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New Chinese MMF Rules

New Chinese MMF Rules

by Charlotte Quiniou, Director, Fund and Asset Management, Fitch Ratings and Li Huang, Associate Director, Fund and Asset Management, Fitch Ratings

In December 2015, the China Securities Regulatory Commission (CSRC) announced new rules on money market funds, showing some convergence with international standards, notably with the introduction of liquidity requirements.

The new regulations strengthen industry practices, foster greater investor protection and lower risk through the introduction of liquidity requirements, broaden their investment scope, implement liquidity fees and gates, and specify the actions expected in the event the net asset value (NAV) deviates from predetermined limits. Nonetheless, regulations still permit Chinese money funds more latitude in taking investment risk than European and US money funds.

Until now, the Chinese regulation had not set out specific liquidity requirements. The new rules require Chinese money market funds to hold a minimum of 5% of assets in cash, government bonds, central bank bills and policy bank bonds and a minimum of 10% in the above-mentioned assets plus assets maturing within five trading days. Furthermore, non-tradeable assets maturing in more than 10 business days should not exceed 30% of the portfolio. In comparison, money funds operating in the US are currently required to maintain 10% of their portfolios in assets that mature overnight and 25% in assets that mature weekly; similar practices are followed by constant NAV European money funds.