On 18 November 2021, the European Securities and Markets Authority (ESMA) issued a consultation paper on whether the list of financial instruments that are considered highly liquid with minimal market and credit risk, in accordance with Article 47 of the European Market Infrastructure Regulation (EMIR), could be extended to include one or more money market funds (MMFs) authorised in accordance with the Regulation on money market funds (MMF Regulation).
Under Article 85(3a(e)) of EMIR, the ESMA is mandated to provide a report to the European Commission on whether the list of financial instruments that are considered highly liquid with minimal market and credit risk, in accordance with Article 47 of EMIR, could be extended and whether that list could include one or more MMFs authorised in accordance with MMF Regulation.
Following the market turmoil in March and April 2020 due to the COVID-19 pandemic, the ESMA decided to temporarily pause its work in order to better analyse the sources of the liquidity strains observed in the short-term funding market and understand their implications for central counterparties (CCPs) and their investment policies. Based on the lessons learnt from the crisis, the ESMA decided to resume its work. The main objectives of the report are firstly to generally assess whether the scope of financial instruments which are considered highly liquid with minimal market and credit risk should be extended and secondly to assess more specifically if MMFs authorised under MMF Regulation (or a sub-set of them) should be included in this list.
The deadline for comments on the consultation paper is 24 January 2022.
The ESMA will consider the feedback it receives from the consultation by 24 January 2022 and expects to publish and submit a final report to the European Commission in Spring 2022.The report will concentrate on the identified areas of extension of the list of possible investments for CCPs. Depending on the recommendations made in the report, an amendment to Regulatory Technical Standard 153/2013 on CCP requirements may be needed as a final deliverable.