A Common Definition of European Money Market Funds: More Clarity or More Confusion?

Money market funds (MMFs) that started as a U.S. phenomenon in 1971, in nearly forty years have grown into a $5.8 trillion global industry. In the early 1980s the European investment management community adopted MMFs with certain variations to fit the local legislations and practices. The market dislocation of 2007 – 2009 exacerbated by the liquidity crisis that followed the bankruptcy of the Lehman Brothers have led financial regulators in all major jurisdictions to review the existing policies. The European Union now is facing even greater challenges due to the fragmented nature of the local markets and the lack of regulatory consistency. The de Larosière report published in February 2009 pointed out that an efficient Single Market should have a harmonized set of core rules.
This article focuses on the recent initiative undertaken by the Committee of European Securities Regulators (CESRs) to follow up on the de Larosière’s report recommendations in introducing a common definition for European MMFs. Section I of the article is an introduction into the past and the present of the MMF industry in the U.S. and Europe. Section II reviews existing definitions of MMFs. Section III analyses regulated elements of investment management and operational practices applicable to MMFs including risk-limiting provisions of the recent MMF Reform implemented by the U.S. Securities and Exchange Commission (SEC).
While I support the CESRs’ efforts in introducing a common EU definition of MMFs, the diversities of the European financial markets call for a better delineation of seemingly homogenous investment schemes. The article concludes by re-emphasizing the importance of a consistent regulatory guidance for the creation of an efficient and transparent Single Market.
The paper is an initial step in a much larger research project on comparative regulation of the global money markets and cash management. Even further, I study the impact of financial markets on law and regulation, and regulatory response to market developments in the narrow focus of money market fund industry. The historical record supports the thesis that the law matters to the development of the transparent and efficient global financial markets. My approach is historical in orientation and starts with an attempt to define MMFs as a subject of regulation. 

Money Market Funds: An Introduction to the Literature

This article provides an overview of the literature on various aspects of the money market fund industry. It also serves as an introduction to a much larger research project on comparative regulation in the context of the global money market and cash management. The study of a relationship between MMFs and an efficient global financial market is in its early stages. Here we provide just a glimpse of the major driving forces behind the MMFs popularity.
The article examines studies related to funds’ investment management practices, but also explores a number of issues raised by the emerging money market fund industry under the securities and banking laws in the U.S. and Europe. An open question is whether the MMFs will continue to play an important role as one of the major cash management vehicles and a source of financing given certain structural deficiencies and unresolved regulatory issues.  We hope that our further research will help to better understand the role of money market funds in more efficient functioning of the global financial markets and capital formation.

Regulatory Use of Credit Ratings: How it Impacts the Behaviour of Market Constituents

published in INTERNATIONAL FINANCE REVIEW VOL 10 65-104 Year: 2009 ISSN: 1569-3767

In July 2008 the United States Securities and Exchange Commission (SEC) published three releases relating to the use in its rules and forms of credit ratings issued by Nationally Recognized Statistical Rating Organizations (NRSRO). The proposed amendments were designed to address concerns that the references to such ratings in SEC documents may have contributed to an undue reliance on NRSRO ratings by market participants. Publishing the proposals, the SEC sought market feedback regarding the effect the removal of such references may produce on investors, issuers and regulated entities. 
This article examines the use of ratings by various market constituents, including the regulators themselves and analyzes the details of the SEC proposals. This is done against a backdrop of the origin and history of the credit rating business. Further, the article reviews the feedback provided in response to the SEC proposals and identifies the areas of conflicting views.  With credit ratings serving the purpose of regulatory compliance, the use of rating by various market participants deviated from what ratings were originally designed for. One of the major findings of this research is that the market participants are not ready to accept responsibilities for an independent credit risk assessment and, for the most part, opposed the SEC proposals.  We infer that investors, fiduciaries and regulated entities are looking to regulators to offer a common measure of risk, accurate and free of conflict of interests.