The EU’s Money Market Fund (MMF) sector is now worth almost €1.5 trillion, according to a report by the European Securities and Markets Authority (Esma).
The report found that 89% of the funds are domiciled in France, Luxembourg and Ireland.
MMF Regulation guidance introduced a reporting obligation for managers of MMFs, allowing Esma to publish the first overview of this market using regulatory data.
The findings reveal that low-volatility NAV (net asset value) MMFs account for 46% of the total assets, followed by Variable NAV MMFs (42%) and Constant NAV MMFs (12%).
All MMFs domiciled in France are of the variable type. MMFs in Luxembourg and Ireland are mainly in non-EU currencies and are set up mostly as constant NAVs and low-volatility NAVs.
MMFs authorised in other EU jurisdictions only account for a small fraction of assets, the report states.
Professional investors hold more than 90% of EU MMFs, according to Esma. Financial corporations are the main unitholders of MMF shares, with insurance firms, pension funds and banks combined accounting for 25% of NAV.
But rising rates drove EU MMFs to reduce risk sensitivities within portfolios, measured as the weighted average maturity of assets, Esma stated.
Verena Ross, Esma chair, said: “MMFs play a central role in the financial system by bringing together the demand for and supply of short-term funding, and are closely interconnected with other parts of the financial sector.”
She added that recent periods of stress experienced by MMFs in the short-term funding markets, such as in March 2020, have shown the importance of monitoring trends and developments in the EU MMF sector.
In February 2022, Esma suggested a number of changes to the MMF Regulation to limit the risk of liquidity stress. Alongside key policy measures, such as addressing the threshold effects for CNAV MMFs, and addressing liquidity-related issues, Esma suggested complementary reforms aimed at enhancing MMFs’ preparedness for a crisis.
These reforms would include enhancements to reporting requirements and the stress-testing framework, as well as new disclosure requirements linked to the rating of MMFs. Esma has also highlighted the importance of implementing these changes to the MMF Regulation speedily.
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