{"id":12235,"date":"2012-07-09T12:24:44","date_gmt":"2012-07-09T10:24:44","guid":{"rendered":"http:\/\/www.myza.co.za\/07\/text-fitchno-rating-impact-from-new-south-african-money-market-fund-regulation\/"},"modified":"2012-07-09T12:24:44","modified_gmt":"2012-07-09T10:24:44","slug":"text-fitchno-rating-impact-from-new-south-african-money-market-fund-regulation","status":"publish","type":"post","link":"https:\/\/www.myza.co.za\/press\/text-fitchno-rating-impact-from-new-south-african-money-market-fund-regulation\/","title":{"rendered":"TEXT-Fitch:No rating impact from New South African money market fund regulation"},"content":{"rendered":"

\t\t<\/span><\/p>\n

(The following statement was released by the rating agency)<\/span><\/p>\n

<\/span><\/p>\n

July 09 – Fitch Ratings says that there are no rating implications following the
\nimplementation of new regulations for South African money market funds (MMFs).<\/p>\n

<\/span><\/p>\n

Fitch believes that the newly implemented regulatory framework may lead some
\nSouth African MMFs to consider adding unrated corporate exposures to the
\nportfolio. Under the previous regulatory framework, issuer diversification and
\neligibility rules were driven by ratings, while the new regulatory framework
\nreplaces ratings with market capitalisation (among other criteria). In practice,
\nmany MMFs may be unable to add unrated exposures to their portfolios given the
\ninvestment guidelines governing the funds in their investor mandates, which
\ntypically include ratings-based limits. Furthermore, the majority of high
\nquality issuers considered for inclusion in MMF portfolios are usually rated.<\/p>\n

<\/span><\/p>\n

Fitch would not be able to rate a fund with a material unrated corporate
\nexposure at the ‘AA+(zaf)’ Fund Credit Rating level (i.e. where Fitch rates some
\nSouth African MMFs currently).. Fitch bases its Fund Credit Rating analysis on
\nthe underlying credit quality of a fund’s portfolio, as expressed in the ratings
\nassigned to the invested instruments. Absent public credit ratings Fitch
\ntypically assumes the issuer’s credit quality is equivalent to a ‘CCC(zaf)’
\nrated issuer, which has a strongly negative impact in Fitch’s calculation of a
\nfund’s weighted average rating factor and as a result its Fund Credit Rating.
\nConsistent with its rating criteria and in only very limited circumstances,
\nFitch may consider a fund manager’s own internal credit assessment of an unrated
\nissuer in its rating analysis, provided that Fitch is comfortable with the
\nrigour of the fund manager’s credit research process and outputs.<\/p>\n

<\/span><\/p>\n

As of end-June 2012, no Fitch-rated South African MMF had exposure to unrated
\ncorporates. The credit quality of these funds is high and Fitch does not expect
\nany material change in portfolio strategy among the rated funds. Fitch monitors
\nfunds’ portfolios at least monthly.<\/p>\n

<\/span><\/p>\n

Fitch views positively the clarification of maturity limits for South African
\nMMFs. Under the newly implemented regulatory regime South African MMF’s weighted
\naverage maturity (WAM, a measure based on time to the next interest-rate reset
\ndate) is limited to 90 days and weighted average life (WAL, a measure based on
\ntime to final legal maturity) is limited to 120 days. Previously applicable
\nregulation did not distinguish between WAM and WAL and as a result a temporary
\n90-day limit was enforced for funds’ WAMs and WALs pending the implementation of
\nthe revised regulations.<\/p>\n

<\/span><\/p>\n

In Fitch’s opinion, some South African MMFs may now elect to marginally extend
\ntheir maturity profiles. However, the potential increase to funds’ WALs is
\nlimited to an increase of only 30 days so Fitch does not expect any major
\nchanges. Rated South African MMFs typically maintain conservative maturity
\nprofiles consistent with the newly implemented regulatory framework. The new
\nregulation allows for the use of interest rate risk hedging. Fitch will monitor
\nrated funds and the industry closely to determine the take-up and use of
\ninterest rate risk hedging in South African MMFs. Fitch maintains ratings of MMF
\nemploying interest rate hedging in other jurisdictions.<\/p>\n

<\/span><\/p>\n

Fitch understands that the newly implemented regulatory framework provides for
\nthe continued inclusion of asset-backed commercial paper (ABCP) conduits in
\nSouth African MMFs, subject to minimum issuer (or the related group issuer’s)
\ncapital and reserves. Maximum exposure per ABCP conduit will be capped at 5% per
\nthe new regulations and aggregate exposure to ABCP at 20% of a fund’s total
\nportfolio. The aggregate issuer exposure limit is a new addition to the
\nregulatory framework which will limit funds’ maximum exposure to ABCP conduits,
\nwhile the replacement of ratings-based issuer diversification limits with an
\nissuer limit of 5% for ABCP will substantially reduce maximum allowable exposure
\nto any individual ABCP conduit. Fitch would therefore expect ABCP to form a
\nsmaller but nonetheless still meaningful component of the eligible investment
\nuniverse of South African MMFs. Funds that do use ABCP will likely need to
\nreduce overall and individual exposures.<\/p>\n

<\/span><\/p>\n

South Africa’s Financial Services Board implemented Notice 80 of 2012 from 1
\nJuly 2012, which covers collective investment schemes, including MMFs, under the
\nCollective Investment Schemes Control Act (number 45 of 2002).<\/p>\n

<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

(The following statement was released by the rating agency) July 09 – Fitch Ratings says that there are no rating implications following the implementation of new regulations for South African money market funds (MMFs). Fitch believes that the newly implemented regulatory framework may lead some South African MMFs to consider adding unrated corporate exposures to […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","ngg_post_thumbnail":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[830,2370,183],"class_list":{"0":"post-12235","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-south-africa","7":"tag-news","8":"tag-reuters","9":"tag-south-africa-2","10":"entry"},"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/12235","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/comments?post=12235"}],"version-history":[{"count":0,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/posts\/12235\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/media?parent=12235"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/categories?post=12235"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.myza.co.za\/press\/wp-json\/wp\/v2\/tags?post=12235"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}