Circular CSSF 26/911

Circular CSSF 26/911 ESMA Guidelines on stress test scenarios under Article 28 of the Money Market Fund Regulation – Update 2025 (ESMA50-481369926-30585) Circular CSSF 26/911 ESMA Guidelines on stress test scenarios under Article 28 of the Money Market Fund Regulation – Update 2025 (ESMA50- 481369926-30585) To all money market funds under the supervision of the CSSF and Luxembourg managers of money market funds as well as to those that take part in the functioning and control of these undertakings. Luxembourg, 19 May 2026 Ladies and Gentlemen, We refer to Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (“MMF Regulation”) as well as the 2018 version of the ESMA Guidelines on stress test scenarios under Article 28 of the Money Market Fund Regulation (Ref. ESMA34-49- 115) as integrated by the CSSF in its administrative practices and introduced by means of Circular CSSF 18/696 with a view of promoting supervisory convergence at European level, thereby becoming applicable in the context of the Luxembourg legal and regulatory framework. Further, we refer to the 2024 version of the Guidelines (Ref. ESMA50-43599798-10651), introduced by means of Circular CSSF 25/877, which included common reference stress test scenarios as well as common reference parameters for those scenarios. On that basis, money market funds (MMFs) and their managers were provided with the necessary information to calculate and fill in the corresponding fields on the results of the stress tests of the MMF in the reporting template as set out in the Annex of the Commission Implementing Regulation (EU) 2018/708 of 17 April 2018 laying down implementing technical standards with regard to the template to be used by managers of money market funds when reporting to competent authorities as stipulated by Article 37 of the MMF Regulation (“Commission Implementing Regulation”). The ESMA Guidelines on the reporting to competent authorities under Article 37 of the MMF Regulation (Ref. ESMA34-49-168), published on 19 July 2019 by ESMA, as introduced by means of Circular CSSF 20/736, provide guidance on the contents of the fields of the reporting template laid down in the Annex of the Commission Implementing Regulation, including for the fields on the stress tests. The purpose of this Circular is to inform you that the CSSF, as competent authority, is integrating the latest version of the ESMA Guidelines on stress test scenarios under the MMF Regulation (Ref. ESMA50-481369926-30585), as published on 13 January 2026 (the “2025 Guidelines”), in its administrative practices. All MMFs under the supervision of the CSSF and Luxembourg managers of MMFs shall duly comply with the 2025 Guidelines. The 2025 Guidelines are appended to this Circular. The English version as well as the French and German translations, published on 26 March 2026, are available on the ESMA website http://www.esma.europa.eu/. In accordance with Article 28 of the MMF Regulation, the Guidelines issued by ESMA are to be updated at least every year in relation to the common reference parameters of the stress test scenarios considering the latest market developments. CIRCULAR CSSF 26/911 2/4 On that basis, the 2025 Guidelines, when compared to the 2024 version, notably provide the annual update of the common reference parameters for the different stress test scenarios. The 2025 Guidelines notably concern the topics summarised in Section 1 below. 1. Summarised presentation of the 2025 Guidelines Section 2 of the Final Report (ESMA50-481369926-30585 dated 13 January 2026) on the 2025 Guidelines provides some background on the rationale behind the 2025 update of the Guidelines, which have only been changed in section 5 on the calibration. Calibration The updated calibration, done in collaboration with the ESRB and the ECB, was motivated by a recalibration of the risk parameters. Hence, the scenarios reflect the assessment of prevailing sources of systemic risks identified for the EU financial system by ESMA, the ESRB and the ECB as of November 2025. The shocks have been calibrated to be severe, consistent with the materialisation of tail risks amid elevated geopolitical uncertainty stemming from global trade tensions and multiple conflicts worldwide. These geopolitical events amplify trade disruptions and would lead to a sharp increase of commodity prices, driving disruptions in supply-chains and ultimately triggering inflationary pressures. In turn, resurgent inflation expectations would cause a spike in risk free rates. The resulting tightening of financing conditions, in combination with expectations of sluggish economic growth, would drive up asset price volatility. The 2025 Guidelines have the following key characteristics: - Geopolitical instability and high levels of volatility would cause significant disruptions in financial markets, with corporate and government bond spreads being particularly affected. This would be due to the weakening of corporate debt servicing capabilities and the elevated levels of government debt, exacerbated by high interest rates, increased defence spending and trade disruptions. Due to differing macroeconomic and fiscal positions, the upward shifts in sovereign risk premia would vary across countries. - The perceived risk on debt securities, together with highly volatile market conditions, would cause an abrupt slowdown in market activity, as mirrored by a sharp reduction in instruments’ market liquidity and a widening of bid-ask spreads. Lastly, this market reaction would lead to an abrupt revaluation of other financial asset and real estate prices, amplifying substantial volatility for market participants and causing sharp increases in risk premia. Main changes made at the level of the reference parameters - Shocks to EUR swap rates are slightly lower than in the previous exercise. Shocks to USD swap rates are higher, in line with the calibration sample and with more uncertain economic outlook for the US economy. - Shocks to government bond spreads are slightly higher than in the previous exercise. - Shocks to bid-ask spreads are smaller than in the previous exercise. Finally, the 2025 Guidelines, while remaining unchanged in relation to the provisions on stress testing which the MMF or the manager of an MMF shall regularly conduct in accordance with sections 4.1 to 4.7 of the Guidelines, still specify that the factors set out therein are minimum requirements. CIRCULAR CSSF 26/911 3/4 On that basis, MMFs or managers of MMFs have to tailor the approach to the specificities of the MMFs and add any factors or requirements that are deemed useful to the stress test exercise. 2. Entry into force Circular CSSF 25/877 implementing the 2024 version of the Guidelines is repealed and replaced by this Circular with effect as of 26 May 2026. This Circular, with the updated Guidelines, enters into force on 26 May 2026. The CSSF expects all entities falling under the scope of this Circular to apply the 2025 Guidelines for the preparation of the required MMF reporting as from the reporting date 30 June 2026 onwards. Pascale TOUSSING Claude WAMPACH Marco ZWICK Director Director Director Jean-Pierre FABER Claude MARX Director Director General Annex ESMA Guidelines on stress test scenarios under the MMF Regulation (Ref. ESMA50-481369926-30585) CIRCULAR CSSF 26/911 4/4 13 January 2026 ESMA50-481369926-30585 Final Report Guidelines on stress test scenarios under the MMF Regulation Table of Contents 1 Executive Summary .................................................................................................... 3 2 Background ................................................................................................................. 4 3 Annex .......................................................................................................................... 7 1 Scope .......................................................................................................................... 7 2 Purpose ....................................................................................................................... 7 3 The Compliance and reporting obligations................................................................... 9 3.1 Status of the guidelines ........................................................................................ 9 3.2 Reporting requirements ........................................................................................ 