The Council of the EU has adopted the proposed Regulation on money market funds.
There are currently two kinds of money market funds (MMFs) in the EU that are used for short-term financing for companies and government entities:
- those that offer a variable net asset value (VNAV) that mainly depends on market fluctuations; and
- those that offer a constant net asset value (CNAV) and aim to offer share purchases and redemptions at a fixed price.
The Regulation lays down rules for MMFs, in particular the composition of their portfolios and the valuation of their assets, to ensure the stability of their structure and to guarantee that they invest in well-diversified assets of a good credit quality. It also introduces common standards to increase the liquidity of MMFs, to ensure that they can face sudden redemption requests. Common rules are also established to ensure that the fund manager has a good understanding of investor behaviour, and to provide investors and supervisors with adequate information. The Regulation prohibits sponsor support from third parties, including banks.
The Regulation also introduces a new category of ‘low volatility net asset value’ (LVNAV) MMFs.
Under the Regulation, MMFs will be subject to new and strengthened liquidity requirements as well as other safeguards. In the case of CNAV and LVNAV MMFs, there are also additional safeguards such as “liquidity fees and redemption gates”. These are designed to prevent and limit the effects of sudden investor runs.
View Money market fund rules adopted, 16 May 2017