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MMF

Objectives 

The Money Market Funds (MMF) Regulation is one of the final post-2008 reforms which completes the regulatory framework for the finance industry. It seeks to provide a better framework for money market products and to reduce the risks associated with sudden large-scale fund redemptions (known as a "run").

Main provisions

This regulation is principally based on Regulation (EU) 2017/1131 on money market funds, published on the Official Journal of the European Union on 30 June 2017.

SCOPE OF APPLICATION

The Regulation applies to all funds established, managed or marketed within the European Union, and which are classified as "money market funds". These funds have the following characteristics:

  • UCITS pr AIF,
  • Invest in short-term assets (residual maturity under two years),
  • Offer returns in line with money market rates and/or protect the initial investment.

However, every UCITS and AIF with characteristics that are substancially similar to money market funds (investment policy, return) will be required to obtain approval as an MMF or change some of their characteristics.

A UCITS or AIF will no longer be able to use a name that suggests that it is an MMF if it has not been approved as an MMF.

The MMF Regulation applies:

  • As of 21 July 2018, to funds created after 21 July 2017
  • As of 21 January 2019, to funds created before 21 July 2017

GENERAL PRINCIPLES

 

  • Objectives and main associated regulatory provisions

ObjectivesMain associated provisions
Quality of assets
Safeguarding of money market funds to reduce the risk of a liquidity crisis
  • New diversification and concentration ratios
  • Requirements for modified duration (WAM) and credit risk (WAL)
  • New rules on the use of instruments (e.g. ban on derivatives other than hedging, due date of reverse repo agreements and deposits)
  • Bon on certain transactions (e.g. cash/securities lending/borrowing)
  • Management company's introduction of an internal procedure for assessing the credit quality of investments
Liquidity
Safeguarding of money market funds to reduce the risk of a liquidity crisis
  • Minimum available daily and weekly liquidity thresholds
  • Knowledge of investors and their cash needs
  • Limit on redemptions (suspension, gates)
  • Adoption of liquidity crisis stress testing
Reduced risk of contagion to the rest of the economy
  • Ban on "external support", i.e. any action to maintain the money market fund's liquidity profile or stabilise ist NAV
  • Ban on feeder funds and funds of funds (exemption for MMFs used exclusively for pension savings
Investor protection
  • Valuation at least daily
  • Mark-to-Market valuation method
  • Use of swing pricing
Transparency requirement
  • Daily and weekly reporting to investors
  • Quarterly reporting to regulator (annual for funds under €100M)


  • Main categories of money market funds

Standard VNAVShort-term VNAVShort-term LNAVShort-term CNAV
Investment policyBroadGovernment debt
Modified duration (WAM) 6 months60 days
Credit riskt (WAL)12 months120 days
Liquidity available within 1 day7,5% AUM10% AUM
Liquidity available within 1 week15% AUM30% AUM
ValuationMark-to-Market
Alternative valuationMark-to-Model
Exemptive valuation-Hybrid
Mark-to-Market (>75 days)
Linear (<75 days), except if Mark-to-Market <10bp
Linear
NAVVNAVLVNAV
Variable or constant
VNAV > 20bp

CVNAV
Daily publicationNAVNAV
+ difference with VNAV
Additional constraints on liquidity-Suspension and/or capping of redemptions and/or anti-dilution measures
  • mandatory if available weekly liduiqity < 10% AUM
  • optionnal if available weekly liquidity < 30% AUM 


CHALLENGES AND SOLUTIONS

As a major player in the administration and accounting of MMFs, CACEIS assits its clients in implementing the MMF Regulation. 

This Regulation requires the adaptation of multiple aspects of fund administration and depositary control, including valuation methods, multiple valuations, regulatory and contractual ratios, financial statements and the management of liabilities. CACEIS is making good progress and is adapting its information system in order to offer a fund administration and depositary control solution that is fully compliant with this new Regulation from July 2018.

Thereafter, CACEIS will analyse the implications of the regulatory reporting that will become mandatory from the fourth quarter of 2019, for which clarification from the ESMA is still pending.

If you have any questions, please do not hesitate to contact your usual sales contact.

FIND OUT MORE

> Décryptage and Scanning, our regulatory watch newsletters, publish the latest developments on current and future regulations in French and English. 

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