Funds' comment explains, "Some of the key objectives of MMF Regulation were to strengthen the resilience of MMFs and to address potential systemic risks in light of the 2008 financial crisis. There was a particular focus to ensure that the failure of a MMF would not cause contagion. The COVID-19 March crisis has been a real life proving ground for the EU money market fund reforms in this regard. Given that MMFs have proven sufficiently resilient to withstand this challenge, this perhaps proves that the MMF Regulation is fit for purpose and does not require significant amendment."

They add, "That said, there are enhancements that can be made. We support the Consultation's proposal regarding the de-coupling of fees/gates/suspensions from liquidity thresholds. In addition, we propose that (1) the MMF Regulation be amended to include a general power for regulators to request more frequent reporting in stressed market conditions (question 10 below) and (2) the publication frequency of the daily and weekly liquid asset levels should be increased to daily."

The second letter tells us, "EFAMA welcomes ESMA's preparatory work on the review of the MMFR, an effort that is also well-timed in the context of a broader debate on MMF reform options taking place within the international standard setting bodies (IOSCO and FSB) and in anticipation of their respective consultations in the coming weeks. Our view is that such reforms should aim to preserve the intermediary role that MMFs play in short-term money markets, while continuing to offer a critical alternative to traditional bank financing. Conscious of the narrower scope of the MMFR review, we nonetheless agree with the need to explore options to improve the functioning of the secondary market, especially under stressed conditions. Those aimed at incentivising liquidity provision by dealers ... should be explored in depth at the international level.... We would call on ESMA to reinforce this need through its participation in the international workstreams launched at the end of 2020 by IOSCO and the FSB as the leading global standard-setting bodies."

They state, "Efforts at reforming the current EU MMFR regime should remain strictly fact-based. Despite the broadly accurate analysis performed by ESMA in the opening sections of its consultation document, there are nevertheless a few key aspects that have not been adequately reflected. These relate firstly to the prudent management of liquidity by European MMFs, both before and throughout the March 2020 liquidity crisis. Secondly, we note that the exclusion from the scope of the ECB's Pandemic Emergency Purchase Programme (PEPP) of financial commercial paper and of securities denominated in non-Euro currencies in March 2020 would also not support many of the far-reaching reform options ESMA is presently considering."

Finally, EFAMA adds, "Out of the options presented in the consultation document for consideration, we express a clear preference for decoupling the potential activation of liquidity fees or gates from a possible breach of the prescribed weekly (30%) and daily (10%) liquidity thresholds for LVNAV and public debt CNAV funds.... Of the different types of liquidity management tools put forward by ESMA in the consultation document, we consider that anti-dilution levies in the form of fixed liquidity fees represent the most appropriate solution for managers to counter unanticipated surges in redemption demands. Swing pricing, as ESMA has correctly also pointed out in its consultation document, remains operationally difficult.... The option to eliminate LVNAV and public debt CNAV remains concerning, especially in light of the resilience demonstrated by these structures."

In related news, Crane Data's latest MFI International shows that assets in European or "offshore" money market mutual funds inched higher over the last month to $1.037 trillion, following a small gain the prior month. These U.S.-style funds, domiciled in Ireland or Luxembourg but denominated in US Dollars, Pound Sterling and Euros, increased by $4.4 billion over the last 30 days (through 7/14); they're down $22.8 billion (-2.2%) year-to-date. Offshore US Dollar money funds are down $3.5 billion over the last 30 days and are down $6.1 billion YTD to $529.6 billion. Euro funds are down E3.1 billion over the past month, and YTD they're down E19.4 billion to E137.9 billion. GBP money funds have risen by L2.9 billion over 30 days, but are down by L16.6 billion YTD to L239.9B. U.S. Dollar (USD) money funds (193) account for half (50.6%) of the "European" money fund total, while Euro (EUR) money funds (94) make up 16.5% and Pound Sterling (GBP) funds (116) total 29.4%. We summarize our latest "offshore" money fund statistics and our Money Fund Intelligence International Portfolio Holdings (which went out to subscribers yesterday), below.

Offshore USD MMFs yield 0.03% (7-Day) on average (as of 7/14/21), down from 0.05% on 12/31/20, 1.59% on 12/31/19 and 2.29% on 12/31/18. EUR MMFs yield -0.66% on average, compared to -0.71% at year-end 2020, -0.59% at year-end 2019 and -0.49% at year-end 2018. Meanwhile, GBP MMFs yielded 0.01%, up from 0.00% on 12/31/20, down from 0.64% on 12/31/19 and 0.64% on 12/31/18. (See our latest MFI International for more on the "offshore" money fund marketplace. Note that these funds are only available to qualified, non-U.S. investors.)

