Foreword (by Zoltan Pozsar)
Acknowledgements
Preface (by Joseph Tanega)
Table of Abbreviations
Table of Statues and Legislations
Chapter 1: Introduction
Dr Viktoria Baklanova, CFA, Prof Joseph Tanega, and Prof Edmond Curtin
1.1 US and European Definitions of Money Market Funds
1.2 Benefits of Money Market Funds
1.2.1 Benefits to investors: creation of wealth and capital formation
1.2.2 Benefits to capital markets: diversification of finding and cost saving
1.2.3 Benefits to non-financial corporations: access to capital markets and funding flexibility
1.2.4 Benefits to banks: funding in foreign currencies and reduction of trade imbalance
1.2.5 Benefits to securities firms: inventory funding and market liquidity
1.2.6 Benefits to local governments and municipalities: lowered borrowing cost
1.2.7 Benefits to state governments: a major source of funding
1.3 “Shadow Banks” and Money Market Funds
1.4 Why Do We Regulate Money Market Funds?
PART 1: MONEY MARKET FUNDS IN THE EU
Chapter 2: Rationale for European Money Market Funds: Background and Industry Structure
2.1 Introduction
2.2 Origin of Money Market Funds in Europe: France, Ireland, Luxembourg, and other countries
2.2.1 France
2.2.2 Ireland
2.2.3 Luxembourg
2.2.4 Other Countries
2.3 European Money Market Funds During The Financial Crisis
2.4 Present State of European Money Market Funds8
2.5 Taxation Is Key Factor
2.6 Varying Base Currencies
2.7 Short-term Money Market Funds and Money Market Funds
2.8 Asset Types
2.8.1 Government money market funds
2.8.2 Prime money market funds
2.9 Asset Valuation Methods
2.10 Money Market Funds Respond to Low Interest Rates
2.11 Investor base
Chapter 3: European Regulatory Framework of Money Market Funds
Prof Iain MacNeil and Dr Aurelien Portuese
3.1 Introduction
3.1.1 Primer on European Money Markets
3.1.2 European Money Market Funds and a Single Market
3.1.3 Supervisory Structure of European Markets
3.2 Money Market Funds and ESMA
3.2.1 Main Investment Parameters
3.2.2 Pan-European Compliance with ESMA Guidelines
3.3 Self-regulation of European Money Market Funds: IMMFA’s Code of Practice
3.4 Money Market Funds under the UCITS Regime
3.4.1 General Diversification Rules for UCITS
3.4.2 Asset Liquidity Consideration under the UCITS Regime
3.4.3 Stress Testing and Efficient Portfolio Management Techniques
3.4.4 Disclosure Requirements under the UCITS Regime
3.4.5 Redemption Requirements under the UCITS Regime
3.5 Money Market Funds in MiFID
3.6 Conclusion
PART 2: MONEY MARKET FUNDS IN THE US
Chapter 4: Historical Rationale for US Money Market Funds
4.1 Introduction
4.2 Issues under the United States Federal Securities Laws
4.3 Issues under U.S. Banking Laws
4.4 State Battles
4.5 Breaking the Buck: No Investment Guarantee
Chapter 5: US Regulatory Framework for Money Market Funds
5.1 Introduction
5.2 Money Market Fund Governance
5.2.1 Directors
5.2.2 Shareholders
5.3 Investment Company Act Generally
5.3.1 Affiliated Transaction Provisions
5.3.2 Capital Structure
5.3.3 Functions and Activities
5.3.4 Purchase and Redemption of Fund Shares
5.3.5 Other Matters
5.4 Rule 2a-7
5.4.1 Maturity Requirements
5.4.2 Portfolio Quality
5.4.3 Portfolio Diversification
5.4.4 Liquidity Requirements
5.4.5 Downgrades, Defaults and Other Credit Events
5.4.6 Procedures
5.4.7 Recordkeeping and Reporting
5.4.8 Portfolio Disclosure
5.5 The Future of US Money Market Fund Regulation
5.5.1 The Debate
5.5.2 Rule 2a-7 Proposed Amendments
Chapter 6: Types of Money Market Mutual Funds in the United States
6.1 Introduction
6.2 Asset Types
6.2.1 Prime Money Market Funds
6.2.2 US Government Money Market Funds
6.2.2.1 US Treasury Money Market Mutual Funds
6.2.2.2 US Government Agency Money Market Mutual Funds
6.2.2.3 Money Market Mutual Funds and “Flight to Quality”
6.2.3 Tax Exempt Money Market Mutual Funds
6.3 Retail and Institutional Money Market Mutual Funds
6.4 Constant and Floating Net Asset Value Money Market Mutual Funds
6.5 Other Cash Pools
6.5.1 Local Government Investment Pools
6.5.2 Short-Term Investment Funds
6.5.3 Separately Managed Cash Accounts
6.6 Conclusion
PART 3: COMPARATIVE ANALYSIS
Chapter 7: Comparative Analysis of the US and the EU Regulatory Models for Money Market Funds
Dr Viktoria Baklanova, CFA and Prof Joseph Tanega
7.1 Introduction
7.2 Major differences
7.2.1 Conflicting Money Market Fund Definitions
7.2.2 Divergent Assessment of Portfolio Risks
7.2.3 Divergent Views on Foreign Currency Exposures
