Crunch: China Tightens Money Market Regulation

SCMP: China tightens supervision of money market funds by capping same-day redemption at US$1,560

China has strengthened oversight of the nation’s fast-growing US$1.2 trillion money market funds sector, capping instant same-day redemption at 10,000 yuan (US$1,560) from a single fund and banning payment companies from allowing investors to foot their bills with such funds directly.

Mainland’s money market funds have experienced problematic practices with regard to internet sales and redemption, harming the interests of investors and detrimental to fair play in the market, the People’s Bank of China, the nation’s central bank, and the top securities regulator, the China Securities Regulatory Commission, said in joint statement after issuing the new rules on Friday.

The rules take effect immediately.

The regulators said that some fund managers were “blindly” expanding their businesses by touting investors with “real-time, large sum redemptions” while noting that some payment companies were paying the redemption with their own cash in advance, creating liquidity crunch risks.

Such irregularities could “trigger liquidity risks in extreme market conditions, and threatens to cause systemic risks and are in need of regulation,” the statement said.

This comes the same day as the central bank eased liquidity by expanding MLF collateral.

Reuters: China central bank to expand types of guarantees for medium-term lending facility

The central bank uses monetary tools, such as the MLF and the standing lending facility, to manage short- and medium-term liquidity in the banking system of the world’s second-largest economy.

In April, the central bank cut its reserve requirement ratio, or the cash that banks must hold as reserves, a move that allowed banks to pay back loans obtained via the MLF and thereby improving the liquidity structure of the financial system.