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The draft regulation is intended to ensure the smooth operation of the short-term funding market. It sets out to maintain the essential role that money market funds play in the financing of the real economy. It follows efforts by the G20 and the Financial Stability Board to strengthen the oversight and regulation of the 'shadow banking' system.
With assets under management of around €1 trillion, MMFs are mainly used to invest excess cash within short timeframes. They represent an important tool for investors because they offer the possibility to diversify their excess cash holdings, whilst maintaining a high level of liquidity.
While an overall agreement was reached at political level, a number of technical issues relating to the draft regulation are to be finalised in the coming days. The agreement will then be submitted to the Permanent Representatives Committee for endorsement on behalf of the Council. The Parliament and the Council will then be called on to adopt the regulation at first reading. [...]
Common standards
The draft regulation lays down rules for MMFs, in particular the composition of their portfolios and the valuation of their assets, to ensure the stability of their structure and to guarantee that they invest in well-diversified assets of the highestcredit quality.
It also introduces common standards to increase the liquidity of MMFs, to ensure that they can face sudden redemption requests when market conditions are stressed. In addition, the text provides for common rules to ensure that the fund manager has a good understanding of investors' behaviour, thus preparing for any future redemption requests. It provides investors and supervisors with adequate and transparent information.
Issues resolved
The agreement reached at the final meeting of 'political' negotiators covers, in particular, the core issues concerning regulation of MMFs, such as liquidity and diversification requirements, assets on which MMFs can invest including the role of government debt, transparency. It also provides fora report by the Commission on the functioning of the regulation, accompanied by a review clause.