As the implementation date for the new European Money Market Fund (MMF) rules approaches, it is time to cut through the noise around the new regulation, says Kerrie Mitchener-Nissen, Head of Product Development, International, Global Liquidity, J.P. Morgan Asset Management. In this interview, she dispels some of the common misconceptions about the new rules and explains what treasurers really need to consider when it comes to their short-term investment options.
Eleanor Hill, Editor, TMI (EH): Could we start with a brief recap of the regulatory change happening in the MMF space. What are the major developments here?
Kerrie Mitchener-Nissen (KMN): Designed to further strengthen the MMF industry, provide transparency of information to investors, improve regulatory reporting, and ensure consistent practices around areas such as stress testing and credit analysis, the new European MMF regulations must be fully implemented by 21 January 2019. As we head towards that deadline, asset managers are updating their product offerings in line with the new rules – and corporate treasurers must reconsider their short-term cash investments.
By way of a brief summary, the new regulations provide for two types of MMF and three structural options. Under the new rules, MMFs must be classified as either a ‘Short-term MMF’ or a ‘Standard MMF’. The former are funds that maintain the existing conservative investment restrictions currently provided under the ESMA Short-Term Money Market Fund definition, including a maximum Weighted Average Maturity (WAM) of 60 days and maximum Weighted Average Liquidity (WAL) of 120 days. Meanwhile, so-called ‘Standard MMFs’ reflect the existing ESMA Money Market Fund definition, including a maximum WAM of six months and maximum WAL of 12 months.
As for structuring, Short-term MMFs may be structured as Public Debt Constant Net Asset Value (CNAV) MMFs, Low Volatility NAV (LVNAV) MMFs or as Variable NAV (VNAV) MMFs, whereas Standards MMFs are all VNAV (see Figure 1).