CASH MANAGEMENT European Money Market Fund Reform 7 Jul 2017 On Monday, 28 November 2016, the European Parliament, Council and Commission agreed to a final legislative text on European Money Market Fund Reform. The final text has been passed through a European Parliament & Council vote and was published in the Official Journal on 30 June 2017. The final rules importantly preserve Constant Net Asset Value (CNAV) for government funds, and introduce a new type of fund, the Low-Volatility NAV (LVNAV) fund. LVNAV is intended to replicate some of the utility of CNAV funds, with greater sensitivity to market pricing, and additional safeguards and controls built into the fund structure. The available fund structures should continue to provide investors with a range of fund options and strategies to meet their operational and investment needs. The regulation takes legal effect 20 July 2017, marking the start of the 18 month transition period for existing funds to comply. Full compliance with the regulation will be required by 21 January 2019. Please find below a summary of the structures approved in the text. In the following pages, we detail the key features and differences between the different fund types. We will be providing more specific communication on the BlackRock fund proposals and time frames over the coming months. Contact your relationship manager to learn more, or to discuss the regulation. Bea Rodriguez Lead Portfolio Manager- EMEA Damien Donoghue Head of EMEA Cash Management Sales Joanna Cound Head of Government Affairs & Public Policy ESMA Short Term Money Market : Agreed Structures Government CNAV that invest 100% of assets in government and governmentguaranteed securities may retain a CNAV through the use of full portfolio amortised cost accounting Mandated to hold 10% in daily maturing assets and 30% in weekly maturing assets Prescribed thresholds for liquidity fees & gates will apply for shareholder protection Subject to review in 2022, but any adjustment will require an entirely new Regulation Low Volatility NAV (LVNAV) Fund will price to 2 decimal places if the full mark-to-market price does not deviate from 1.00 by more than 20 basis points (bps), essentially rounding up to 1.00 If the 20 bps tolerance is breached the fund will price to 4 decimal places using the full mark-tomarket NAV, essentially rounding down to the nearest basis point May use amortised cost for assets <75 days, however the mark to market price must be used if this deviates by >10 bps from the amortised cost price Mandated to hold 10% in daily maturing assets and 30% in weekly maturing assets Prescribed thresholds for liquidity fees & gates will apply for shareholder protection Variable Net Asset Value (VNAV) that mark-to-market their full holdings to 4 decimal places Mandated to hold 7.5% in daily maturing assets and 15% in weekly maturing assets No formal prescriptions for Liquidity fees on redemptions or redemption gates are laid out in the text, but may be subject to liquidity fees and / or gates in existing UCITS or AIFMD rules. between the European Parliament, Council and Commission in November 2016. As at July 2017.
Short Term Money Market Weighted Average Maturity limit of 60 days Weighted Average Life limit of 120 days Fund Structure Government CNAV Low-Volatility NAV (LVNAV) Valuation & Pricing Redemption Gates & Fees Liquidity Buffer Fund prices to 2 decimal places, retaining CNAV through the use of full portfolio amortised cost accounting If weekly liquid assets falls below 30% of the fund AND the fund experiences net redemptions >10%, the Board shall convene and decide to either; take no immediate action, or either apply liquidity fees on redemptions that adequately reflect the cost of achieving liquidity fees, or apply redemption gates or suspensions for a max of 15 days If weekly liquid assets fall below 10% of the fund, the Board shall either apply liquidity fees on redemptions, or suspend redemptions up to a max of 15 days are required to hold 10% daily maturing assets and 30% weekly 10% daily liquidity consists of cash, and daily maturing assets (including Of the remaining 20% weekly liquidity, 17.5% can consist of government debt <190 days maturity, the remaining 2.5% must be held in weekly maturing assets (including Deposits and Reverse Repurchase Agreements) Fund can price to 2 decimal places if the full mark-to-market price does not deviate from 1.00 by more than 20 bps, essentially rounding up to 1.00 If the 20 bps tolerance is breached the fund will price to 4 decimal places using the full mark-to-market NAV, essentially rounding down to the nearest basis point The LVNAV may be calculated to 2 decimal places using amortised cost for assets <75 days to maturity so long as the market price of the asset is within 10 bps of its amortised cost price, if not the mark-to-market price is to be used If weekly liquid assets falls below 30% of the fund AND the fund experiences net redemptions >10%, the Board shall convene and decide to either; take no immediate action, or either apply liquidity fees on redemptions that adequately reflect the cost of achieving liquidity fees, or apply redemption gates or suspensions for a max of 15 days If weekly liquid assets fall below 10% of the fund, the Board shall either apply liquidity fees on redemptions, or suspend redemptions up to a max of 15 days are required to hold 10% daily maturing assets and 30% weekly 10% daily liquidity consists of cash, and daily maturing assets (including Of the remaining 20% weekly liquidity, 17.5% can consist of government debt <190 days maturity, the remaining 2.5% must be held in weekly maturing assets (including Deposits and Reverse Repurchase Agreements) between the European Parliament, Council and Commission in November 2016. As at July 2017.
