The Bulgarian Financial Supervision Commission (the “FSC”) recently adopted instructions for implementation of the Guidelines on a common definition of European money market funds. The guidelines, which were issued by the Committee of European Securities Regulators, have a two-tiered approach, recognising the distinction between:
- short-term money market funds, which operate a very short weighted average maturity and weighted average life; and
- money market funds, which operate with a longer weighted average maturity and weighted average life.
The guidelines include a requirement that short-term money market funds must:
- limit investment in securities to those with a residual maturity of no more than 397 days until the legal redemption date;
- ensure its portfolio has a weighted average maturity of no more than 60 days and a weighted average life of no more than 120 days.
They also require that money market funds:
- limit investment in securities to those with a residual maturity of no more than 2 years until the legal redemption date, as long as the time remaining until the next interest rate reset date is less no more than 397 days. Floating rate securities should reset to a money market rate or index;
- ensure its portfolio has a weighted average maturity of no more than 6 months and a weighted average life of no more than 12 months;
- limit investment in other collective investment undertakings to those which comply with the definitions of a short-term money market fund or a money market fund.
In order to avoid any confusion among investors, CESR requires that only funds complying with the Guidelines may have any reference to ‘money market’ in their name.
The management companies of Bulgarian funds with a reference to ‘money market’ in their name have until 23 November 2012 to:
- change the fund’s name so that it no longer contains a reference to ‘money market’, or
- ensure that the fund’s activity complies with the requirements and criteria set out in the Guidelines and, only after approval of amendments in the fund’s internal acts, are allowed to include in their name any reference to ‘money market’.
New funds cannot be established with a name containing a reference to ‘money market’ unless their activities comply with the Guidelines. This also applies where procedures are underway to obtain permission to organise and manage a collective investment undertaking.