9 4 Guidelines on stress test scenarios under Article 28 of the MMF Regulation (Financial market participants are not required to report results of stress tests referred to in sections 4.1 to 4.7 below) ............................................................................................................... 10 4.1 Guidelines on certain general features of the stress test scenarios of MMF ....... 10 4.2 Guidelines on stress test scenarios in relation to hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF ............................................... 13 4.3 Guidelines on stress test scenarios in relation to hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events ................................................................................................................. 13 4.4 Guidelines on stress test scenarios in relation to hypothetical movements of the interest rates and exchange rates ................................................................................. 14 4.5 Guidelines on stress test scenarios in relation to hypothetical levels of redemption 15 4.6 Guidelines on stress test scenarios in relation to hypothetical widening or narrowing of spreads among indexes to which interest rates of portfolio securities are tied 16 4.7 Guidelines on stress test scenarios in relation to hypothetical macro systemic shocks affecting the economy as a whole ..................................................................... 16 4.8 Guidelines on the establishment of additional common reference stress test scenarios (the results of which should be included in the template mentioned in Article 37(4) of the MMF Regulation) ........................................ 16 1 4.8.1 Level of changes of liquidity ............................................................................ 16 4.8.2 Level of change of credit risk .......................................................................... 18 4.8.3 Levels of change of the interest rates and exchange rates and levels of widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied 19 4.8.4 Levels of redemption ...................................................................................... 21 4.8.5 Macro-systemic shocks affecting the economy as a whole ............................. 24 5 Calibration ................................................................................................................. 25 5.1 Common reference parameters of the stress test scenarios in relation to hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF 27 5.2 Common reference parameters of the stress test scenarios in relation to hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events ................................................................................................. 30 5.3 Common reference parameters of the stress test scenarios in relation to hypothetical movements of the interest rates ................................................................ 33 5.4 Common reference parameters of the stress test scenarios in relation to hypothetical movements of the exchange rates ............................................................ 37 5.5 Common reference parameters of the stress test scenarios in relation to hypothetical widening or narrowing of spreads among indexes to which interest rates of portfolio securities are tied ............................................................................................ 41 5.6 Common reference parameters of the stress test scenarios in relation to hypothetical levels of redemption .................................................................................. 42 5.7 Common reference parameters of the stress test scenarios in relation to hypothetical macro systemic shocks affecting the economy as a whole ........................ 44 6 Appendix ................................................................................................................... 46 2 1 Executive Summary Reasons for publication The MMF Regulation provides that ESMA shall develop guidelines with a view to establishing common reference parameters of the stress test scenarios to be included in the stress tests that MMFs or managers of MMFs are required to conduct1. These guidelines are updated at least every year taking into account the latest market developments. ESMA published the latest update of these guidelines on 7 January 20252 and their translation on 24 February 2025 (“the 2024 Guidelines” also referred to as ESMA50-43599798-123013). This 2025 report includes updated guidelines and risk parameters, so that managers of MMFs have the information needed to fill in the reporting template mentioned in the MMF Regulation4 (section 5 of the Guidelines). Contents The annex of this report contains the full text of the updated guidelines and the calibration of the scenarios for 2025 (updates in red). Next Steps The Guidelines in the annex of this report will be translated into the official EU languages and published on the ESMA website. The publication of the translations will trigger a two- month period during which NCAs must notify ESMA whether they comply or intend to comply with the guidelines. The updated guidelines in this final report, including the new 2025 parameters, will apply two months after the publication of the translations of the Guidelines. After the start of the application of the updated guidelines, managers will have to report the results of the new parameters to NCAs with their quarterly reports, for the purpose of the reporting referred to in Article 37 of the MMF Regulation and set out in Commission Implementing Regulation (EU) 2018/7085. Until then, managers should use the parameters set in the 2024 Guidelines and report the results accordingly. 1 Article 28 of the MMF Regulation. 2 Final Report on Guidelines on stress test scenarios under the MMF Regulation (ESMA50-43599798-10651) 3 2 Background 1. Article 28(7) of the Money Market Funds Regulation (MMFR)6 provides that the European Securities and Markets Authority (ESMA) shall develop guidelines with a view to establishing common reference parameters of the stress test scenarios to be included in the stress tests that Money Market Funds (MMFs) or managers of MMFs are required to conduct. These guidelines shall be updated at least every year taking into account the latest market developments. ESMA published the previous update of these guidelines on 7 January 2025 and their translation on 24 February 2025 (“the 2024 Guidelines”). 2. ESMA has worked in collaboration with the ESRB and the ECB for the annual calibration of the risk parameters. The scenario reflects the assessment of prevailing sources of systemic risks identified for the EU financial system as of November 2025. Considering that the scenario reflects the assessment of systemic risk by ESMA, the ESRB and the ECB, ESMA has not conducted a public consultation on its calibration.7 In addition, it is not appropriate to consult or request the advice of the SMSG because the amendments reflect the assessment of systemic risk by ESMA, the ESRB and the ECB. 3. Managers of MMFs are expected to include the results of the stress tests in the reports to be sent to National Competent Authorities (NCAs) through the reporting template. The Guidelines include stress test scenarios in relation to hypothetical changes in MMFs’: - liquidity levels; - credit and interest rate risks; - redemptions levels; - widening/ narrowing of spreads among indexes to which interest rates of portfolio securities are tied; and - macro-economic shocks. 4. While section 5 on the calibration of the Guidelines has been updated, all the other sections of the 2024 Guidelines continue to apply, including the internal stress test exercise to be carried out by managers of MMFs. Article 28(1) of the MMFR provides that “Each MMF shall have in place sound stress testing processes that identify possible events or future changes in economic conditions which could have unfavourable effects on the MMF”. 3 Guidelines on stress test scenarios under the MMF Regulation - 2024 update (europa.eu) 4 Article 37 of the MMF Regulation. 5 Commission Implementing Regulation (EU) 2018/708 of 17 April 2018 laying down implementing technical standards with regard to the template to be used by managers of money market funds when reporting to competent authorities as stipulated by Article 37 of Regulation (EU) 2017/1131 of the European Parliament and of the Council (OJ L119, 15.5.2018, p. 5). 