Fitch: Gate risk low for European money funds post reform


London – The probability of a discretionary or mandatory liquidity fee or redemption gate being imposed on European money market funds (MMFs) post-reform is low, absent a systemic shock or idiosyncratic credit event, says Fitch Ratings in a new report.

Based on observations of the Fitch-rated constant net asset value (CNAV) MMF universe in the last five years, albeit a benign credit environment, there were no incidents of weekly liquidity (ie the percentage of portfolio assets maturing within one week) dropping below 10%; and instances of weekly liquidity dropping below 30% occurred in less than 10% of cases. Under the July 2017 EU MMF reform measures, weekly liquidity below 10% triggers a mandatory redemption gate or fee; and the combination of a daily net outflow greater than 10% of fund net assets, and weekly liquidity dropping below 30% triggers a discretionary redemption gate or fee for CNAVs.

The already low probability of large outflows is even less when factors such as pre-planned investor movements are excluded. Along with minimum weekly liquidity thresholds, assessing factors such as net redemptions is a critical metric under the reforms in determining whether extraordinary actions must be taken by a fund’s board.

Fund boards must decide if liquidity fees or temporary suspension of redemptions should be activated in the unlikely event of a fee and gate trigger. Therefore, the reforms put more emphasis on the role of MMF Board of Directors and their independence.

Fitch expects the new Low Volatility Net Asset Value (LVNAV) funds introduced by the European MMF reforms will have very high overnight and weekly liquidity. Public Debt CNAV and LVNAV funds must maintain minimum overnight and weekly liquidity level of 10% and 30%, respectively; liquidity limits have also been introduced for the first time in Short-term and Standard Variable Net Asset Value (VNAV) MMFs.

Today’s report also notes that ‘AAAmmf’ rated smaller funds hold 5%-7% more weekly liquidity than their larger equivalently-rated counterparts to manage liquidity risk. The risk of a fund’s liquidity deteriorating below the discretionary threshold remains low despite smaller funds being more vulnerable given their size and possible concentrations. The risk is expected to be further mitigated by fund managers increasing their weekly liquidity levels, as was the case in the US following its fee and gate reform – where Prime funds now hold about 10% more weekly liquidity on average than at pre-reform levels.

Today’s report, “Reform Gate Risk Low for European Money Funds” is available at


Most recent episodes

Audio TMI - ESG: Time to Decide

The pressure to comply with ESG initiatives is being felt by corporates like never before, with ESG-compliance a common concern among treasury departments. TMI talks to Lavinia Bauerochse (Deutsche Bank) about treasury’s ...


Embedded Finance: A 101 Guide for Treasurers

Our latest TreasuryCast guest, Aman Narain (HSBC) sits down with TMI's Eleanor Hill to consider the ways in which treasury might be impacted by embedded finance. In this podcast, Aman explains the differences between embedded finance and BaaS, shares his hopes for the future in this space, and provides...


Audio TMI - A Modern, Agile, and Efficient Machine

UniCredit's Raphael Barisaac and Massimo Ortino explain how the fir...

What’s on the Horizon for Short-term Investments?

The treasury community has risen to the ongoing challenge of rising interest rates and inflation, with corporate cash serving as the sought-after safety net. Here, Daniel Farrell (Northern Trust Asset Management) and Karl Adams (ICD) consider how the latest MMF reform proposals affect short-term...


Transitioning a Corporate from LIBOR to CME Term SOFR

The loans market has predominantly moved to forward looking term rates, and both corporate borrowers and global lenders are increasingly turning to CME Term SOFR as the forward looking risk-free benchmarks to support their activities. Listen to this podcast, featuring Gavin Lee, Marco Bianchi (CME...


HSBC’s Sibos Spotlight – View from Sibos

TMI's Eleanor Hill invites Neil Atkinson, Nadine Lagarmitte, and Vinay Mendonca (HSBC) to discuss the critical treasury topics and conversations highlighted at this year's Sibos conference in Amsterdam. Amongst a wealth of market insights, our guests consider the most critical developments emerging from...


ECB’s Targeted TLTRO Tweaks Set to Drain Excess Market Liquidity

Welcome to the latest edition of Liquidity Link Live, your exclusive market analysis provided by Northern Trust Asset Management, one of the world’s largest cash managers. Tune in each month to discover the very latest insights on the UK, Eurozone and US markets. This edition was recorded on the 7th...


Asian Treasury Trends: Learnings and Opportunities

Former corporate treasury professional, Valerie Heng (Deloitte) joins Eleanor Hill to discuss the hot topic of treasury transformation, alongside other key shifts treasurers should be aware of. In this podcast, Valerie uses her knowledge of the Asian Treasury market to explain how the role of the...


Collaborative Trade Finance: How to Unlock Liquidity at Speed

Imagine if trade finance applications were fully collaborative and corporates could communicate with every trade participant via an open digital hub.  In this podcast, Vincent Almering (Interfood Holding B.V.) and Enno-Burghard Weitzel (Surecomp) explain to TMI's Ben Poole how collaborative trade...