CESR have published their guidelines http://www.cesr.eu/data/document/10_049.pdf on a common definition of European Money Market Funds.

The guidelines create two categories of Money Market Funds and these are:

  • Short-Term Money Market Funds (which operate a very short Weighted Average Maturity (WAM) and Weighted Average Life (WAL)); and
  • Money Market Funds (which operate with a longer WAM and WAL).

The guidelines will apply to UCITS Money Market Funds and non UCITS Money Market Funds. Other money market-type funds, outside the two categories, can continue to be authorised as UCITS but they will not be able to use the money market fund label following the introduction of the guidelines. In addition, only Short-Term Money Market Funds will be permitted to use a constant net asset value, and therefore Money Market Funds in the Money Market Funds category will not be allowed to use a constant net asset value.

The guidelines set out criteria for the types, duration, and quality of investments, as well as stipulating requirements as to information for investors. For example, Short-Term Money Market Funds will have a WAM of no more than 60 days, and a WAL of no more than 120 days, while Money Market Funds will have a WAM of no more than 6 months, and a WAL of no more than 12 months and FX derivatives may only be used for hedging.

In an Irish context, we can expect to see the FR revising its Guidance Note 1/08 "Valuation of Assets of Money Market Funds" to reflect the guidance and existing Money Market Funds adjusting their portfolios accordingly.

The guidelines will come into effect on the same date as the transposition deadline for the revised UCITS Directive (1st July 2011); Money Market Funds created after 1st July 2011 have to comply with the guidelines immediately; Money Market Funds in existence at 1st July 2011 must comply with the general guidelines from that date and with either the specific Short-Term Money Market Funds or Money Market Funds provisions in respect of new investments made on or after 1st July 2011, with respect to investments acquired prior to 1st July 2011 both Short-Term Money Market Funds and Money Market Funds have until 31st December to comply with requirements.