EU proposes new money market fund rules

The European Union today released new proposals for regulating money market funds:

Main elements of today’s communication on shadow banking and draft regulation on money market funds:

The Communication sets out the issues at stake in relation to the shadow banking system and the measures already taken to deal with the risks related to shadow banking such as the rules governing hedge fund activity (MEMO/10/572) and reinforcing the relationship between banks and unregulated actors (the provisions related to securitisation exposures in the revised Capital Requirements legislation (MEMO/13/272).

It outlines the priorities identified on which the Commission intends to take initiatives in areas such as:

– provision of a framework for money market funds the new rules proposed today (MEMO/13/764) cover money market funds (MMFs) that are domiciled or sold in Europe and aim to improve their liquidity profile and stability:

  • Liquidity management: MMFs would be required to have at least 10% of their portfolio in assets that mature within a day and another 20% that mature within a week. This requirement is there to allow the MMFs to repay investors who want to withdraw funds at short notice. In order to avoid that a single issuer bears undue weight in the net asset value (NAV) of an MMF, exposure to a single issuer would be capped at 5% of the MMF’s portfolio (in value terms). For standard MMFs, a single issuer could account for 10% of the portfolio.
  • Stability: to take account of the constant NAV, MMF’s propensity to require sponsor support to stabilise redemptions at par, the new rules would require this type of MMF to establish a predefined capital buffer. This buffer will be activated to support stable redemptions in times of decreasing value of the MMFs investment assets.

The full press release is available here.

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