The French securities regulator Autorite Des Marches Financiers' (AMF) proposed guidelines on the definition of a French money market fund (MMF) to promote transparency and consistency within the €510 billion ($664 billion) French MMF industry, and also placing a greater emphasis on asset credit risk.

The AMF's proposal is in response to recent credit and liquidity disruptions, as well as calls from market participants — notably corporate treasurers — to more explicitly define what types of investment vehicles are deemed to be MMFs.

The proposed individual asset maximum maturity of two years is consistent with international standards and will limit the amount of liquidity risk and market risk that French MMFs can otherwise assume.

According Fitch Ratings analysts, over the last two years certain French MMFs have experienced net asset value pressure stemming from investments in longer-dated floating-rate notes. By contrast, the proposed overall average portfolio maturity limit of one year looks less conservative than what exists in some other markets (such as the US or the offshore market).

Under the framework proposed by AMF, French MMFs could still be exposed significantly to floating-rate notes with maturities ranging from one to two years, where price volatility (assets with such maturities must be valued on a mark-to-market basis) is much higher, even under less stressed market conditions.

In Fitch's view, the requirement that credit risk be "compatible with the low level of overall risk taken on by a money market fund" is vague with no reference to any metrics or indicators or guidance to control such risk.

The proposal is less restrictive than Fitch Rating's 'AAA' money market fund rating criteria. Fitch has recently published an exposure draft outlining proposed changes to its global money market fund rating criteria.

Among the proposed changes is an amended rating scale at the 'AAA', 'AA' and 'A' rating categories, with an 'MMF' rating subscript added. "Based on the parameters outlined by the AMF, Fitch would expect to rate funds across these rating categories depending on asset quality and maturity, investor composition and other qualitative considerations," the rating agency said.

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