Short Term Money Market Weighted Average Maturity limit of 60 days Weighted Average Life limit of 120 days Fund Structure Government CNAV Low-Volatility NAV (LVNAV) Diversification & Concentration Limits ABCP Internal Credit Sponsor Support Miscellaneous Competent authority may authorise a Money Market Fund to invest up to 100% of its assets in government debt and certain agency debt Whilst ABCP is technically permitted on the government funds it has to comply with the overarching 99.5% government debt rule Money Market public disclosure rules Fund structure is subject to review in 2022, however this will require an entirely new regulation in order to change the fund structure fundamentally Concentration limit of 5% in Money Market Instruments and Asset-Backed Commercial Paper (ABCP) issued by the same institution Concentration limit up to 10% in deposits with the same institution A Money Market Fund cannot hold more than 10% of a Money Market Instrument or ABCP issued by a single institution A Money Market Fund may invest up to 15% of its portfolio in fully supported ABCP, pending the finalisation of the proposed European Union Regulation for simple, transparent and standardised securitisations (STS) Once STS is applicable a Money Market Fund may invest up to 20% of its assets in ABCP, of which up to 15% is not required to be STS Money Market public disclosure rules Not subject to sunset clause between the European Parliament, Council and Commission in November 2016. As at July 2017.
Short Term Money Market Weighted Average Maturity limit of 60 days Weighted Average Life limit of 120 days Standard Money Market Weighted Average Maturity limit of 180 days Weighted Average Life limit of 360 days Fund Structure Valuation & Pricing Redemption Gates & Fees Liquidity Buffer Diversification & Concentration Limits VNAV Short-Term Money Market Mark-to-market or mark-to-model for the funds full holdings (use of independent pricing inputs is optional) Calculates the NAV to 4 decimal places No formal prescriptions for Liquidity fees on redemptions or redemption gates are laid out in the text, but may be subject to liquidity fees and / or gates in existing UCITS or AIFMD rules. are required to hold 7.5% daily maturing assets and 15% weekly 7.5% daily liquidity consists of cash, and daily maturing assets (including The remaining 7.5% weekly liquid assets can be fulfilled by holding shares in other Money Market, or any security which can be sold and settled in 5 business days Up to 20% restriction (in certain circumstances) Exposure to Money Market Instruments, including ABCP, issued by a single body is subject to UCITS concentration rules Concentration limit up to 10% in deposits with the same institution A Money Market Fund cannot hold more than 10% of a Money Market Instrument or ABCP issued by a single institution VNAV Standard Money Market Mark-to-market or mark-to-model for the funds full holdings (use of independent pricing inputs is optional) Calculates the NAV to 4 decimal places No formal prescriptions for Liquidity fees on redemptions or redemption gates are laid out in the text, but may be subject to liquidity fees and / or gates in existing UCITS or AIFMD rules. are required to hold 7.5% daily maturing assets and 15% weekly 7.5% daily liquidity consists of cash, and daily maturing assets (including The remaining 7.5% weekly liquid assets can be fulfilled by holding shares in other Money Market, or any security which can be sold and settled in 5 business days Up to 20% restriction (in certain circumstances) Exposure to Money Market Instruments, including ABCP, issued by a single body is subject to UCITS concentration rules Concentration limit up to 10% in deposits with the same institution A Money Market Fund cannot hold more than 10% of a Money Market Instrument or ABCP issued by a single institution between the European Parliament, Council and Commission in November 2016. As at July 2017.
Short Term Money Market Weighted Average Maturity limit of 60 days Weighted Average Life limit of 120 days Standard Money Market Weighted Average Maturity limit of 180 days Weighted Average Life limit of 360 days Fund Structure ABCP / ABS Internal Credit Sponsor Support Miscellaneous VNAV Short-Term Money Market A Money Market Fund may invest up to 15% of its portfolio in fully supported ABCP, or term ABS, pending the finalisation of the proposed European Union Regulation for simple, transparent and standardised securitisations (STS) Once STS is applicable a Money Market Fund may invest up to 20% of its assets in ABCP, of which up to 15% is not required to be STS Money Market public disclosure rules (detailing the maturity & credit profile of the fund, large holdings on a weekly basis) VNAV Standard Money Market A Money Market Fund may invest up to 15% of its portfolio in fully supported ABCP, or term ABS, pending the finalisation of the proposed European Union Regulation for simple, transparent and standardised securitisations (STS) Once STS is applicable a Money Market Fund may invest up to 20% of its assets in ABCP, of which up to 15% is not required to be STS Money Market public disclosure rules (detailing the maturity & credit profile of the fund, large holdings on a weekly basis) See Important Disclosures on the next two pages. Want to know more? For any questions do not hesitate to contact your relationship manager. between the European Parliament, Council and Commission in November 2016. As at July 2017.
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