European Commission report finds MMFs remained resilient during recent market stresses
28-07-2023
On 20 July 2023, the European Commission (EC) published its report to the Council and the European Parliament on the adequacy of the European Union (EU) Money Market Fund Regulation (MMFR). A complete copy of the report can be found here.
Background:
The 2017 MMFR included an obligation on the part of the EC to review the adequacy of the Regulation, by 21 July 2022. However, the publication of the report was delayed and comes almost exactly 12 months after it was expected. The EC has attributed the delay to wanting to ensure its assessment of the MMFR was as holistic as possible, including analysing the performance of the sector during recent periods of market stress.
Key Findings:
- MMFs have proven to be resilient: The EC notes that the MMFR has successfully passed multiple market stress events over the last few years, including the market turmoil related to Covid-19, the recent central bank interest rate increases and related financial asset re-pricing, and the Gilt market stress of September 2022. The EC has also recognised that no EU-based MMF had to introduce redemption fees or gates or suspend redemptions during these stress events. These experiences indicate that the safeguards in the MMFR have been working as intended.
- Use of amortised cost accounting and rounding: The EC believes the existing safeguards in the MMFR would permit the continued use of amortised cost without raising concerns about investor protection or financial stability.
- Minimum 80% public-debt quota: Under the MMFR, the EC report was also required to assess the feasibility of introducing a minimum 80% EU public debt quota. The report notes that the merits of establishing such a quota remain questionable. The report specifically highlights two practical challenges that would render a minimum quota “unfeasible in practice”:
- The availability of EU-denominated public debt.
- The possibility of negative financial stability implications, by potentially increasing the contagion risk.
- Potential areas of reform: The report noted scope to further increase the resilience of EU MMFs, notably by decoupling the potential activation of liquidity management tools from previously established regulatory liquidity thresholds.
Next Steps:
The EC report is now with both the Council and European Parliament for further consideration. The EC can decide if and when to publish any targeted amendments to the Regulation. However, no specific time frame or requirement exists for the EC to take any further action on the report.
At J.P. Morgan Asset Management, we are committed to delivering short-term fixed income strategies that are designed to help clients navigate shifting markets and evolving regulatory regimes. Please reach out to your J.P. Morgan Asset Management representative if you have any questions.
09jz232607072312
NOT FOR RETAIL DISTRIBUTION: This communication has been prepared exclusively for institutional, wholesale, professional clients and qualified investors only, as defined by local laws and regulations. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. Investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results. J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy. This communication is issued by the following entities: In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be; in Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited ABN 55143832080) (AFSL 376919). For U.S. only: If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance. Copyright 2023 JPMorgan Chase & Co. All rights reserved.