The European Union has brought in new rules to make its €1.3-trillion money market fund industry more resilient.

Prime constant net asset value (CNAV) funds that converted themselves into low-volatility net asset value (LVNAV) funds as a result of the rules have moderately improved the overall quality of credit.

LVNAV funds include new minimum liquidity and stress-testing requirements that will make the sector more able to withstand shocks; this is good for credit. However, converted funds' portfolio characteristics have not changed much. This is probably because there was a long transition period in the run-up to implementation.

The frequency of redemptions did not change after the reform, which suggests that investors are behaving in the same ways. Euro-denominated CNAV funds that became LVNAVs reported a 7% increase in assets under management between last June and this, compared with 6% and 1% for sterling- and dollar-denominated funds respectively. The EU designed the rules that introduced LVNAV funds to make the market more resilient and applied them to all new money-market funds (MMFs) on 21 July last year. Existing funds had to make the switch by 21 January this year. The EU generously granted Euro CNAV funds a two-month extension to 21 March. CNAV funds accounted for about half the industry's assets under management.