ASIC protects Australian money market funds
09 January 2013 Sydney
Image: Shutterstock
The Australian Securities and Investments Commission (ASIC) has said that idosyncracies in Australian money market funds mean that concerns expressed by international organisations such as IOSCO over their regulation does not apply to Australia.
“We found that money market funds in Australia do not share many of the characteristics that are prevalent in US and Europe and have little impact on the short-term funding market in Australia," said ASIC commissioner Greg Tanzer.
“For example, the susceptibility of money market funds to runs, or investors wanting to exit the fund simultaneously, appears low in Australia because of the absence of any significant mismatch between liquidity and redemption terms, the use of marked to market valuations and the existing ability of fund managers to freeze redemptions in turbulent times.”
The role of money market funds in the Australian short-term funding market is significantly smaller compared to overseas markets. Estimates put the short-term funding market to be around $250.6 billion. It is estimated that money market funds represent no more than 9.5 percent of the short-term funding market and currently account for 0.5 percent of financial system assets in Australia.
“Our analysis to date does not support regulatory intervention for money market funds. The current regulation and market practice in Australia is aligned with IOSCO recommendations,” added Tanzer.
“However, we will liaise with industry to encourage standardisation in product branding to better distinguish funds that are known as 'enhanced' money market funds from other money market funds. We consider it would be preferable if the term 'money market fund' or similar terms such as 'cash', were used only by funds that have a low weighted average life and dollar weighted average maturity.”
“We found that money market funds in Australia do not share many of the characteristics that are prevalent in US and Europe and have little impact on the short-term funding market in Australia," said ASIC commissioner Greg Tanzer.
“For example, the susceptibility of money market funds to runs, or investors wanting to exit the fund simultaneously, appears low in Australia because of the absence of any significant mismatch between liquidity and redemption terms, the use of marked to market valuations and the existing ability of fund managers to freeze redemptions in turbulent times.”
The role of money market funds in the Australian short-term funding market is significantly smaller compared to overseas markets. Estimates put the short-term funding market to be around $250.6 billion. It is estimated that money market funds represent no more than 9.5 percent of the short-term funding market and currently account for 0.5 percent of financial system assets in Australia.
“Our analysis to date does not support regulatory intervention for money market funds. The current regulation and market practice in Australia is aligned with IOSCO recommendations,” added Tanzer.
“However, we will liaise with industry to encourage standardisation in product branding to better distinguish funds that are known as 'enhanced' money market funds from other money market funds. We consider it would be preferable if the term 'money market fund' or similar terms such as 'cash', were used only by funds that have a low weighted average life and dollar weighted average maturity.”
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