[GA - PASSED] Money Markets Funds Protocol

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Money Markets Funds Protocol
Category: Regulation | Area of Effect: Consumer Products
Proposed by: Simone Republic | Onsite Topic

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:
  1. Definitions.
    1. "Authority" means one or more government entities designated by a WA state to enforce and interpret this resolution.
    2. "GF" means the WA General Fund.
    3. "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.
    4. "WA organs" means any of the sub-committees of the WA.

  2. Liquidity and quality. Each authority is to promulgate minimum standards on:
    1. liquidity in assets held by an MMF;
    2. credit quality, diversification, and counterparty risk assessment for an MMF;
    3. asset eligibility in an MMF, such as:
      1. investments in non-WA states;
      2. investments in states subject to sanctions from the WA (or discouraged or prohibited pursuant to local laws or WA resolutions);
      3. investments in assets in currencies other than the reporting currency of the MMF;
    4. use of derivatives for exposure to underlying assets;
    5. the use of stand-by credit facilities from other financial institutions to meet redemption requests.

  3. Redemption. Each authority is to ensure that:
    1. redemptions cannot discriminate between investors from different WA states;
    2. minimum buffers at the fund level are imposed to meet redemption requests in stressed market conditions;
    3. no redemption gates may be imposed by a manager of an MMF to avoid aggravating investor runs;
    4. 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.

  4. Stress tests. Each authority is to ensure that:
    1. stress tests are conducted regularly regarding liquidity, trading velocity in the event of rapid redemptions, credit risks, and other risk factors in an MMF;
    2. the results of such stress tests are available publicly through convenient means.

  5. Stable NAV funds.
    1. 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.
    2. Each authority is to determine whether stable NAV funds are permitted in that WA state.

  6. Disclosures. Each authority is to ensure that each MMF regularly discloses:
    1. fee structures (both actual and potential additional expenses);
    2. policies for handling liquidity issues in times of stress;
    3. record in compliance with all standards set forth in this resolution, and policies and procedures to ensure ongoing compliance;
    4. liquidity position, performance, and portfolio holdings;
    5. any other pertinent information deemed necessary for regular disclosure by an authority.

  7. Marketing. Each authority is to ensure that each MMF is marketed and subscribed such that:
    1. Potential investors have the knowledge, experience, and capability, as determined by the authority, to purchase MMFs;
    2. MMFs (as defined in this resolution) as not marketed as a direct substitute as a bank deposit.

  8. Bailouts.
    1. 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.
    2. This does not preclude a WA state from providing such protection to MMFs using its own funds.
  9. Jurisdiction.
    1. This resolution does not regulate whether MMFs can be sold at all in a WA state.
    2. 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.
    3. In case of conflicts, the WA Judiciary Committee shall have jurisdiction on a de novo basis.
Note: Only votes from TNP WA nations, NPA personnel, and those on NPA deployments will be counted. If you do not meet these requirements, please add (non-WA) or something of that effect to your vote. If you are on an NPA deployment without being formally registered as an NPA member, name your deployed nation in your vote.
Voting Instructions:
  • Vote For if you want the Delegate to vote For the resolution.
  • Vote Against if you want the Delegate to vote Against the resolution.
  • Vote Abstain if you want the Delegate to abstain from voting on this resolution.
  • Vote Present if you are personally abstaining from this vote.
Detailed opinions with your vote are appreciated and encouraged!

ForAgainstAbstainPresent
8201
 
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Overview
This proposal provides basic regulations over money markets funds, a type of short term financial instrument that is sometimes substituted for bank deposits. The resolution explicitly disallows the use of WA money to bail out such funds, in addition to providing regulations to protect the interest of investors in such funds.

Recommendation
Money markets funds is a popular product IRL in many countries such as the US, China, and the EU. It may sound like a niche market but it is actually a US$9 trillion market worldwide, and the Ministry believes that transplanting global regulations to the WA is a reasonable move to make, especially in the WA context of cross-border free trade.

For the above reasons, the Ministry of World Assembly Affairs recommends a vote FOR the GA proposal at vote, "Money Markets Funds Protocol".
 
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For as author. (Not as delegate).

Money market funds (MMFs) play a key role in short-term funding markets – with over USD $9 trillion (yes, trillion, that's thousand billion (American usage)) in assets under management (AUM) globally as of end-2021, primarily in the US. (The US has about US$6.5 trillion. Europe has about Euro 1 trillion). This protocol provides minimum standards for funds sold as such, primarily over liquidity, stress tests, redemption gates, and disclosures. It also has a clause that no General Fund (GF) money can be used to bail out investors.

Here's a brief overview of what is an MMF:
https://www.investopedia.com/terms/m/mo ... etfund.asp

"A money market fund is a kind of mutual fund that invests in highly liquid, near-term instruments. These instruments include cash, cash equivalent securities, and high-credit-rating, debt-based securities with a short-term maturity (such as U.S. Treasuries). Money market funds are intended to offer investors high liquidity with a very low level of risk. Money market funds are also called money market mutual funds."

Clause 3(b) contains a concept from the US SEC rule on MMFs amended post Covid. (Fn1)
https://www.sec.gov/files/mmf-reforms-fact-sheet_1.pdf

Note that there is also a provision that this regulation does not regulate whether MMFs can be sold at all in a WA state.
 
This feels far too niche to be covered by the WA.

I'd grant that the UK does not really have Money Markets Funds especially at the retail level. But it's very popular in the US, China, and the EU. So yes it's not really applicable to many people in the UK but does apply in many countries in the rest of the world.
 
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I'd grant that the UK does not really have Money Markets Funds especially at the retail level. But it's very popular in the US, China, and the EU. So yes it's not really applicable to many people in the UK but does apply in many countries in the rest of the world.


A quick Google search shows only a handful of MMFs in the UK. Yes, tiny, but not totally non-existent. And it's way bigger in the US.

Whether something is too niche is a matter of judgment and I don't have anything to add to that.
 
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