The International Capital Market Association (ICMA), a lobby group for capital market organisations, also commented on ESMA's consultation on potential regulatory reform of EU Money Market Funds Regulation (MMFR). It said that their response was mainly drafted by the buy-side, the ICMA’s Asset Management and Investors Council.
In their view, a change of MMFR is not needed, instead the focus should be on measures to enhance the functioning and resiliency of Commercial Paper and Certificate of Deposit markets. Higher liquidity buffer thresholds could result in more selling pressure. Regulatory thresholds should be decoupled from suspensions/gates/fees, which attenuate first mover advantage.
In addition, ESMA should consider whether current rules in particular if (1) Basel 3 rules hindered the balance sheet capacity of market makers which was particularly detrimental to the Commercial Paper and repo markets and (2) margin rules could be improved to alleviate selling pressure on MMFs in times of stress.
Beyond prudential rules, enhancing the resilience of CP markets could also be achieved by improving the structure of the European CP markets. The ICMA said that CP markets in Europe are still fragmented into subnational markets. Improving transparency would be a helpful start (price, investors base).
CMDportal provides transparency in EU and international Money Markets, both issuance and holdings. We agree this could be enhanced by a greater contribution of data, in particular from the Short-Term European Paper (STEP) market database maintained by the European Central Bank as well as a full contribution of the NEU CP and MTN market dataset maintained by the Banque de France. CMDportal already covers most of these markets. Adding both of these data sets would achieve the transparency the market needs. We think this could be implemented within a few days.
We do not see the EU Money Market as fragmented, but do see it as diverse. We think this is a strength of the European Market.
Here are their summary comments: