Navigating WAL, WAM, and liquidity thresholds under MMFR
Recent updates to the FAQ on Money Market Funds Regulation (“MMFR”) (the “FAQ”) bring clarity to compliance with Weighted Average Life (“WAL”), Weighted Average Maturity (“WAM”), and liquidity thresholds.
Scope of Circular CSSF 24/856: WAL and WAM Limits
The CSSF has confirmed in the new question 3C of the FAQ that breaches of WAL and WAM limits fall squarely under the protective umbrella of Circular CSSF 24/856.
What are WAL and WAM?
- WAL measures the average time to legal maturity of all of the underlying assets in the MMF.
- WAM measures the average length of time to legal maturity or, if shorter, to the next interest rate reset to a money market rate, of all the underlying assets in the MMF.
Portfolio rules for MMFs require them to provide for a maximum allowable WAM and WAL. To the extent these maximums are breached this is a situation that falls under Circular 24/856.
Liquidity threshold breaches: Overview
In the context of the MMFR (Regulation EU 2017/1131), the MMFR mandates:
- Daily liquidity minimums: Article 24(1) requires a minimum of 10% of the fund’s assets to be held in instruments maturing daily.
- Weekly liquidity minimums: Article 25(1) mandates at least 30% of the fund’s assets must be available within a week.
These measures ensure investor protection by reducing the risk of liquidity shortfalls. Any failure to meet these thresholds fall within the scope of CSSF 24/856 as it is now stated in the added question 3D of the FAQ.
These clarifications reinforce the CSSF’s stance: investor protection is non-negotiable. Fund managers must stay vigilant about WAL, WAM, and liquidity thresholds to avoid costly errors.
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