MEPs and practitioners to thrash out MMF proposals

European politicians are to hold a round table with industry experts in an attempt to resolve proposals for the future of money market funds.
Earlier this month, the European Parliament’s economic and monetary affairs committee held its first debate on the issue since European elections in May.
UK Labour MEP Neena Gill, the new committee’s rapporteur, suggested a round table to discuss the issue of a proposed buffer on MMFs, which the industry says could scupper constant net asset value (CNAV) MMFs.
She said: “We have to develop an effective and workable solution. I am a little bit disappointed (that) to date everyone I have met has come up with the problem and not the solution.That is why having a round table is important.”
The previous committee could not find political agreement on the issue, and a vote was abandoned at the end of the last parliamentary session.
Referring to MMF reforms in the USA and new Italian proposals on MMF reform, Gill said: “My approach to this is (to) take a look at the proposal in the light of developments in…the past couple of months.”
Gill said there are currently four main options on the table.
The first would be to proceed with the proposed buffer, which would require all funds to retain 3% of their total fund value in reserve. The second would be to introduce a system of liquidity fees and gates, which would govern fees payable by investors wanting to exit funds – in order to prevent a run developing during a potential crisis.
The third option would see a variation of this system adopted, based on US reforms exempting government MMFs from a new liquidity and gates regime.
The final option, forwarded by the Italian EU presidency, could see a new, low volatility VNAV MMF.
Speaking during the meeting, Irish Fine Gael MEP, Brian Hayes, said that the buffer proposals “could have serious implications for liquidity in Europe”, and that a buffer would “only offer an illusion of protection”.
However, French Green MEP, Eva Joly, said CNAVs “falsify market prices and work against market transparency”.
She added: “That being so, I hope we can work on a stage where CNAVs turn into VNAVs over a short period.”
Speaking to Room151 this week, Stuart Freeman director of deposit fund investments at CCLA Investment Management, said: “Gill has left the issue open for complete negotiation and is willing to listen to all sides.
“There is a tiny sense that there is a willingness to keep CNAVs but it is like a boxing match – you won’t know the result until the very end of the process.”