6 Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (OJ L 169, 30.06.2017, p. 8). 7 The previous calibrations of the stress scenarios were not part of a public consultation either. 4 These internal stress tests could include other factors than those referred to in the 2025 Guidelines, and when designing these internal stress tests, ESMA expects that MMFs would factor in the impact of historical market stress according to the risk profile of their fund. 5. With respect to the 2025 update of section 5 of the Guidelines, the adverse scenario is calibrated to be severe, consistent with the materialisation of tail risks amid elevated geopolitical uncertainty stemming from global trade tensions and multiple conflicts worldwide. These geopolitical events amplify trade disruptions and would lead to a sharp rise in commodity prices, driving disruptions in supply-chains and ultimately triggering inflationary pressures. In turn, resurgent inflation expectations would cause a spike in risk- free rates. 6. The resulting tightening of financing conditions, combined with expectations of sluggish economic growth, would drive up asset price volatility. Geopolitical instability and high levels of volatility would cause significant disruptions in financial markets, with corporate and government bond spreads being particularly affected. This is due to the weakening of corporate debt servicing capabilities and the elevated levels of government debt, exacerbated by high interest rates, increased defence spending and trade disruptions. The upward shifts in sovereign risk premia would vary across countries due to differing macroeconomic and fiscal positions. 7. The perceived risk increase on debt securities, together with highly volatile market conditions, would cause an abrupt slowdown in market activity, as mirrored by a sharp reduction in instruments’ market liquidity and a widening of bid-ask spreads. Lastly, this market reaction would lead to an abrupt revaluation of other financial asset and real estate prices, amplifying substantial volatility for market participants and causing sharp increases in risk premia. 8. The main changes to the calibration or the reference parameters are: - shocks to EUR swap rates are slightly lower than in the previous exercise, and reflect high uncertainty and volatility driving down demand. Shocks to USD shocks are higher, in line with the calibration sample and with more uncertain economic outlook for the US economy. - shocks to government bond spreads are slightly higher than in the previous exercise. - shocks to bid-ask spreads are smaller than in the previous exercise. While the resulting calibration is less severe, its probability is increasing. - calibration of the scenario in relation to hypothetical levels of redemption was modified in 2020 in light of the COVID-19 crisis. These parameters calibrated to reflect the severity of the crisis are still considered appropriate and have not been changed. 5 9. Section 5 of the Guidelines includes updated parameters in red which reflect the new scenario. 6 3 Annex Guidelines on MMF stress tests (updates in red indicate additional text added, parameter updates or amendments which constitute the 2025 update to the ESMA34-49-115 Guidelines) 1 Scope Who? 10. These guidelines apply to competent authorities, money market funds and managers of money market funds as defined in the MMF Regulation8. What? 11. These guidelines apply in relation to Article 28 of the MMF Regulation and establish common reference parameters for the stress test scenarios to be included in the stress tests conducted by MMFs or managers of MMFs in accordance with that Article. When? 12. These guidelines apply from two months after the date of publication of the guidelines on ESMA’s website in all EU official languages (with respect to parts in red – the other parts of the Guidelines already apply from the dates specified in Articles 44 and 47 of the MMF Regulation). 2 Purpose 13. The purpose of these guidelines is to ensure common, uniform and consistent application of the provisions in Article 28 of the MMF Regulation. In particular, and as specified in Article 28(7) of the MMF Regulation, they establish common reference parameters of the stress test scenarios to be included in the stress tests taking into account the following factors specified in Article 28(1) of the MMF Regulation: a) hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF; 8 Regulation (EU) 2017/1131 of the European Parliament and of the Council of 14 June 2017 on money market funds (OJ L 169, 30.06.2017, p. 8). 7 b) hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events; c) hypothetical movements of the interest rates and exchange rates; d) hypothetical levels of redemption; e) hypothetical widening or narrowing of spreads among indexes to which interest rates of portfolio securities are tied; f) hypothetical macro systemic shocks affecting the economy as a whole. 14. In accordance with Article 28(7) MMF Regulation, these guidelines will be updated at least every year taking into account the latest market developments. In 2025, section 5 of these guidelines was updated so that managers of MMFs have the information needed to fill in the corresponding fields in the reporting template referred to in Article 37 of the MMF Regulation, as specified by Commission Implementing Regulation (EU) 2018/7089. This information includes specifications on the types of stress tests mentioned in section 5 and their calibration. 8 3 The Compliance and reporting obligations 3.1 Status of the guidelines 15. In accordance with Article 16(3) of the ESMA Regulation, competent authorities and financial market participants must make every effort to comply with these guidelines. 16. Competent authorities to which these guidelines apply should comply by incorporating them into their national legal and/or supervisory frameworks as appropriate, including where particular guidelines are directed primarily at financial market participants. In this case, competent authorities should ensure through their supervision that financial market participants comply with the guidelines. 3.2 Reporting requirements 17. Within two months of the date of publication of the guidelines on ESMA’s website in all EU official languages, competent authorities to which these guidelines apply must notify ESMA whether they (i) comply, (ii) do not comply, but intend to comply, or (iii) do not comply and do not intend to comply with the guidelines. 18. In case of non-compliance, competent authorities must also notify ESMA within two months of the date of publication of the guidelines on ESMA’s website in all EU official languages of their reasons for not complying with the guidelines. 19. A template for notifications is available on ESMA’s website. Once the template has been filled in, it shall be transmitted to ESMA. 9 4 Guidelines on stress test scenarios under Article 28 of the MMF Regulation (Financial market participants are not required to report results of stress tests referred to in sections 4.1 to 4.7 below) 4.1 Guidelines on certain general features of the stress test scenarios of MMF Scope of the effects on the MMF of the proposed stress test scenarios 20. Article 28(1) of the MMF Regulation requires MMFs to put in place “sound stress testing processes that identify possible events or future changes in economic conditions which could have unfavourable effects on the MMF”. 21. This leaves room for interpretation on the exact meaning of the “effects on the MMF”, such as: - impact on the portfolio or net asset value of the MMF, - impact on the minimum amount of liquid assets that mature daily or weekly as referred to in Article 24(c) to 24(h) and Article 25(c) to 25(e) of the MMF Regulation, - impact on the ability of the manager of the MMF to meet investors’ redemption requests, - impact on the difference between the constant NAV per unit or share and the NAV per unit or share (as explicitly mentioned in Article 28(2) of the MMF Regulation in the case of CNAV and LVNAV MMFs), - impact on the ability of the manager to comply with the different diversification rules as specified in Article 17 of the MMF Regulation. 