New guidance for permissible words in the naming of money market funds.
A money market fund by any other name
A new document released by the Financial Services Council provides investment product manufacturers with new guidance about permissible words in the naming of money market funds.
Money market funds garnered attention from regulators globally following the run on some during the global financial crisis. Internationally, they have tended to be highly regulated and have very narrow definitions and naming conventions. Australia’s money market fund industry is very small by global standards and plays a minor role in providing liquidity to the market.
Guidance Note No. 35
pdf FSC Guidance Note 35 has been published in response to a 2012 review by the Australian Securities and Investments Commission into the product segment. That review followed similar scrutiny by regulators in overseas jurisdictions and by the International Organization of Securities Commissions (IOSCO).
While ASIC found no evidence of the issues that concerned its counterparts in other markets – such as susceptibility to runs – and ruled out the need for specific regulatory intervention, it has encouraged the standardisation of industry practice in relation to product branding.
ASIC believes Australia’s market practice and regulation is substantially aligned with IOSCO recommendations.
What's in a name?
The naming conventions described in FSC Guidance Note 35 are intended to remove any uncertainty about the quality and liquidity of money market funds’ underlying investments that might be implied by their names.
In a nutshell, the guide establishes the criteria to identify a product as a money market fund – whether a short-term money market fund holding hold high quality and highly liquid short-term money market instruments or a standard money market fund holding similar assets but with a slightly longer portfolio maturity – and then describes permissible language to include in a product name.
Funds that meet either of these criteria are permitted to use the words 'money market’, 'cash’, 'liquid’, 'ready assets’ or similar terms in their name. Funds that do not meet either of these criteria should not.
In addition, where a fund meets the criteria for a short term fund, the issuer may use the phrase 'short term’ in the fund’s name. This will signal to consumers that the fund adheres to the rules and features of this type of money market fund.
Where a fund does not meet the criteria for a short term money market fund but does meet the criteria for a standard money market fund, the fund is permitted to use the term 'standard’ in the fund name. The fund however is not permitted to use the phrase 'short term’ in its name.
The PDS of the fund should make it clear which criteria the fund meets and this Guidance Note may be referred to in the PDS for this purpose.