This paper maintains that the key purpose behind a harmonised definition of ‘money market funds’ is improved investor protection. CESR proposes a two-tiered approach to a common definition of both short-term and long-term European money market funds.
The paper sets out CESR’s proposals for a common definition of European money market funds. The key purpose behind a harmonised definition of ‘money market fund’ is improved investor protection. This reflects the fact that investors in money market funds expect the capital value of their investment to be maintained while retaining the ability to withdraw their capital on a daily basis. A common definition will also help provide a more detailed understanding of the distinction between funds which operate in a very restricted fashion and those which follow a more ‘enhanced’ approach.
CESR proposes a two-tiered approach to a definition of European money market funds:
· Short-term money market funds
· Longer-term money market funds
This approach recognises the distinction between short-term money market funds, which operate a very short weighted average maturity and weighted average life, and longer-term money market funds, which operate with a longer duration and weighted average life.
The definitions will apply to harmonised (UCITS) European money market funds. CESR recommends that the same approach is followed at national level for non-UCITS money market funds which are authorised by the Member States.
In both cases specific disclosure is required to draw attention to the difference between a money market fund and an investment in a bank deposit. It should be clear, for example, that an objective to preserve capital is not a capital guarantee. Longer-term money market funds should be required to provide sufficient information to explain the impact of the longer duration on the risk profile.
Deadline for comments is the 31st December 2009.
Press release
© CESR - Committee of European Securities Regulators
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