Money market sectors to follow European definitions

The IMA has announced it will  will create two money market sectors, based upon the ESMA “short term money market” and “money market” definitions that were introduced into the FSA Handbook in July 2011.

The new IMA sectors will become effective as of  January 1 2012. The IMA has adopted in principle the new FSA definitions of money market funds with effect from July 1, 2011. Firms were granted a six month transition period to bring their funds into compliance with the new rules and sector definitions.

Ten funds will join the IMA short term money markets sector and six will join the money market sector. A number of firms have not yet confirmed which sector their fund will sit in.

Whilst the usual IMA policy is to have a minimum number of ten funds in a sector, the IMA has decided to make an exception in this case to ensure consistency with the FSA Handbook.

The IMA will review the money market sectors in twelve months’ time.

The short-term money market fund sector covers both variable NAV and constant NAV funds whereas the money market fund sector does not accommodate constant NAV funds.

Short-term money market funds operate a very short weighted average maturity, the weighted average of the time until all maturities on debt, and short weighted average life. The weighted average life is the average time until a dollar of principal is repaid. Money market funds operate with a longer weighted average maturity and weighted average life.

IMA director of markets Jane Lowe says: “Following consultation with our members, we have decided the IMA money market sectors should reflect exactly what appears in the FSA Handbook.

“We have long had concerns about the proliferation of descriptions for money market funds. Introducing regulatory definitions for authorised money market funds brings welcome clarity for consumers in both the UK and other European countries.”

Funds which invest at least 95 per cent of their assets in money market instruments, such as cash and near cash, such as bank deposits, certificates of deposit, very short term fixed interest securities or floating rate notes.