SHANGHAI (Reuters) – Chinese regulators have urged money market fund managers to improve investor structure and ensure adequate holdings of liquid assets, three sources told Reuters, as authorities seeks to head off liquidity risks in the $1.4 trillion sector.
Securities regulators have recently asked fund managers to prevent an excessive proportion of institutional investors in money market funds, the sources said.
For those funds with more than 70% of assets held by institutions, fund managers must ensure that at least 20% of the money is invested in liquid assets, while bond durations must be kept within 70 days.
One source said that the aim of the guidance is to prevent the risk of severe market volatility in the event of massive redemptions.
Another source said that “regulators are worried that, if interest rates goes up from such a low level now, big redemptions from banks could trigger liquidity stress.”
The China Securities Regulatory Commission (CSRC) didn’t immediately respond to a request for comment.
Money market funds totalled roughly 10.7 trillion yuan ($1.46 trillion) by the end of September, accounting for about 46% of China’s mutual fund industry.