1

THE HALF TRILLION EURO QUESTION.

Jennifer Gillespie, Head of Money Markets, Legal & General Group.

CREATING A SAFE, ACCESSIBLE AND STABLE MARKETPLACE.

2

A REMINDER ABOUT THE VALUE OF CNAV MMFS FOR THE EUROPEAN ECONOMY.

1. CNAV MMFs represent almost 50% of MMF domiciled in Europe, amounting to €450bn.

2. Our customers include non-financial corporates, pension funds. The largest single group of customers is non-financial corporates.

3. Our investments include Charities, SMEs and the public sector.

4. CNAV MMFs are not banks, no maturity transformation.

5. Assets match our liabilities, our funds are not leveraged.

6. Customers want stability, rapid access and safety.

HOW A CNAV MMF WORKS.

3

A local government Treasurer has a

surplus of €10m that she wants to put

somewhere safe for a short period of

time.

Local Government Treasurer buys 10m shares in my fund,

each worth €1.

Net Asset Value (NAV), is now €10m.

CUSTOMER = INVESTOR.

SHARE CERTIFICATE

LGIM liquidity fund

WHERE IS THE MONEY INVESTED?

Example Borrowers PrincipleAnnual Charge

Duration Return

Acoss €500,000 50 BP 30 days €2,054

Lufthansa €500,000 75 BP 30 days €3,082

The Netherlands €250,000 75 BP 30 days €1,541

TOTAL €10,000,000 €40,000

Principle

Shares€1.00

DAILY INCOME

=

4

NET ASSET VALUE (NAV)

€40,000

30 days€1,333=

WHERE IS THERE CONSENSUS?

• We need an enhanced regulatory framework with a single regulator.

• Transparency.

• A level playing field between CNAV and VNAV.

• Minimum amount of liquidity.

5

AREAS UNDER CONSULTATION.

• Type of investors who can come into a specific type of fund.

• Type of investments specific types of funds can make.

• Involvement of rating agencies.

• The buffer.

• Providing support in times of market distress.

6

CREATING A SAFE, ACCESSIBLE AND STABLE MARKETPLACE.

7

PUBLIC DEBT CNAV.

Proposals for a public debt CNAV could be delivered if the number of countries permissible was increased.

Solution:

Broaden the number of available countries.

Why?

•There may be an insufficient number of Member States in the EU of sufficient credit quality to allow for a well-diversified fund.

•Broaden the number of countries to include, for example, G20 members or countries which meet strict credit guidelines.

•The effective capital buffer on non-public debt would likely mean only public debt were included in this fund.

8CREATING A SAFE, ACCESSIBLE AND STABLE MARKETPLACE.

DELIVERING FOR RETAIL INVESTORS.

1. CNAV MMFs deliver considerable benefit for retail customers.

2. However, a solution designed just for retail customers presents its own difficulties.

Solution:

Allow both corporate and retail customers in the fund, but to provide further safeguards for all customer cohorts.

Why?

•EU retail investors behave differently to their US counterparts, far more transactional.

•A fund purely for retail investors could risk creating a volatile MMF.

9CREATING A SAFE, ACCESSIBLE AND STABLE MARKETPLACE.

DELIVERING FOR OTHER INVESTORS.

1. If the regulation were to be passed as drafted, many corporates could exit the market.

2. These corporates may not switch to VNAVs but might switch to Segregated Accounts or Higher-risk alternatives.

Solution:

Allow all existing customer cohorts to continue to use a CNAV MMF, but to mandate additional measures.

10CREATING A SAFE, ACCESSIBLE AND STABLE MARKETPLACE.

ACCESSING SUPPORT IN TIMES OF DISTRESS.

1. The debate has been around implicit sponsor-support rather than a transparent and well-defined support mechanism.

2. We do not believe that a capital buffer (as originally set out) is the right policy intervention when what is needed is liquidity.

3. Gates and Fees are part of the solution but not all of it.

Solutions:

•The regulation could require the Board of the fund and the competent authority ti agree to support being provided to a CNAV MMF if “distress” were to occur to the fund.

•The competent authority should agree to one or more of the following measures: cash; asset purchase at inflated prices; unit or share purchase; insurance; retention of yield.

11CREATING A SAFE, ACCESSIBLE AND STABLE MARKETPLACE.

12

THE HALF TRILLION EURO QUESTION.

THANK YOU.