* Lawmakers trade barbs over regulating funds
* Splits remain over new rules to regulate benchmarks
* Time running out for deals ahead of elections
By Huw Jones
LONDON, Feb 17 European Union lawmakers have
delayed new rules to regulate money market funds used by big
companies to park billions of euros after they clashed over how
tough the changes should be.
The funds are also used by banks for short-term funding and
the most contested element is a requirement for one type of
fund, known as constant net asset value (CNAV), to hold a cash
buffer equivalent to 3 percent of assets.
The draft rules, and a separate draft law on regulating
benchmarks such as the scandal-hit Libor interest rate, aim to
make markets more transparent after the 2007-09 financial
crisis, but both measures now face delays.
The European Parliament's economic affairs committee found
itself split on Monday over regulating money market funds, a
trillion euro sector in the 28-country bloc.
The aim is to stem any runs on the funds by investors during
future financial crises.
The Association of Corporate Treasurers has said the changes
would make the funds unviable and threaten an essential cash
management tool for leading companies in many industries.
CNAV funds account for half of the money market funds in the
EU, most of which are based in Luxembourg, Ireland and France.
Gay Mitchell, an Irish centre-right member of the committee,
said few lawmakers really understood what CNAVs were and hasty
rulemaking could see such funds flee the EU.
"It's outrageous the way we are rushing through this
legislation," Mitchell told the meeting.
But Philippe Lamberts, a Belgian Green Party lawmaker,
described Mitchell's assessment as "bordering on insulting".
"You are throwing around figures just to scare people...
That is like the industry is doing. I won't take this," Lamberts
told the meeting.
CNAV funds aim to have a constant, one-euro share price but
many regulators prefer the transparency of the other main type
of fund known as variable net asset value of VNAV, whose share
price fluctuates in line with the market's ups and downs.
CNAV funds are effectively banned in France, whose regulator
is anxious that the draft law is not diluted.
"Our first choice by far is a ban on CNAV funds for
financial stability reasons but, for a compromise, having a
minimum 3 percent capital buffer on them would be acceptable
only if the threshold of 3 percent is maintained," said Benoit
de Juvigny, secretary general of French regulator AMF.
"I have been surprised at how the CNAV industry has reacted,
because converting from CNAV to VNAV is not so impossible to
organise," de Juvigny told Reuters.
Time is running out as parliament goes to the polls in May
and a new European Commission, whose role is vital in EU
lawmaking, will not be appointed until the end of October.
As expected, lawmakers delayed voting on a law to regulate
financial benchmarks like Libor due to splits over which indices
should fall within its scope.
Some members say energy and commodity indices should be left
out, while others want them included.
As allegations emerged of rigging in foreign exchange
benchmarks as well, some lawmakers argued that the new rules
must be crystal clear even if that means a delay.
"We must not end up with a half-baked regulation here,"
French centre-right member Jean-Paul Gauzes said.
Votes could take place on March 3, but some lawmakers were
doubtful of this.
The agreement of EU states is also needed for the two
measures to become law. The lawmakers know that, without a
united front, their ability to shape the final deal is weaker.