ACT response to IOSCO on Money Market Funds reform
IOSCO (the International Organisation of Securities Commissions) has been consulting on Reform of Money Market Funds.
The regulators are concerned over systemic risk arising from MMFs and the potential for dangerous runs on these sorts of liquidity funds. To counter this various options have been put forward including liquidity controls, redemption restrictions, creation of capital buffers, subordinated capital or insurance back up and moving all funds to a Variable Net Asset Valuation (VNAV) basis. The ACT recognises that the Constant Net Asset Funds (CNAV) label is potentially misleading in that even with the objective of maintaining par value this is not guaranteed, but nonetheless this is not sufficient reason to make significant changes to fund structures which would remove a very popular instrument from investors and restrict their choice of investment.
After all straightforward bank deposits similarly appear to guarantee repayment at par but these too are subject to credit risk. The ACT does not support the ideas for creating capital buffers, but believes that further consideration should be given to some forms of controls over redemptions in the event of a crisis.