Fitch Ratings has published updated criteria for rating money market funds (MMFs) on a national scale. The core analytical framework remains unchanged, and Fitch does not expect any ratings changes as a result of the updated criteria.
The revised rating criteria emphasises the importance of analysing the relevant fund operating environment and ensuring that the fund’s investment manager is suitably resourced to manage the fund against objectives of capital preservation and liquidity, notably in the areas of credit research and risk management.
The report also highlights Fitch’s focus on a fund’s liquidity in terms of its natural maturity profile (i.e. the proportion of securities in the portfolio with short maturity dates) and exposure to instruments which are expected to have high secondary market liquidity such as T-bills, systemically important issuers and repurchase agreements with appropriate margining policies and backed by highly liquid collateral.
Other criteria adjustments include the introduction of minimum rating requirements for the fund’s custodian bank (or equivalent entity) and some marginal adjustments to the typical credit, market and liquidity guidelines Fitch expects a rated fund to follow.
For those countries in which foreign and local currency sovereign ratings are below AAA and where there is demand for such ratings, Fitch may assign national MMF rating to funds denominated in the local currency and locally regulated. It is important to note that each national rating scale is unique and is defined to serve the needs of the local market in question.
Fitch’s national scale MMF rating criteria focuses on funds domiciled in certain national jurisdictions with the investment objectives of preservation of capital and timely return of shareholder investments. The national scale MMF rating criteria is directly applicable to countries in which Fitch already maintains national scale MMF ratings (China, India, Morocco and Thailand) and to other jurisdictions with developing MMF sectors such as South Korea.
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The group reports that currency fluctuations were less of a challenge to multinationals in the second quarter of 2016, but Brexit has since spelt a return to volatility.