Banning funds that don’t have a floating share price would make the industry “less susceptible to runs", according to plans prepared by Said El Khadraoui, a Belgian member of the assembly’s Socialist group. “A strict regulatory framework is needed” to make funds “more stable without putting their important short-term financing role of the real economy into danger", according to El Khadraoui’s plans, published on the assembly’s website. He is also seeking tougher pay transparency rules, and for the largest funds to be supervised at EU level.
Money market funds hold more than a fifth of short-term debt securities issued by governments and corporates in the EU and more than a third of short-term bank debt. The EU industry has about €1 trillion of assets under management, accounting for around 15 per cent of the European fund industry, according to EU data.
Barnier unveiled proposals to regulate the sector in September, including requiring funds that maintain a fixed share price, known as constant net asset value, or CNAV, funds, to build up a cash buffer equivalent to 3 per cent of their assets. Corporate treasurers use money market funds as an alternative to bank deposits for short-term investment of cash, or as way to diversify where they keep their cash holdings. CNAV funds are attractive to some investors as their fixed share price makes them more closely resemble a bank deposit than those with a floating rate.
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