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Changes to European money market fund definitions
The independent financial supervisory authority of the European Union, the European Securities and Markets Authority, has introduced new definitions to clarify what is meant by the term “money market fund.” This paper summarises the changes and explains the impact on J.P. Morgan’s money market fund range.
New fund categorisations
In the past, the term “money market fund” has been used as a catch-all for many different kinds of funds in the European marketplace—from the most conservative, AAA-rated, stable net asset value (NAV) funds to more risky and less regulated products. The European Securities and Markets Authority (ESMA, previously known as the Committee of European Securities Regulators) has sought to improve investor protection by introducing a two-tiered approach to the classification of money market funds. It is envisaged that the harmonised definitions will help provide a more detailed understanding of the distinction between funds. This will allow investors to choose more easily between funds that are tightly constrained to holding short-dated investments and those that hold longer-dated instruments. Any fund identifying itself as a “money market fund” must conform to the ESMA established definitions of either a short-term money market fund or a money market fund. As of 1 July 2011, any newly launched money market fund must fall into one of the two categories. Fund managers have until the end of 2011 to bring existing funds into compliance.
Requirements for funds in both categories
ESMA has provided a set of guidelines that both categories of money market funds must meet: Objective: The primary objective of the fund must be to maintain principal and provide returns in line with money market rates. Permitted instruments: The fund must invest in money market instruments that comply with criteria set out under UCITS IV, or in deposits with credit institutions. Daily pricing and transactions: The fund must provide daily NAV figures and price calculations, and must allow daily subscriptions and redemptions.
Issued in Switzerland by J.Changes to European money market fund definitions
At a glance: key differences
The following table illustrates the key differences between short-term money market funds and money market funds. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Morgan Asset Management
WAM and WAL calculations
Weighted average maturity (WAM) is the average time to maturity of the underlying securities in a fund.
EXHIBIT 1: KEY DIFFERENCES BETWEEN SHORT-TERM MONEY MARKET FUNDS AND MONEY MARKET FUNDS
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.S. This communication is issued by the following entities: in the United Kingdom by JPMorgan Asset Management (UK) Limited which is regulated by the Financial Services Authority. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. © 2011 JPMorgan Chase & Co. in Australia by JPMorgan Asset Management (Australia) Limited which is regulated by the Australian Securities and Investments Commission and in the United States by J. Dollar Government Liquidity Fund • U. This material has been prepared for informational purposes only. member FINRA/SIPC. Morgan Liquidity Funds range already meet the guidelines for classification as short-term money market funds under the new definition: • Australian Dollar Liquidity Fund • Euro Government Liquidity Fund • Euro Liquidity Fund • Singapore Dollar Liquidity Fund • Sterling Gilt Liquidity Fund • Sterling Liquidity Fund • U. in other EU jurisdictions by JPMorgan Asset Management (Europe) S. Weighted average life (WAL) is the average time until the principal is repaid in full on the underlying securities in a
Opinions and estimates offered constitute our judgment and are subject to change without notice. in Hong Kong by JF Asset Management Limited. J. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Morgan Institutional Investments Inc. in Japan by JPMorgan Securities Japan Limited which is regulated by the Financial Services Agency. or JPMorgan Asset Management Real Assets (Asia) Limited. and should not be relied on for.P.l. again weighted according to the current market value of each security. Dollar Current Reserves Fund will be classified as a money market fund under the new definition due to its longer WAM/WAL. Morgan Liquidity Funds
The following funds in our J..P. Dollar Liquidity Fund holds securities with longer maturities in compliance with current SEC 2a-7 rules for money market funds.S.. in Singapore by JPMorgan Asset Management (Singapore) Limited which is regulated by the Monetary Authority of Singapore. We believe the information provided here is reliable. weighted according to the current market value of each security. institutional or wholesale investors as defined in the relevant local regulations.jpmgloballiquidity. short-term money other collective money market funds market funds or money investment only market funds undertakings?
Source: J. sovereign issuances are permitted down to investment grade
Impact on J. The U. which is regulated by the Swiss Financial Market Supervisory Authority FINMA. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co.P. In contrast with the WAM calculation.S. please visit us at www. Morgan (Suisse) SA. The value of investments and the income from them may fall as well as rise and investors may not get back the full amount invested.P. but do not warrant its accuracy or completeness. when calculating WAL the maturity of any floating rate instrument is taken to be the legal final maturity on the instrument and so does not take account of interest rate resets.P.P. as are statements of financial market trends. we assume that the maturity of any floating rate instrument is the time until the next interest rate reset date.P. For U. in addition. The views and strategies described may not be suitable for all investors. which is regulated by the Securities and Exchange Commission. accounting.S. Dollar Treasury Liquidity Fund The U. legal or tax advice. all of which are regulated by the Securities and Futures Commission. Morgan Investment Management Inc. and is not intended to provide. When calculating WAM.com.
Short-term money market funds NAV Either stable or fluctuating Required security ≤ 397 days maturity WAM WAL Credit ratings ≤ 60 days ≤ 120 days Instruments must hold one of the two highest short-term credit ratings (A-2/ P-2/F2 or above)
Money market funds Fluctuating ≤ 2 years. and its affiliates worldwide.
Permitted to hold Yes. provided next interest rate reset date is in ≤ 397 days ≤ 6 months ≤ 12 months Instruments must hold one of the two highest short-term credit ratings (A-2/P-2/F2 or above). and will be compliant with the guidelines for classification as a short-term money market fund before the ESMA deadline of the end of the year.S. which are based on current market conditions.
fund. short-term Yes. or JPMorgan Funds (Asia) Limited. registered mutual funds. J.