7.2.4 Divergent Market Infrastructure and Varying Levels of Market Transparency
7.2.5 Portfolio Valuation Practices
7.2.6 Differences in Treatment of Capital Gain and Losses
7.2.7 Divergent Approach to Holdings and Pricing Information Transparency
7.2.8 Divergent Views on Corporate Governance
7.2.9 Divergent Views on “Gating”
7.2.10 Divergent Regulatory Oversight and Enforcement
7.3 Some Similarities
7.3.1 Similar Limits on Credit Risk Exposure
7.3.2 Similar Limits on Interest Rate Risk Exposure in Short-term Funds
7.3.3 Similar Stress Testing Requirements
7.3.4 Similar Consumer Disclosure Requirements
7.4 Closing the Gap between the EU and the US Regulatory Models: IMMFA Code of Practice
7.5 Conclusion
Chapter 8: Money Market Fund Ratings
8.1 Introduction
8.2 Money Market Fund Ratings versus Debt Ratings
8.2.1 Classification of Money Market Fund Ratings in Regulation
8.2.2 Other Quantitative and Statistical Ratings and Rankings
8.3 Credit Rating Agencies Providing Money Market Fund Ratings
8.3.1 Standard & Poor’s Ratings Services
8.3.2 Moody’s Investors Service
8.3.3 Fitch Ratings
8.4 History of Money Market Fund Ratings
8.4.1 S&P Pioneered Money Fund Rating Business
8.4.2 Institutional Demand Drove Fund Ratings
8.4.3 Financial Trade Associations Embraced Fund Ratings
8.4.4 Market Events Support Demand for Rating Research and Analysis
8.5 Consumers of Money Market Fund Ratings
8.5.1 Use Fund Ratings in Investment Guidelines
8.5.2 Retail Money Market Funds Seldom Rated
8.5.3 Considerations of Fund Rating Restrictions, Costs, and Rating Downgrades
8.6 Money Market Fund Rating Process
8.6.1 Engagement of Credit Rating Agency
8.6.2 Rating Analysis
8.6.3 Rating Committee Deliberations
8.6.4 Publication of the Rating Opinion
8.6.5 Rating Monitoring
8.7 Money Market Fund Rating Methodology
8.7.1 Fitch Rating Approach
8.7.2 Moody’s Rating Approach
8.7.3 S&P’s Rating Approach
8.8 Conclusion
Chapter 9: Money Market Funds outside the US and the EU
Dr Viktoria Baklanova, CFA and Prof Joseph Tanega
9.1 Introduction
9.2 Asia and Pacific: Australia
9.2.1 Size
9.2.2 Shareholder composition
9.2.3 Regulatory framework
9.2.4 Valuation
9.2.5 Investment practices
9.3 Asia and Pacific: China
9.3.1 Size
9.3.2 Shareholder composition
9.3.3 Targeted regulation
9.3.4 Valuation
9.3.5 Investment practices
9.4 Asia and Pacific: India
9.4.1 Size
9.4.2 Shareholder composition
9.4.3 Regulatory framework
9.4.4 Valuation
9.4.5 Investment practices
9.5 Asia and Pacific: Other Countries
9.5.1 Size
9.5.2 Largest players
9.6 Latin America: Mexico
9.7 Latin America: Brazil
9.7.1 Size
9.7.2 Shareholder composition
9.7.3 Regulatory framework
9.7.4 Valuation
9.7.5 Investment practices
9.8 Latin America: Other Countries
9.9 North America: Canada
9.9.1 Size
9.9.2 Shareholder composition
9.9.3 Targeted regulation
9.9.4 Valuation
9.9.5 Investment practices
9.10 Africa: South Africa
9.10.1 Size
9.10.2 Shareholder composition
9.10.3 Targeted regulation
9.10.4 Valuation
9.10.5 Investment practices
9.11 World-wide approach to money market fund regulation: One Size Does Not Fit All
Chapter 10: Systemic Risk Regulation and Money Market Funds
10.1 Introduction
10.2 Systemic Risk and Money Market Funds – a Historical View
10.2.1 Systemic Risk Motivates Regulation
10.2.2 Money Market Funds Posed Little Systemic Risk Prior to the Global Financial Crisis
10.3 Money Market Funds in the Global Financial Crisis
10.3.1 Changing Conditions Exposed Money Market Fund Investors to Losses
10.3.2 Potential Losses Triggered Widespread Run
10.3.1 Changing conditions exposed money market fund investors to losses
10.3.2 Potential Losses Triggered a Widespread Run
10.3.3 Sponsor Support as a Source of Systemic Risk
10.3.4 Public Interventions to Reduce Systemic Risk in Money Market Funds
10.4 Regulatory Responses to Systemic Risk in Money Market Funds
10.4.1 Global Recommendations to Reduce Systemic Risk
10.4.2 Further Reforms in the EU
10.4.3 Further Reforms in the US
10.5 Conclusion
Appendix 1 Directive 2009/65/EC (UCITS V) Chapter VII Obligations Concerning the Investment Policies of UCITS
Appendix 2 CESR’s guidelines concerning eligible assets for investment by UCITS
Appendix 3 CESR’s Guidance on a Common Definition of European Money Market Funds
Appendix 4 IMMFA’s Code of Practice
Appendix 5 Rule 2a-7, Rule 5B-3, Rule 17a-9, Rule 22e-3 and Rule 30b1-7 under the Investment Company Act of 1940
Index