22. The wording of Article 28(1) of the MMF Regulation should include various possible definitions. In particular, the stress test scenarios referred to in Article 28 of the MMF Regulation should test the impact of the various factors listed in Article 28(1) of the MMF Regulation on both i) the portfolio or net asset value of the MMF and ii) the liquidity bucket(s) of the MMF and/or the ability of the manager of the MMF to meet investors’ redemption requests. This broad interpretation is in line with the stress-testing framework of the AIFMD, which includes both meanings in its Articles 15(3)(b) and 16(1). The specifications included in the following sections 4.2 to 4.7 therefore apply to stress test scenarios on both aspects mentioned above. 10 23. With respect to liquidity, it is to be noted that liquidity risk may result from: (i) significant redemptions; (ii) deterioration of the liquidity of assets; or (iii) a combination of the two. Historical scenarios and hypothetical scenarios 24. With respect to both stress test scenarios on i) the portfolio or net asset value of the MMF and ii) the liquidity bucket(s) of the MMF and/or the ability of the manager of the MMF to meet investors’ redemption requests, managers could use the factors specified in sections 4.2 to 4.7 using historical and hypothetical scenarios. 25. Historical scenarios reproduce the parameters of previous event or crises and extrapolate the impact they would have had on the present portfolio of the MMF. 26. While using historical scenarios, managers should vary the time windows in order to process several scenarios and avoid getting stress test results that depend overly on an arbitrary time window (e.g. one period with low interest rates and another with higher rates). By way of example, some commonly used scenarios refer to junk bonds in 2001, subprime mortgages in 2007, the Greek crisis in 2009 and the Chinese stock market crash in 2015. These scenarios may include independent or correlated shocks depending on the model. 27. Hypothetical scenarios are aimed at anticipating a specific event or crisis by setting its parameters and predicting its impact on the MMF. Examples of hypothetical scenarios include those based on economic and financial shocks, country or business risk (e.g. bankruptcy of a sovereign state or crash in an industrial sector). This type of scenario may require the creation of a dashboard of all changed risk factors, a correlation matrix and a choice of financial behaviour model. It also includes probabilistic scenarios based on implied volatility. 28. Such scenarios may be single-factor or multi-factor scenarios. Factors can be uncorrelated (fixed income, equity, counterparty, forex, volatility, correlation, etc.) or correlated: a particular shock may spread to all risk factors, depending on the correlation table used. Aggregation of stress tests 29. In certain circumstances, in addition, managers could use aggregate stress test scenarios on a range of MMFs or even on all the MMFs managed by the manager. Aggregating results would provide an overview and could show, for example, the total volume of assets held by all the MMFs of the manager in a particular position, and the potential impact of several portfolios selling out of that position at the same time during a liquidity crisis. Reverse stress testing 30. In addition to the stress test scenarios discussed in this section, the inclusion of reverse stress testing may also be of benefit. The intention behind a reverse stress test is to subject the MMF to stress testing scenarios to the point of failure, including the point where the regulatory thresholds set up in the MMF Regulation, such as those included in its Article 11 37(3)(a) would be breached. This would allow the manager of a MMF to have another tool to explore any vulnerabilities, pre-empt, and resolve such risks. Combination of the various factors mentioned in the following sections 4.2 to 4.7 with investors’ redemption requests 31. All factors mentioned in the following sections 4.2 to 4.7 should be tested against several levels of redemption. This is not to say that at first, managers should not also test them separately (without combining them with tests against levels of redemption), in order to be able to identify the corresponding respective impacts. The way this combination of the various factors mentioned in the following sections 4.2 to 4.7 with investors’ redemption requests could be carried out is further specified in each of these sections. 32. In that context, some hypothesis on the behaviour of the manager with regard to honouring the redemption requests could be required. 33. A practical example of one possible implementation is given in Appendix. Stress tests in the case of CNAV and LVNAV MMFs 34. Article 28(2) of the MMF Regulation indicates that in addition to the stress test criteria as set out in Article 28(1), CNAV and LVNAV MMFs shall estimate for different scenarios, the difference between the constant NAV per unit or share and the NAV per unit or share. While estimating this difference, and if the manager of the MMF is of the view that this would be useful additional information, it may also be relevant to estimate the impact of the relevant factors included in sections 4.2 to 4.7 on the volatility of the portfolio or on the volatility of the net asset value of the fund. Non-exhaustiveness of the factors mentioned in the following sections 4.2 to 4.7 35. The factors set out in the following sections 4.2 to 4.7 are minimum requirements. The manager would be expected to tailor the approach to the specificities of its MMFs and add any factors or requirements that it would deem useful to the stress test exercise. Examples of other factors that could be taken into account include the repo rate considering MMFs are a significant player in that market. 36. More generally the manager should build a number of scenarios, with different levels of severity, which would combine all the relevant factors (which is to say that there should not just be separate stress tests for each factor – please also refer to the following sections 4.2 to 4.7). 12 4.2 Guidelines on stress test scenarios in relation to hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF 37. With respect to the level of changes of liquidity of the assets mentioned in Article 28(1)(a) of the MMF Regulation, managers could consider such parameters as: - the gap between the bid and ask prices; - the trading volumes; - the maturity profile of assets; - the number of counterparties active in the secondary market. This would reflect the fact that lack of liquidity of assets may result from secondary markets related issues, but may also be related to the maturity of the asset. 38. The manager could also consider a stress test scenario that would reflect an extreme event of liquidity shortfall due to dramatic redemptions, by combining the liquidity stress test with a bid - ask spread multiplied by a certain factor while assuming a certain redemption rate of the NAV 4.3 Guidelines on stress test scenarios in relation to hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events 39. With respect to the levels of changes in credit risk of the asset mentioned in Article 28(1)(b), guidance on this factor should not be too prescriptive because the widening or narrowing of credit spreads is usually based on quickly evolving market conditions. 40. However, managers could, for example, consider: - the downgrade or default of particular portfolio security positions, each representing relevant exposures in the MMF’s portfolio; - the default of the biggest position of the portfolio combined with a downgrade of the ratings of assets within the portfolio; - parallels shifts of the credit spreads of a certain level for all assets held in the portfolio. 13 41. With respect to such stress tests involving the levels of changes of credit risk of the asset, it would also be relevant to consider the impact of such stress tests on the credit quality assessment of the corresponding asset in the context of the methodology described in Article 19 of the MMF Regulation. 