Regulation 2017/1131 - Money market funds - Main contents
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Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (Text with EEA relevance. )| Legal instrument | Regulation |
|---|---|
| Number legal act | Regulation 2017/1131 |
| Original proposal | COM(2013)615  |
| CELEX number i | 32017R1131 |
| Document | 14-06-2017; Date of signature |
|---|---|
| Publication in Official Journal | 30-06-2017; OJ L 169 p. 8-45 |
| Signature | 14-06-2017 |
| Effect | 20-07-2017; Entry into force Date pub. +20 See Art 47 20-07-2017; Application Partial application See Art 47 21-07-2018; Application See Art 47 |
| Deadline | 21-07-2022; Review See Art 46 |
| End of validity | 31-12-9999 |
30.6.2017 |
EN |
Official Journal of the European Union |
L 169/8 |
REGULATION (EU) 2017/1131 OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL
of 14 June 2017
on money market funds
(Text with EEA relevance)
THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,
Having regard to the Treaty on the Functioning of the European Union, and in particular Article 114 thereof,
Having regard to the proposal from the European Commission,
After transmission of the draft legislative act to the national parliaments,
Having regard to the opinion of the European Central Bank (1),
Having regard to the opinion of the European Economic and Social Committee (2),
Acting in accordance with the ordinary legislative procedure (3),
Whereas:
(1) |
Money market funds (MMFs) provide short-term finance to financial institutions, corporations and governments. By providing finance to those entities, MMFs contribute to the financing of the economy of the Union. Those entities use their investments in MMFs as an efficient way to spread their credit risk and exposure, rather than relying solely on bank deposits. |
(2) |
On the demand side, MMFs are short-term cash management tools that provide a high degree of liquidity, diversification and stability of value of the principal invested, combined with a market-based yield. MMFs are mainly used by corporations seeking to invest their excess cash for a short time frame. MMFs, therefore, represent a crucial link bringing together demands and offers of short-term cash. |
(3) |
Events that occurred during the financial crisis have shed light on several features of MMFs that make them vulnerable when there are difficulties in financial markets in which case MMFs could spread or amplify risks throughout the financial system. When the prices of the assets in which an MMF has invested start to decrease, especially during stressed market situations, the MMF cannot always maintain its promise to redeem immediately and to preserve the principal value of a unit or share issued by the MMF to investors. That situation, which according to the Financial Stability Board (FSB) and the International Organisation of Securities Commissions (IOSCO) can be particularly serious for constant or stable net asset value MMFs, could trigger substantial and sudden redemption requests, potentially triggering broader macroeconomic consequences. |
(4) |
Large redemption requests could force MMFs to sell some of their investment assets in a declining market, potentially fuelling a liquidity crisis. In those circumstances, money market issuers can face severe funding difficulties if the markets for commercial paper and other money market instruments dry up. That in turn could lead to contagion within the short-term funding market and result in direct and major difficulties in the financing of financial institutions, corporations and governments, and thus the economy. |
(5) |
Asset managers, backed by sponsors, can decide to provide discretionary support to maintain the liquidity and the stability of their MMFs. Sponsors are often forced to support their sponsored MMFs that are losing value due to reputational risk and fear that panic could spread into sponsors' other businesses. Depending on the size of the MMF and the extent of the redemption pressure, sponsor support could reach proportions that exceed their readily available reserves. Therefore, an MMF should not receive external support. |
(6) |
In order to preserve the integrity and stability of the internal market, it is necessary to lay down rules regarding the operation of MMFs, in particular on the composition of the portfolio of MMFs. Those rules are intended to make MMFs more resilient and limit contagion channels. Uniform rules across the Union are necessary to ensure that MMFs are able to honour redemption requests... |
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