The total asset of money market funds (MMFs) under European manager’s control stood at €1.44 trillion (tn) in 2021, the European Securities and Markets Authority (ESMA) disclosed in its inaugural market report on European Union MMFs published on Wednesday. The securities market regulator noted that 89% of the funds are domiciled in France, Luxembourg and Ireland.

The market report is ESMA’s first “comprehensive market-level” report on the continent’s money market funds and is based on regulatory data collected by the EU's National Competent Authorities and ESMA.

ESMA Provides Sector Breakdown

In the report, ESMA divided money market funds operating in the continent into three categories: low-volatility Volatility In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad In finance, volatility refers to the amount of change in the rate of a financial instrument, such as commodities, currencies, or stocks, over a given time period. Essentially, volatility describes the nature of an instrument’s fluctuation; a highly volatile security equates to large fluctuations in price, and a low volatile security equates to timid fluctuations in price. Volatility is an important statistical indicator used by financial traders to assist them in developing trading systems. Trad Read this Term net asset value (LVNAV), variable net asset value (VNAV) and constant asset value (CNAV).

According to the regulator, LVNAV, which invests in a broader range of assets, such as commercial papers, certificates of deposit and other short-term assets, accounted for almost half (46%) of the total assets. LVNAV’s investment range surpasses that of CNAV, ESMA said.

LVNAV's asset percentage is closely followed by VNAV which accounted for 42% of the total assets in 2021. ESMA defines VNAV as money market funds with a value based on current market prices. This type of money market fund invests in a range of money market instruments, such as government debt, commercial papers and certificates of deposit, ESMA noted.

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Of the three types of money market funds, CNAV accounted for the least assets, with their value standing at just 12% in 2021. This type of mutual fund invests at least 99.5% of their assets in government debt and repurchase agreements collateralized by government debt or cash.

“All MMFs domiciled in France are of the VNAV type and almost exclusively denominated in EUR. MMFs in Luxembourg and Ireland are mainly in non-EU currencies and set up mostly as CNAVs and LVNAVs. MMFs authorized in other EU jurisdictions are VNAVs denominated in other EU domestic currencies and account only for a small fraction of assets,” ESMA explained.

Who Invests in Money Market Funds in Europe?

According to ESMA’s report, more than 90% of investors in money market funds in the continent are professional investors.

“Financial corporations are the main unitholders of MMF shares, with insurance firms, pension funds and banks accounting together for 25% of NAV and other financial institutions, including collective investment undertakings, for 45% of the NAV,” ESMA explained.

Meanwhile, the securities regulator recently proposed changes to test scenarios applied to money market funds in the continent. Currently, ESMA is consulting with the public on this and will stop accepting feedback from industry stakeholders after April 28, 2023.