European MMF Regulation Compromise
We learned from the website Better Regulation that a Council of the European Parliament "published a presidency compromise on the proposal for a Regulation on Money Market Funds (MMF)" on April 14, which could mean changes for European-domiciled money funds are imminent. The site explains, "Money Market Funds (MMFs) are an important source of short-term financing for financial institutions, corporates and governments. Money market instruments traditionally include treasury bills, commercial paper or certificates of deposit. MMFs hold almost 40% of short-term debt issued by the banking sector and represent a crucial link bringing together demand and offer for short-term money." Better Regulation adds, "The financial crisis demonstrated that money market funds, although seen as relatively stable investment vehicles, could in fact pose a systemic risk not only due to their size but also their interconnectedness with the banking sector on the one hand and with corporate and government finance, on the other. On 4 September 2013, along with a "Roadmap" within a Communication for initiatives regarding shadow banking reforms, the European Commission proposed a new European framework designed for Money Market Funds (MMFs). The Proposed Regulation introduces new rules aimed at making MMFs more resilient to future financial crisis and at the same time securing their financing role for the economy. The objective of the proposal being to preserve the integrity and stability of the internal market, ensuring an increased protection of investors in MMFs." They add, "The latest changes to the compromise text are denoted by bold underline for additions, and bold strikethrough for deletions." Watch for more details on the EU MMF Regulatory compromise, as well as a review of "International" money funds in Tuesday's News. At first glance, it looks like the EU has allowed a LNAV or low-volatility NAV version of money funds to continue to use CNAV (without the previous sunset clause), but the remainder of the regulations continue to look pretty ugly (they include a ban on sponsor support). We're also unclear on whether this means passage of the new regulations, which have a 24-month implementation date, is imminent.
