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J.P. Morgan Global Liquidity

Amendments to Flex Dist Share Classes


Changes are being made to the Flex Dist share classes, commonly used by money market funds (MMFs) to manage negative interest rates, in order to comply with recent changes to the interpretation of the European Money Market Fund Regulations.1

Background

Flex Dist share classes can operate in both positive and negative interest rate environments. When net yields are positive, Flex Dist share classes distribute net income at the end of each day, allowing same-day settlement and the maintenance of a stable net asset value (NAV), much like any other distributing share classes. When net yields are negative, the Flex Dist share classes have operated a share cancellation mechanism, or reverse distribution mechanism (RDM), in order to help maintain a stable NAV per share. The Luxembourg regulator, Commission de Surveillance du Secteur Financier (CSSF), has announced that RDM may no longer be used with effect from 21 March 2019.

How do the Flex Dist share classes works today

In a positive yield environment, the Flex Dist share classes have similar characteristics to traditional distributing share classes in a stable NAV money market fund – all, or a substantial amount, of the net investment income is declared daily as a dividend and distributed to investors on a monthly basis. In a negative yield environment, the RDM has been applied to stabilise and maintain the NAV per share, by deducting a portion of shares from investors’ accounts equivalent to the daily income shortfall. From 18 March 2019, the RDM will no longer be applied to the Flex Dist classes, and therefore when the net yield is negative, negative net investment income will be accrued and reflected in the NAV per share, which will decline over time.

The flex dist. share classes will continue to provide same-day (t+0) liquidity. The final cut-off time for subscriptions and redemption in the fund will move from 2:30pm CET to 2pm CET. It is expected that the NAV per share of the flex dist. classes will be redenominated from €1.00 to €10,000.00 to facilitate the change in distribution policy.

1 Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds. This regulation only impacts European domiciled money market funds.

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