China Seen Moving to Curb Risks in $1.4tn Money Market Funds

People pass by an electronic screen showing Japan's Nikkei share price index inside a conference hall in Tokyo. Photo: Reuters

Chinese regulators have urged money market fund managers to improve investor structure and ensure adequate holdings of liquid assets in a bid to reduce liquidity risks in the $1.4 trillion sector.

Securities regulators recently asked fund managers to prevent an excessive proportion of institutional investors in money market funds, sources said.

For 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.

Reuters with additional editing by Jim Pollard

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Jim Pollard

Jim Pollard is an Australian journalist based in Thailand since 1999. He worked for News Ltd papers in Sydney, Perth, London and Melbourne before travelling through SE Asia in the late 90s. He was a senior editor at The Nation for 17+ years and has a family in Bangkok.