New money market stress testing service for Europe, EMEA area

Investment managers BNY Mellon and Investor Analytics, a provider of risk management solution, have launched a money market stress testing service for the Europe, Middle East and Africa area.

The new service builds on the two companies’ experience with regulatory demands on money market funds in the US. It models the impact of shocks from interest rate, credit risk and liquidity risk or any combination of these on the value of funds. The results are presented in reports that identify the conditions that could lead to a depressed net asset value (NAV) below an established threshold, an event widely referred to as ‘breaking the buck’.

Frank Froud, head of Europe, Middle East & Africa for asset servicing at BNY Mellon, said market worries about the health of the eurozone and the US have spiralled in recent months. At the same time, regulators are increasingly requiring money market funds to undergo stress tests.

“More than simply meeting the regulatory requirement, stress testing has become an industry best practice, allowing fund directors and investors to easily understand the market conditions that can jeopardise their funds,” Froud said.

The suite of tests was developed by Investor Analytics and is available through BNY Mellon’s asset servicing technology platform.
The tests examine changes in the fund NAV resulting from parallel and non-linear shifts in yield curves, changes in credit spreads, increasing redemption requests, and combinations of the three.

Damian Handzy, chief executive officer of Investor Analytics, said the need for a solid risk framework and understanding of money market funds has been reinforced by the recent market turmoil. The tests allow clients to be alert to the dynamics of the markets and how this affects their portfolios.

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