The World Assembly (WA),
Noting the use of money markets funds (MMFs) in some WA states, both for investors to access high quality, liquid debt instruments, and for debtors to gain short-term funding;
Acknowledging that liquidity is a persistent issue for MMFs due to the potential for rapid redemptions, forcing sales of financial instruments held in an MMF at potentially disadvantageous prices and hurting the interests of fund investors that remain in the fund;
Desiring a common solution to fill gaps in regulations across WA states, especially when investors buy MMFs from different WA states;
The WA hereby enacts as follows:
- Definitions.
- "Authority" means one or more government entities designated by a WA state to enforce and interpret this resolution.
- "GF" means the WA General Fund.
- "MMFs" refer to investment funds that invest in liquid, short-term investments with high credit ratings, as defined by each WA state, as a higher yielding alternative to bank accounts but with potentially higher risks for investors than putting their savings in a bank account. In this resolution, MMFs exclude any funds guaranteed by a bank or financial institution as to principal and interest.
- "WA organs" means any of the sub-committees of the WA.
- Liquidity and quality. Each authority is to promulgate minimum standards on:
- liquidity in assets held by an MMF;
- credit quality, diversification, and counterparty risk assessment for an MMF;
- asset eligibility in an MMF, such as:
- investments in non-WA states;
- investments in states subject to sanctions from the WA (or discouraged or prohibited pursuant to local laws or WA resolutions);
- investments in assets in currencies other than the reporting currency of the MMF;
- use of derivatives for exposure to underlying assets;
- the use of stand-by credit facilities from other financial institutions to meet redemption requests.
- Redemption. Each authority is to ensure that:
- redemptions cannot discriminate between investors from different WA states;
- minimum buffers at the fund level are imposed to meet redemption requests in stressed market conditions;
- no redemption gates may be imposed by a manager of an MMF to avoid aggravating investor runs;
- an MMF may only impose redemption fees that allocate the costs of providing liquidity to redeeming investors to protect remaining investors from dilution when selling its holdings is costly.
- Stress tests. Each authority is to ensure that:
- stress tests are conducted regularly regarding liquidity, trading velocity in the event of rapid redemptions, credit risks, and other risk factors in an MMF;
- the results of such stress tests are available publicly through convenient means.
- Stable NAV funds.
- If an authority allows MMFs to be priced on a stable net asset value (NAV) basis (such as a quoted price of one currency unit), an MMF may put in place a reverse distribution mechanism during a negative interest rate environment to maintain a stable NAV per unit.
- Each authority is to determine whether stable NAV funds are permitted in that WA state.
- Disclosures. Each authority is to ensure that each MMF regularly discloses:
- fee structures (both actual and potential additional expenses);
- policies for handling liquidity issues in times of stress;
- record in compliance with all standards set forth in this resolution, and policies and procedures to ensure ongoing compliance;
- liquidity position, performance, and portfolio holdings;
- any other pertinent information deemed necessary for regular disclosure by an authority.
- Marketing. Each authority is to ensure that each MMF is marketed and subscribed such that:
- Potential investors have the knowledge, experience, and capability, as determined by the authority, to purchase MMFs;
- MMFs (as defined in this resolution) as not marketed as a direct substitute as a bank deposit.
- Bailouts.
- No WA state may use any funds (be it in grants, loans, or other forms) originating from GF to provide liquidity or principal protection to an MMF.
- This does not preclude a WA state from providing such protection to MMFs using its own funds.
- Jurisdiction.
- This resolution does not regulate whether MMFs can be sold at all in a WA state.
- If a MMF incorporated in one WA state is being sold in another WA state, both the WA state where the MMF is incorporated and the state where it is sold has jurisdiction. The MMF must comply with the regulations of the authorities of both states, including the availability of MMFs.
- In case of conflicts, the WA Judiciary Committee shall have jurisdiction on a de novo basis.