42. The manager should, for the purpose of combining different factors, combine changes to the level of credit risk of the assets held in the portfolio of the MMF with given levels of redemptions. The manager could consider a stress test scenario that would reflect an extreme event of stress due to uncertainty about the solvency of market participants, which would lead to increased risk premia and a flight to quality. This stress test scenario would combine the default of a certain percentage of the portfolio with spreads going up together while assuming a certain redemption rate of the NAV. 43. The manager could also consider a stress test scenario that would combine a default of a certain percentage of the value of the portfolio with an increase in short term interest rates and a certain redemption rate of the NAV. 4.4 Guidelines on stress test scenarios in relation to hypothetical movements of the interest rates and exchange rates 44. With respect to the levels of change of the interest rates and exchange rates mentioned in Article 28(1)(c) of the MMF Regulation, managers could consider stress testing of parallel shifts of a certain level. More specifically, managers could consider depending on the specific nature of their strategy: i. an increase in the level of short term interest rates with 1-month and 3-month treasury rates going up simultaneously while assuming a certain redemption rate; ii. a gradual increase in the long term interest rates for sovereign bonds; iii. a parallel and/or non parallel shift in the interest rate curve that would change short, medium and long interest rate; iv. movements of the FX rate (base currency vs other currencies). 45. The manager could also consider a stress test scenario that would reflect an extreme event of increased interest rates that would combine an increase in short-term interest rates with a certain redemption rate. The manager could also consider a matrix of interest rates / credit spreads. 14 4.5 Guidelines on stress test scenarios in relation to hypothetical levels of redemption 46. With respect to the levels of redemption mentioned in Article 28(1)(d) of the MMF Regulation, managers could consider redemption stress tests following from historical or hypothetical redemption levels or with the redemption being the maximum of either a certain percentage of the NAV or an opt-out redemption option exercised by the most important investors. 47. Stress tests on redemptions should include the specific measures which the MMF has the constitutional power to activate (for instance, gates and redemption notice). 48. The simulation of redemptions should be calibrated based on stability analysis of the liabilities (i.e. the capital), which itself depends on the type of investor (institutional, retail, private bank, etc.) and the concentration of the liabilities. The particular characteristics of the liabilities and any cyclical changes to redemptions would need to be taken into account when establishing redemption scenarios. However, there are many ways to test liabilities and redemptions. Examples of significant redemption scenarios include i) redemptions of a percentage of the liabilities ii) redemptions equal to the largest redemptions ever seen iii) redemptions based on an investor behaviour model. 49. Redemptions of a percentage of the liabilities could be defined based on the frequency of calculating the net asset value, any redemption notice period and the type of investors. 50. It is to be noted that liquidating positions without distorting portfolio allocation requires a technique known as slicing, whereby the same percentage of each asset (or each liquidity class if the assets are categorised according to their liquidity, also known as bucketing) is sold, rather than selling the most liquid assets first. The design and execution of the stress test should take into account and specify whether to apply a slicing approach or by contrast a waterfall approach (i.e. selling the most liquid assets first). 51. In the case of redemption of units by the largest investor(s), rather than defining an arbitrary redemption percentage as in the previous case, managers could use information about the investor base of the MMF to refine the stress test. Specifically, the scenario involving redemption of units by the largest investors should be calibrated based on the concentration of the fund’s liabilities and the relationships between the manager and the principal investors of the MMF (and the extent to which investors’ behaviour is deemed volatile). 52. Managers could also stress test scenarios involving redemptions equal to the largest redemptions ever seen in a group of similar (geographically or in terms of fund type) MMFs or across all the funds managed by the manager. However, the largest redemptions witnessed in the past are not necessarily a reliable indicator of the worst redemptions that may occur in the future. 53. A practical example of one possible implementation is given in Appendix. 15 4.6 Guidelines on stress test scenarios in relation to hypothetical widening or narrowing of spreads among indexes to which interest rates of portfolio securities are tied 54. With respect to the extent of a widening or narrowing of spreads among indexes to which interest rates of portfolio securities are tied as mentioned in Article 28(1)(e) of the MMF Regulation, managers could consider the widening of spreads in various sectors to which the portfolio of the MMF is exposed, in combination with various increase in shareholder redemptions. Managers could in particular consider a widening of spreads going up. 4.7 Guidelines on stress test scenarios in relation to hypothetical macro systemic shocks affecting the economy as a whole 55. With respect to the identification of macro-systemic shocks affecting the economy as a whole mentioned in Article 28(1)(f) of the MMF Regulation, guidance on this item should not be prescriptive because the choice of hypothetical macro systemic shocks will depend to a large extent on the latest developments in the market. 56. However, ESMA is of the view that managers could use an adverse scenario in relation to the GDP. Managers could also replicate macro systemic shocks that affected the economy as a whole in the past. 57. Examples of such global stress test scenarios that the manager could consider are provided in Appendix. 4.8 Guidelines on the establishment of additional common reference stress test scenarios (the results of which should be included in the reporting template mentioned in Article 37(4) of the MMF Regulation) 58. In addition to the stress tests managers of MMFs conduct taking into account sections 4.1 to 4.7 of these guidelines, managers of MMFs should conduct the following common reference stress test scenarios. the results of which should be included in the reporting template mentioned in Article 37(4) of the MMF Regulation. 4.8.1 Level of changes of liquidity 59. With respect to the level of changes of liquidity of the assets mentioned in Article 28(1)(a) of the MMF Regulation: 16 • Managers of MMFs should apply the discount factors specified in section 5 of the guidelines10 to reflect the increase in liquidity premia due to deterioration of market liquidity conditions in a stress scenario. • At the same time, managers of MMFs should assume redemption requests and simulate the sale of a vertical slice of the fund portfolio whereby the same percentage of each asset is sold to meet redemptions. The redemption requests are calibrated according to the redemption scenario specified in section 5 of the guidelines. • Asset sales would impact asset prices. The “price impact parameter” is the impact on the price of an asset for a given amount of sales. The more the fund sells an asset, the more it impacts the price of the given (“price impact factor”). For each asset, managers of MMFs should apply the price impact parameter specified in section 5 of the guidelines: • For each re𝐏l𝐫e𝐢v𝐜a𝐞n 𝐢t𝐦 tr𝐩a𝐚n𝐜s𝐭f e𝐟𝐚ra𝐜b𝐭𝐨le𝐫 s=e𝐩cu𝐫r𝐢i𝐜ty𝐞, 𝐢𝐦ma𝐩n𝐚a𝐜𝐭g e𝐩r𝐚s𝐫 𝐚o𝐦f M𝐞𝐭M𝐞𝐫F∗s 𝐚s𝐬h𝐬o𝐞u𝐭l d𝐬𝐚 a𝐥𝐞p𝐬ply the discount factors and the price impact factors to the price used for the valuation of the fund at the time of the reporting in accordance with Article 29(3)(a), according to their type and maturity, to derive an adjusted price ( ): (𝐕𝐏𝐫𝐢𝐜𝐞) 𝐕𝐏𝐫𝐢𝐜𝐞𝐚𝐝𝐣 • The impa𝐕c𝐏t 𝐫o𝐢𝐜f 𝐞t 𝐚 h 𝐝 e 𝐣 =liq(u𝟏id−ity𝐥𝐢 𝐪d𝐮is𝐢𝐝co𝐢𝐭u𝐲n 𝐝t 𝐢s𝐬𝐜h𝐨o𝐮ul𝐧d𝐭 −be𝐩 𝐫e𝐢v𝐜a𝐞l u𝐢𝐦at𝐩ed𝐚 𝐜f𝐭o 𝐟r𝐚 𝐜a𝐭ll𝐨 𝐫a)s∗se𝐕t𝐏s 𝐫i𝐢n𝐜c𝐞luding the following (non-exhaustive list of) eligible assets: Sovereign Bonds, Corporate Bonds, Commercial Papers, Certificates of deposit, ABCPs and eligible securitisations. • The manager of the MMF should estimate the impact of the potential losses by (a) valuing the remaining investment portfolio at the derived adjusted price, , to determine the stressed NAV; (b) valuing assets sold at the derived adjusted price, ; and (c) 𝐕𝐏𝐫𝐢𝐜𝐞𝐚𝐝𝐣 calculating the impact as a percentage of the reporting NAV: 𝐕𝐏𝐫𝐢𝐜𝐞𝐚𝐝𝐣 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕−(𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕+𝐀𝐬𝐬𝐞𝐭𝐬 𝐒𝐚𝐥𝐞𝐬) 𝐀𝐬𝐬𝐞𝐭 𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐫𝐢𝐬𝐤 𝐢𝐦𝐩𝐚𝐜𝐭 (%)= 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 10 The discount factor is calibrated on bid-ask spreads. 