Glossary

Our Glossary is here to help investors understand common terms and abbreviations used in the money market industry. For 2018 we have added terms that appear in the new European Money Market Fund Regulation (MMFR).

You can obtain more detailed information from your fund manager and the credit rating agencies that rate money market funds. Contact details are on our website. Investopedia is another useful source: https://www.investopedia.com/dictionary/

ABCP

Asset-backed commercial paper (ABCP) is a form of commercial paper that is collateralised by financial assets. ABCP is an asset that MMF may invest in.

CD

‘Certificate of deposit', or CD, is a bank deposit with a set maturity date and pre-determined, fixed interest rate.

CP

Commercial paper, or CP, is an unsecured promissory note with a fixed maturity usually between 1 day and 1 year.

Credit rating agency

A credit rating agency (CRA) is a company that assesses the creditworthiness of borrowers and assigns a grading to reflect that assessment. In Europe, credit rating agencies are regulated entities.

Credit rating

Typically credit ratings are undertaken for corporates and governments when they borrow money. Money market funds may also have a fund rating. The CRA will examine the fund’s credit process and impose requirements as to asset quality.

EC

The European Commission.

ECB

The European Central Bank.

EONIA

EONIA (Euro OverNight Index Average) is an overnight interest rate calculated by the European Central Bank (ECB).

ESMA

The European Securities and Markets Authority, an organisation made up of securities regulators from every EU Member State.

FRN

Floating rate notes (FRNs) are bonds with a variable interest rate. The interest rate is calculated by reference to a money market benchmark such as LIBOR or SONIA.

FSB

The Financial Stability Board.

IOSCO

The International Organisation of Securities Commissions, an organisation made up of securities regulators from many countries around the world.

LIBID

LIBID is the cost of borrowing money for the banks participating in setting LIBOR. It is derived from deducting a dealing spread from LIBOR.

LIBOR

The London Interbank Offered Rate (LIBOR) is the benchmark rate set by the London interbank market for lending currencies.

LVNAV MMF

“Low Volatility Net Asset Value” (LVNAV) MMF is a type of fund in the MMFR. It is categorised as a Short Term MMF. Units in the fund are purchased or redeemed at a constant price, as long as the value of the assets in the fund do not deviate by more than 0.2% from par.

MMF

A Money Market Fund (MMF) is an open ended fund that invests in short term debt securities. Under the MMFR, 4 types of MMF are defined. Each is categorised as either a Short Term MMF or a Standard MMF.

MMFR

The European Regulation on money market funds, (EU) 2017/1131.

Prime MMF

A Prime MMF is a money market fund which principally invests in non-government securities. Under the MMFR, most Prime MMF will become LVNAV MMF.

Public Debt CNAV MMF

The Public Debt CNAV MMF is a type of fund in the MMFR. It is categorised as a Short Term MMF. Units in the fund are purchased or redeemed at a constant price rounded to the nearest percentage point.

Repo

A transaction in which assets are transferred in exchange for cash for a pre-agreed period, often overnight. It is used to manage short term funding needs.

Reverse-Repo

Reverse repo is a transaction in which cash is lent in exchange for assets for a pre-agreed period, often overnight. The assets are held as security against a failure to return the cash.

Short Term MMF

Short Term MMFs are defined in the MMFR and, with Standard MMF, form the first level of categorisation of funds in the MMFR. Short Term MMF are required to adhere to tighter investment rules than Standard MMF. Three types of fund may be categorised as Short Term MMFs: Public Debt CNAV, LVNAV and (Short Term) VNAV.

SONIA

SONIA is the Sterling Overnight Index Average. It is the overnight reference rate for unsecured transactions in the Sterling market.

Standard MMF

Standard MMFs are defined in the MMFR and, with Short Term MMFs, form the first level of categorisation of funds in the MMFR. These funds are subject to less restrictive investment rules than Short Term MMFs.Standard MMFs must be variably priced, and are therefore all Standard VNAV funds by type.

TD

‘Time deposit', or TD, is a generic term for a bank deposit where funds cannot be withdrawn for a fixed period of time.

Treasury bills

‘Treasury bills' are short-term Government debt, usually with a maturity of one year or less.

UCITS

UCITS stands for “Undertakings for Collective Investment in Transferable Securities”, a European Directive governing investment funds. Colloquially, UCITS is also the term for the investment funds that are established under this Directive.

VNAV

Variable Net Asset Value (VNAV) funds are MMFs in which investors purchase or redeem units in the fund at a variable net asset value, calculated to 4 decimal places. VNAV funds may be categorised as either Short Term or Standard MMFs.

WAL

WAL stands for ‘Weighted Average Life'. It is used as an indication of credit risk.

WAM

WAM stands for ‘Weighted Average Maturity'. It is used as an indication of interest rate risk.