South Africa money market law to match Europe, US

Proposed regulatory changes for money market funds (MMF) in South Africa will bring the rules closer to those governing MMFs in the US and short-term MMFs in Europe, a Fitch Ratings report said.

The proposals clarify portfolio level maturity limits for South African MMFs. Under the proposals, an MMF portfolio’s weighted average maturity will be capped at 90 days and its weighted average life at 120 days, which compares to limits of 60 and 120 days, respectively, under US MMF and European short-term MMF regulation.

The capping of individual asset maturity at 13 months (397 days) and the removal of ratings from fund diversification guidelines are proposed. These changes would bring South African MMFs into line with global regulations. Diversification guidelines determined by issuer market capitalisation are proposed. This approach seeks to address issuer liquidity risk and is unique, to the best of Fitch’s knowledge, and may pose administrative challenges for issuers with a market capitalisation close to a threshold level.

“The proposed removal of references to ratings encourages MMF managers to conduct appropriate credit research on proposed investments,” says Aymeric Poizot, managing director in Fitch’s Fund and Asset Manager rating group. “A solid investment process, supported by proprietary credit research is a minimum requirement for Fitch to assign a rating to a fund.”

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