17 Notes: The following assets should be stressed, using the discount factors specified in section 5 of the guidelines: • Sovereign bonds, with a break down at country level; • Corporate bonds, including commercial papers issued by financial and non- financial corporates and certificates of deposits, distinguishing at least between investment grade and high yield instruments; • ABCPs and eligible securitisations, using the corporate bond parameters. • Shares issued by other MMFs, using the corporate bond parameters (when there is a difference between financial and non-financial, it shall be the financial corporate bond parameters). • Other assets (especially repos), using the corporate bond parameters (when there is a difference between financial and non-financial, it shall be the financial corporate bond parameters). Managers of MMFs should assume redemption requests and simulate the sale of a vertical slice of the fund portfolio whereby the same percentage of each asset is sold to meet redemptions. Asset sales would impact asset prices. According to the price impact parameter specified in section 5 of the guidelines: • For example, if a fund meets a redemption shock of 30%, it is expected to sell for 30% of each asset (for the sake of consistency this is to be understood in a strict sense and manager should simulate the sale of 30% of each security, or nearest) • If the funds hold EUR 500mn of commercial papers issued by banks, it is expected to sell for EUR 150mn of them (=30%*500,000,000) • If the corresponding price impact factor is 8E-13, the resulting price impact for this asset is 0.01% (=8E-13*150,000,000) The calibration is available in section 5 of the Guidelines. 4.8.2 Level of change of credit risk 60. With respect to the levels of change of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events, in accordance with Article 28(1)(b) of the MMF Regulation: 18 1) Credit spread stress test 61. Managers of MMFs should measure the impact of an increase in credit spread, according to the following specifications: • For each security, the increase in spread specified in section 5 of the guidelines should be applied. • For each security, the corresponding change in spread should be translated into a haircut. • The impact of the cumulated haircuts in percentage of reporting NAV should be calculated. 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕−𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 𝐂𝐫𝐞𝐝𝐢𝐭 𝐫𝐢𝐬𝐤 𝐢𝐦𝐩𝐚𝐜𝐭 (%)= 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 2) Concentration stress test 62. Managers of MMFs should also simulate the default of their two main exposures. The resulting impact on NAV should then be calculated, expressed as a percentage: 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕−𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 𝐂𝐨𝐧𝐜𝐞𝐧𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐫𝐢𝐬𝐤 𝐢𝐦𝐩𝐚𝐜𝐭 (%)= 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 Notes: The concentration risk scenario depends on the characteristics of the exposure. The collateral (or any other mitigant, e.g. credit derivatives) received should be considered. If there is no collateral, or if the collateral is insufficient to cover the exposure, the following loss given default should apply: • Senior exposures: 45 %; • Subordinated exposures: 75 %. The calibration is available in section 5 of the Guidelines. 4.8.3 Levels of change of the interest rates and exchange rates and levels of widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied 63. With respect to the levels of change of the interest rates and exchange rates referred to in Article 28(1)(c) of the MMF Regulation, managers of MMFs should apply the following 19 stressed market parameters using the parameters specified in section 5 of the guidelines in respect of (a) interest rate yield shocks which correspond to movements of the interest rates; and (b)FX shocks which corresponds to movements of the exchange rates. 1) Levels of change of the interest rates 64. With respect to the levels of change of the interest rates, managers of MMFs should use the same reference rate curve for all instruments denominated in a given currency and the reference rate tenor should align with the residual maturity of the instrument. For floating rate instruments, instruments may be contractually linked to a particular reference rate, in which case this rate is considered moving in parallel with the reference rate curve. If the table does not provide the tenor corresponding to the residual maturity of the instrument, managers of MMFs should use the most appropriate parameter in the table (e.g. the closest). 2) Levels of change of the exchange rates 65. With respect to the levels of change of the exchange rates, two scenarios should be used in the calculations: appreciation of the EUR against the USD; depreciation of the EUR against the USD. 3) Levels of widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied 66. With respect to the levels of widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied referred to in Article 28(1)(e) of the MMF Regulation, managers of MMFs should apply stressed market parameters, according to the following specifications: • Managers of MMFs should use the parameters specified in section 5 of the guidelines. • For instruments not tied to a specific index, managers of MMFs shall use the reference rate curve provided for the change of the interest rates scenario. • If the table does not provide the tenor corresponding to the residual maturity of the instrument, managers of MMFs should use the most appropriate parameter in the table (e.g. the closest). 4) Results 67. Managers of MMFs should reevaluate their portfolio considering the new parameters separately: interest rates, exchange rates, benchmark rates. They should express the impact of each risk factor as a percentage of NAV by calculating the following: 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕−𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 𝐑𝐢𝐬𝐤 𝐟𝐚𝐜𝐭𝐨𝐫 𝐢𝐦𝐩𝐚𝐜𝐭 (%)= 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 20 Notes: The calibration is available in section 5 of the Guidelines. 4.8.4 Levels of redemption 68. With respect to the levels of redemption referred to in Article 28(1)(d) of the MMF Regulation, managers of MMFs should apply the following stressed redemption scenarios: a reverse liquidity stress test, a weekly liquidity stress test and a concentration stress test. 1) Reverse liquidity stress test 69. The reverse liquidity stress test comprises the following steps: • For each asset, managers of MMFs should measure the weekly tradable amount (including maturing assets). • Managers of MMFs should measure the maximum weekly tradable amount that can be liquidated with the portfolio allocation still being in line with all regulatory requirements of the MMF without distorting the portfolio allocation. 𝐌𝐚𝐱𝐢𝐦𝐮𝐦 𝐰𝐞𝐞𝐤𝐥𝐲 𝐭𝐫𝐚𝐝𝐚𝐛𝐥𝐞 𝐚𝐦𝐨𝐮𝐧𝐭 𝐭𝐡𝐚𝐭 𝐜𝐚𝐧 𝐛𝐞 𝐥𝐢𝐪𝐮𝐢𝐝𝐚𝐭𝐞𝐝 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐝𝐢𝐬𝐭𝐨𝐫𝐭𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐑𝐞𝐬𝐮𝐥𝐭 (%)= Notes: 𝐍𝐀𝐕 • For each asset, the weekly tradable amount shall be based on the manager’s assessment of the fund’s portfolio that is capable of being liquidated within one week. Such assignment should be based on the shortest period during which such a position could reasonably be liquidated at or near its carrying value11. • The maximum size of outflows the fund can face in one week without distorting the portfolio allocation is determined by (1) the sum of the weekly tradable amounts; and (2) the fund’s capacity to comply with the regulatory requirements. • For these purposes, the regulatory requirements are not limited to but should include at least: o Diversification (Article 17 of the MMF Regulation); o Concentration (Article 18 of the MMF Regulation); o Portfolio rules for short-term MMFs (Article 24 of the MMF Regulation) and for standard MMFs (Article 25 of the MMF Regulation), in particular, Maximum weighted average maturity (WAM); Maximum weighted average life (WAL), daily maturing assets; and weekly maturing assets. 11 For its definition, see the Guidelines on reporting obligations under Articles 3(3)(d) and 24(1), (2) and (4) of the AIFMD 21 • For example, if 50% of a LVNAV MMF assets are tradable within a week but its WAM becomes higher than 60 days after selling 30%, the manager should report 30%. The calibration is available in section 5 of the Guidelines. 