Crane's July MFII Portfolio Holdings, with data as of 6/30/21, show that European-domiciled US Dollar MMFs, on average, consist of 23% in Commercial Paper (CP), 17% in Certificates of Deposit (CDs), 12% in Repo, 35% in Treasury securities, 12% in Other securities (primarily Time Deposits) and 1% in Government Agency securities. USD funds have on average 29.3% of their portfolios maturing Overnight, 9.5% maturing in 2-7 Days, 18.2% maturing in 8-30 Days, 13.5% maturing in 31-60 Days, 10.0% maturing in 61-90 Days, 13.9% maturing in 91-180 Days and 5.6% maturing beyond 181 Days. USD holdings are affiliated with the following countries: the US (43.2%), France (13.0%), Canada (9.3%), Japan (7.5%), Sweden (6.2%), Germany (3.0%), the U.K. (3.0%), the Netherlands (3.0%), Australia (2.4%) and Switzerland (1.9%).

The 10 Largest Issuers to "offshore" USD money funds include: the US Treasury with $199.8 billion (35.0% of total assets), BNP Paribas with $20.8B (3.6%), Skandinaviska Enskilda Banken AB with $13.3B (2.3%), RBC with $11.9B (2.1%), Societe Generale with $11.7B (2.0%) Toronto-Dominion Bank with $11.1B (1.9%), CIBC with $10.5B (1.8%), Swedbank with $10.5B (1.8%), Mizuho Corporate Bank with $10.0B (1.7%) and Sumitomo Mitsui Banking Corp with $9.8B (1.7%).

Euro MMFs tracked by Crane Data contain, on average 38% in CP, 22% in CDs, 24% in Other (primarily Time Deposits), 11% in Repo, 4% in Treasuries and 1% in Agency securities. EUR funds have on average 29.3% of their portfolios maturing Overnight, 10.3% maturing in 2-7 Days, 16.9% maturing in 8-30 Days, 11.6% maturing in 31-60 Days, 10.5% maturing in 61-90 Days, 15.3% maturing in 91-180 Days and 6.1% maturing beyond 181 Days. EUR MMF holdings are affiliated with the following countries: France (33.1%), Japan (14.2%), the U.S. (10.2%), Sweden (7.5%), Germany (6.5%), Switzerland (6.0%), Canada (3.6%), the U.K. (3.2%), Supranational (3.5%) and Belgium (3.5%).

The 10 Largest Issuers to "offshore" EUR money funds include: Credit Agricole with E6.8B (5.4%), BNP Paribas with E6.7B (5.4%), Sumitomo Mitsui Banking Corp with E6.0B (4.8%), Societe Generale with E5.9B (4.7%), Republic of France with E5.5B (4.4%), Zürcher Kantonalbank with E4.6B (3.7%), BPCE SA with E4.2B (3.4%), Nordea Bank with E4.0B (3.2%) Mizuho Corporate Bank Ltd with E4.0B (3.2%) and Svenska Handelsbanken with E4.0B (3.2%).

The GBP funds tracked by MFI International contain, on average (as of 6/30/21): 38% in CDs, 21% in CP, 17% in Other (Time Deposits), 20% in Repo, 4% in Treasury and 0% in Agency. Sterling funds have on average 34.2% of their portfolios maturing Overnight, 11.2% maturing in 2-7 Days, 9.6% maturing in 8-30 Days, 12.5% maturing in 31-60 Days, 10.6% maturing in 61-90 Days, 15.5% maturing in 91-180 Days and 6.4% maturing beyond 181 Days. GBP MMF holdings are affiliated with the following countries: France (19.3%), the U.K. (18.4%), Japan (15.6%), Canada (11.1%), the U.S. (5.0%), Sweden (4.6%), Australia (4.3%), the Netherlands (3.2%), Germany (3.1%) and Switzerland (2.9%).

The 10 Largest Issuers to "offshore" GBP money funds include: the UK Treasury with L21.0B (10.3%), Mitsubishi UFJ Financial Group Inc with L9.5B (4.7%), BNP Paribas with L8.4B (4.1%), Sumitomo Mitsui Banking Corp with L8.0B (3.9%), BPCE SA with L6.9B (3.4%), RBC with L6.8B (3.3%), Agence Central de Organismes de Securite Sociale with L6.4B (3.1%), Toronto Dominion with L6.3B (3.1%), Mizuho Corporate Bank Ltd with L6.0B (2.9%) and Sumitomo Mitsui Trust Bank with L5.7B (2.8%).

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