On December 17, 2024, the Securities and Futures Commission ("SFC") released a circular outlining requirements and expectations for management companies (Managers) of SFC-authorised money market funds ("MMFs"). Managers must maintain and implement effective liquidity risk management policies and procedures, taking into account factors like investment strategy, investor base, and redemption policy. They should refer to the SFC's guidance on liquidity risk management set out in the Circular to management companies of SFC-authorized funds on liquidity risk management dated 4 July 2016.
The SFC regularly engages with the fund industry and conducted a thematic review on Hong Kong domiciled MMFs early this year, including their investment portfolios as of the end of 2023. MMFs have seen increased outflows since 2023 following the commencement of a downward interest rate cycle. Managers must invest in high-quality money market instruments, considering both credit quality and liquidity profile.
MMFs are required to hold at least 7.5% of their total net asset value ("NAV") in daily liquid assets ("DLA") and at least 15% of their total NAV in weekly liquid assets ("WLA") as required by the Code on Unit Trusts and Mutual Funds (UT Code). Managers should regularly assess the liquidity profile of the MMFs' liabilities and assets, using quantitative metrics and qualitative factors.
Managers must exercise due care in managing liquidity, ensuring fair treatment of both redeeming and remaining investors. They should have effective liquidity risk management frameworks to mitigate material dilution and protect the interests of remaining investors. Managers should review and enhance their policies and procedures to include appropriate liquidity risk management tools ("LMTs").
This article was generated using SAMS, a proprietary artificial intelligence technology under development by Timothy Loh LLP and its affiliates. This article does not constitute legal advice and should not be relied upon by any person. Only the original text, which is hyperlinked to this article, should be regarded as definitive.
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