2) Weekly liquidity stress test: 70. The weekly liquidity stress test assesses the fund’s capacity to meet outflows with available weekly liquid assets, considered as the sum of highly liquid assets and weekly maturing assets and comprises the following steps: • managers of MMFs should apply a stressed redemption scenario where the fund receives net weekly redemption requests from 40% of the professional investors and 30% of the retail investors. • managers of MMFs should measure available weekly liquid assets to meet the redemption requests according to the following table: Assets Article CQS Assets referred to in Article 17(7)12 of the MMF Regulation which are highly liquid and can be redeemed and settled within one working 17(7) 1 day and have a residual maturity of up to 190 days. Cash which is able to be withdrawn by giving prior notice of five 24(1) working days without penalty. 25(1) 24(1) Weekly maturing assets 25(1) Reverse repurchase agreements which are able to be terminated by 24(1) giving prior notice of five working days 25(1) x100% = Weekly liquid assets (bucket 1) Assets referred to in Article 17(7) of the MMF Regulation which can 17(7) 1,2 be redeemed and settled within one working week. Money market instruments or units or shares of other MMFs which 24(1) 1,2 they are able to be redeemed and settled within five working days. 25(1) Eligible securitisations and asset-backed commercial paper 9(1)(b) 1 (ABCPs). x85% = Weekly liquid assets (bucket 2) 12 Money market instruments issued or guaranteed separately or jointly by the Union, the national, regional and local administrations of the Member States or their central banks, the European Central Bank, the European Investment Bank, the European Investment Fund, the European Stability Mechanism, the European Financial Stability Facility, a central authority or central bank of a third country, the International Monetary Fund, the International Bank for Reconstruction and Development, the Council of Europe Development Bank, the European Bank for Reconstruction and Development, the Bank for International Settlements, or any other relevant international financial institution or organisation to which one or more Member States belong. 22 • Managers of MMFs should calculate the coverage of outflows by weekly liquid assets as a percentage in the following way: 𝐖𝐞𝐞𝐤𝐥𝐲 𝐥𝐢𝐪𝐮𝐢𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐑𝐞𝐬𝐮𝐥𝐭 (%)= Notes: 𝐖𝐞𝐞𝐤𝐥𝐲 𝐨𝐮𝐭𝐟𝐥𝐨𝐰𝐬 • Weekly liquid assets are classified in two buckets (bucket 1 and 2) according to their category and credit quality. CQS refers to “Credit Quality Steps”, within the meaning of the COMMISSION IMPLEMENTING REGULATION (EU) 2016/179913. • The sum of the weighted weekly liquid assets will be expressed in percentage of the redemption shock. For example, if a fund meets a redemption shock of 30% with 20% of bucket 1 liquid assets and 45% of total weekly liquid assets (buckets 1 and 2), the manager should report the ratio (Weekly liquid assets)/(Weekly outflows) as a result: o 20%/30% = 67% (bucket 1); and o 45%/30% = 150% (bucket 1 and 2). • It is important to note that the liquidity of any assets should always be checked in an appropriate manner. If there is any doubt regarding the liquidity of a security, managers of MMFs should not include it in the weekly liquid assets. The calibration is available in section 5 of the Guidelines. 3) Concentration stress test 71. The concentration stress test is a scenario where the MMF faces redemption requests from its two main investors. The impact of the stress test should be assessed according to weekly liquidity stress test methodology. 𝐖𝐞𝐞𝐤𝐥𝐲 𝐥𝐢𝐪𝐮𝐢𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐑𝐞𝐬𝐮𝐥𝐭 (%)= Note: 𝐈𝐧𝐯𝐞𝐬𝐭𝐞𝐝 𝐚𝐦𝐨𝐮𝐧𝐭 𝐨𝐟 𝐭𝐡𝐞 𝐭𝐰𝐨 𝐦𝐚𝐢𝐧 𝐢𝐧𝐯𝐞𝐬𝐭𝐨𝐫𝐬 The calibration is available in section 5 of the Guidelines. 13 https://eur-lex.europa.eu/legal- content/EN/TXT/?toc=OJ%3AL%3A2016%3A275%3ATOC&uri=uriserv%3AOJ.L_.2016.275.01.0003.01.ENG 23 4.8.5 Macro-systemic shocks affecting the economy as a whole 72. With respect to the identification of macro-systemic shocks affecting the economy as a whole referred to in Article 28(1)(f) of the MMF Regulation, managers of MMFs should take the following steps: • measure the impact of a market shock combining different risk parameters in accordance with the table below; • assess the impact of a redemption shock following the market shock. Assets sold in response to the redemption shock will result in additional losses, as defined in the liquidity stress test; • calculate the result as a percentage of NAV; • calculate the value of weekly liquid assets after market shock as a percentage of outflows. Risk factors Parameters used for the calibration - FX Rate - EUR/USD etc. - Interest Rate - Swap rate Market shock - Credit - Gov. bond yields/ spreads - Spread among indices to - Corp. bond yields/ spreads which interest rates of portfolio securities are tied - Level of Redemption - % outflows Redemption shock - Asset liquidity - Bid/ask spread (discount factor) - % NAV Results - Weekly liquid assets/ outflows Memo - % outflows 73. The impact of the macro stress test should be assessed taking into account the market shock and the liquidity impact from outflows. The reported impact should not include the outflows. 24 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕−𝐌𝐚𝐫𝐤𝐞𝐭 𝐬𝐡𝐨𝐜𝐤−𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐢𝐦𝐩𝐚𝐜𝐭 𝐟𝐫𝐨𝐦 𝐨𝐮𝐭𝐟𝐥𝐨𝐰𝐬 𝐌𝐚𝐜𝐫𝐨 𝐬𝐭𝐫𝐞𝐬𝐬 𝐭𝐞𝐬𝐭 𝐢𝐦𝐩𝐚𝐜𝐭 (%)= 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 74. The impact of the redemption shock should be assessed according to weekly liquidity stress test methodology. 𝐖𝐞𝐞𝐤𝐥𝐲 𝐥𝐢𝐪𝐮𝐢𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐑𝐞𝐬𝐮𝐥𝐭 (%)= 𝐖𝐞𝐞𝐤𝐥𝐲 𝐨𝐮𝐭𝐟𝐥𝐨𝐰𝐬 Notes: The scenario envisages the following circumstances: • The MMF is affected by a shock combining an adverse FX shock and an increase in interest rates including swap rate, government bond yields and corporate bond yields. The credit risk is included in the yield shock. Managers of MMFs should use their internal models to measure the combined impact. The calibration of the shock is based on a macro scenario provided by ESMA and the ESRB and combining shocks from the other scenarios. • In the wake of the market shock, investors ask for redemption. Outflows are calculated similarly to the redemption scenario by differentiating professional and retail investors, i.e. the calibration available in table 14 of section 5. • To meet the redemption requests, the fund sells assets in a stressed environment characterized by a widening of bid-ask spread as characterized in the liquidity stress test. For the purposes of the stress test, the loss is entirely borne by remaining investors (and not by redeeming investors). • The impact on the NAV is the result of the market shock and the liquidity shock. • The impact on liquidity is calculated using the weekly liquidity stress test methodology. The calibration is available in section 5 of the Guidelines. 5 Calibration 75. The following section includes the 2025 calibration for the MMF stress tests the results of which have to be reported in accordance with Article 37 of the MMF Regulation, and which are detailed in section 4.8 above. 25 76. ESMA has worked in collaboration with the ESRB and the ECB for the annual calibration of the risk parameters. Most of the parameters have been updated from the new ESRB adverse scenario. In addition, some parameters were added by ESMA in section 5 and are underlined. If managers need a parameter that is not indicated in this section, they may consult the adverse scenario on the ESRB website14. 77. Finally, in case of inconsistency between the Guidelines and the ESRB scenario, managers should use the values provided in the Guidelines. 