Brussels, 13/02/2014 (Agence Europe) - On Monday 17 February, the European Parliament's economic and monetary affairs committee will vote on draft legislation on money market funds (see EUROPE 10914).
Saïd El Khadraoui (S&D, Belgium), the EP's rapporteur on this issue, told EUROPE on Thursday 13 February that there was not any broad enough consensus on a number of issues, like portfolio diversification and how funds should be rated.
The problem is what to do about CNAVs, he explained. CNAVs are constant net asset value funds, whereas VNAVs are variable net asset value funds. The Commission has decided not to ban them, as recommended by the European systemic risk council. Instead, the Commission recommends forcing them to set up a 3% liquidity buffer (3% of their total assets). El Khadraoui is working on a three-pronged compromise. The first aspect, backed by the majority, is avoiding a run on funds in difficult times through “redemption gates” that would be closed at time of crisis. The second step is for a liquidity buffer to be set up after three years. In order to get support from the EPP Group, one solution would be to allow more time, five years perhaps, to set up the buffer. After three years, the buffer should contain 1.8% of assets (0.6% a year) and the European Commission and ESMA would look at whether this is a suitable amount. El Khadraoui said the advantage of this is that it would be possible to see what the United States decides to do and make any necessary adjustments. He said it was not yet certain that he would be suggesting this, but he hoped to have more clarity after the consultations on Thursday afternoon.
The third step is for CNAVs to become VNAVs after a certain time period if the European Commission and ESMA say that the liquidity buffer is insufficient. The rapporteur admitted that there was not really a majority for this “sunset clause”, but he was going to put it forward all the same. The majority would not agree with converting CNAVs to VNAVs after five years.
Given the slow pace of progress at the Council, the legislation is unlikely to be adopted before the European elections. (EL/transl.fl)