14 Stress testing (europa.eu) 26 5.1 Common reference parameters of the stress test scenarios in relation to hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF Scope of the scenario MMFR Liquidity Typical assets Eligible assets Stressed Parameters -Certificate of deposit (CD) Yes Table 3, 4 -Commercial Paper (CP) Yes Table 3, 4 (a) money market instruments -Government bonds, treasury and local authority bills Yes Table 1,2, 4 -Corporate bonds Yes Table 3, 4 -Eligible securitisations Yes Table 3, 4 (b) eligible securitisations and asset-backed commercial paper (ABCPs) -ABCPs Yes Table 3, 4 (c) deposits with credit institutions -Deposits, of which time deposits No -Financial derivative instruments dealt in on a regulated No (d) financial derivative instruments market -Financial derivative instruments dealt OTC No (e) repurchase agreements -Repos Yes 4 (f) reverse repurchase agreements -Reverse repos Yes 4 Extrapolation of the results to (g) units or shares of other MMFs -Shares issued by other MMFs Yes shares issued by other MMFs 27 Table 1 Table 2 Liquidity discount factor - Sovereign bonds by residual Liquidity discount factor - Sovereign bonds by rating and residual maturity - Reference countries (in %) maturity (in %) 3M 6M 1Y 1.5Y 2Y 3M 6M 1Y 1.5Y 2Y DE 0.08 0.10 0.12 0.16 0.20 AAA 0.08 0.11 0.14 0.17 0.20 ES 0.10 0.17 0.21 0.25 0.29 AA 0.08 0.11 0.12 0.17 0.21 FR 0.08 0.11 0.12 0.17 0.21 A 0.10 0.17 0.21 0.25 0.29 IT 0.09 0.15 0.17 0.22 0.26 BBB 0.10 0.17 0.21 0.25 0.29 Below BBB or 0.08 0.13 0.17 0.19 0.21 0.12 0.22 0.27 0.33 0.38 NL unrated Table 3 Liquidity discount factor - Corporate bonds by rating and residual maturity 3M 6M 1Y 1.5Y 2Y AAA 0.39 0.42 0.45 0.49 0.53 AA 0.41 0.43 0.45 0.49 0.53 A 0.41 0.44 0.48 0.52 0.56 BBB 0.41 0.47 0.50 0.53 0.56 Below BBB or unrated 0.54 0.62 0.64 0.69 0.73 28 Table Option 4: Price impact parameter Price impact parameter (%) Cash and deposits - Sovereign bonds 1E-13 Corporate bonds (non-financial) 4.3E-13 Corporate bonds (financial) 8E-13 Securitisation and ABCPs 4E-13 Shares issued by other MMFs 2.7E-13 Other (incl. repos) 4.7E-13 29 5.2 Common reference parameters of the stress test scenarios in relation to hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events Scope of the scenario Credit Credit MMFR Typical assets (credit spreads) (2 main counterparties) Eligible assets Stressed Parameters Stressed Parameters -Certificate of deposit (CD) Yes Table 6 Yes Table 7 -Commercial Paper (CP) Yes Table 6 Yes Table 7 (a) money market instruments -Government bonds, treasury and local Yes Table 5 Yes Table 7 authority bills -Corporate bonds Yes Table 6 Yes Table 7 (b) eligible securitisations and asset- -Eligible securitisations Yes Table 6 Yes Table 7 backed commercial paper (ABCPs) -ABCPs Yes Table 6 Yes Table 7 (c) deposits with credit institutions -Deposits, of which time deposits No No -Financial derivative instruments dealt in on a No No (d) financial derivative instruments regulated market -Financial derivative instruments dealt OTC No No (e) repurchase agreements -Repos No No (f) reverse repurchase agreements -Reverse repos No No Extrapolation Extrapolation of the results of the results (g) units or shares of other MMFs -Shares issued by other MMFs Yes to shares Yes to shares issued by issued by other MMFs other MMFs 30 Table 5: Shocks to government bond credit spreads Credit Spread by residual maturity - Government bonds (absolute changes - basis points) Geographic Area Country 3M 6M 1Y 2Y EU Austria 28 32 41 50 EU Belgium 40 46 57 70 EU Bulgaria 37 42 54 68 EU Croatia 34 39 50 63 EU Cyprus 37 42 54 68 EU Czech Republic 28 32 41 51 EU Denmark 21 25 32 40 EU Finland 28 32 41 51 EU France 44 52 65 74 EU Germany 25 29 37 47 EU Greece 59 72 91 110 EU Hungary 56 69 87 105 EU Ireland 25 29 37 48 EU Italy 55 67 81 100 EU Latvia 37 42 54 68 EU Lithuania 28 32 41 51 EU Luxembourg 21 25 33 41 EU Malta 29 33 43 53 EU Netherlands 23 27 35 43 EU Poland 51 59 69 80 EU Portugal 50 57 67 77 EU Romania 56 68 85 102 EU Slovakia 34 39 50 63 EU Slovenia 32 36 47 59 EU Spain 51 60 69 81 EU Sweden 21 25 33 41 EA (weighted averages) EA (weighted averages) 38 45 55 67 EU (weighted averages) EU (weighted averages) 38 45 55 66 Advanced economies United Kingdom 32 40 52 66 Advanced economies Switzerland 25 31 33 37 Advanced economies Norway 30 37 39 47 Advanced economies United States 42 54 61 79 Advanced economies Japan 11 13 19 21 Advanced economies Advanced economies non EU and non US 25 30 36 43 Emerging markets 95 120 135 144 31 Table 6: Shocks to corporate bond and ABS credit spreads (all maturities) Corporate credit spreads (absolute changes - basis points) Rating Non-financial Financial covered Financial ABS AAA 116 87 111 110 AA 128 104 129 126 A 154 116 156 187 BBB 196 157 194 254 BB 356 273 224 271 B 356 342 284 339 ≤CCC 385 322 382 356 Table 7: Loss given default Loss given default (%) Senior exposure 45 Subordinated exposure 75 32 5.3 Common reference parameters of the stress test scenarios in relation to hypothetical movements of the interest rates Scope of the scenario IR MMFR Typical assets (Interest rate swap) Eligible assets Stressed Parameters -Certificate of deposit (CD) Yes Table 8, 9 -Commercial Paper (CP) Yes Table 8, 9 (a) money market instruments -Government bonds, treasury and local authority bills Yes Table 8, 9 -Corporate bonds Yes Table 8, 9 (b) eligible securitisations and asset- -Eligible securitisations Yes Table 8, 9 backed commercial paper (ABCPs) -ABCPs Yes Table 8, 9 (c) deposits with credit institutions -Deposits, of which time deposits Yes Table 8, 9 -Financial derivative instruments dealt in on a Yes Table 8, 9 (d) financial derivative instruments regulated market -Financial derivative instruments dealt OTC Yes Table 8, 9 (e) repurchase agreements -Repos No (f) reverse repurchase agreements -Reverse repos Yes Table 8, 9 Extrapolation of the results to shares (g) units or shares of other MMFs -Shares issued by other MMFs Yes issued by other MMFs 33 Table 8: Shocks to swap rates Interest rate yield shocks absolute changes (basis points) Geographic Area Country Description 1M 3M 6M 1Y 2Y Euro area EU Interest rate swap on the EUR (euro) 83 88 97 100 106 Bulgaria EU Interest rate swap on the BGN (Bulgarian lev) 143 154 166 174 180 Czech Republic EU Interest rate swap on the CZK (Czech koruna) 104 110 123 130 136 Denmark EU Interest rate swap on the DKK (Danish krone) 86 93 100 103 108 Hungary EU Interest rate swap on the HUF (Hungarian forint) 115 123 137 152 170 Poland EU Interest rate swap on the PLN (Polish zloty) 121 129 138 148 159 Romania EU Interest rate swap on the RON (Romanian leu) 143 154 166 174 180 Sweden EU Interest rate swap on the SEK (Swedish krona) 84 91 100 106 112 Rest of Europe United Kingdom Interest rate swap on the GBP (British pound) 95 100 109 127 137 Rest of Europe Norway Interest rate swap on the NOK (Norwegian krone) 95 98 102 106 110 Rest of Europe Russia Interest rate swap on the RUB (Russian ruble) 231 257 286 319 355 Rest of Europe Switzerland Interest rate swap on the CHF (Swiss franc) 56 66 78 88 97 34 Rest of Europe Türkiye Interest rate swap on the TRY (Turkish lira) 114 122 132 141 152 North America Canada Interest rate swap on the CAD (Canadian dollar) 102 108 116 132 141 North America United States Interest rate swap on the USD (US dollar) 118 122 128 140 164 Australia and Pacific Australia Interest rate swap on the AUD (Australian dollar) 101 107 114 125 138 Australia and Pacific New Zealand Interest rate swap on the NZD (New Zealand dollar) 101 107 118 126 135 South and Central America Chile Interest rate swap on the CLP (Chilean peso) 164 180 198 206 213 South and Central America Colombia Interest rate swap on the COP (Colombian peso) 237 255 268 274 289 South and Central America Mexico Interest rate swap on the MXN (Mexican peso) 164 180 198 206 213 Asia China Interest rate swap on the CNY (Chinese yuan) 35 40 44 46 51 Asia Hong Kong Interest rate swap on the HKD (Hong Kong dollar) 114 122 131 140 144 Asia India Interest rate swap on the INR (Indian rupee) 114 130 143 150 168 Asia Japan Interest rate swap on the JPY (Japanese yen) 8 9 16 19 25 Asia Korea Interest rate swap on the KRW (South Korean won) 97 103 109 112 122 Asia Malaysia Interest rate swap on the MYR (Malaysian ringgit) 108 110 113 124 130 Asia Singapore Interest rate swap on the SGD (Singapore dollar) 101 103 107 116 129 Asia Thailand Interest rate swap on the THB (Thai baht) 102 103 107 117 125 Africa South Africa Interest rate swap on the ZAR (South African rand) 147 160 171 189 219 35 Table 9 Shocks to swap rates (default values for countries not included in table 8) Interest rate yield shocks absolute changes (basis points) Geographic Area Description 1M 3M 6M 1Y 2Y EU Default value for countries not included in table 8 110 118 129 136 144 Other advanced economies Default value for countries not included in table 8 84 89 96 105 114 Other emerging markets Default value for countries not included in table 8 153 166 180 192 207 36 5.4 Common reference parameters of the stress test scenarios in relation to hypothetical movements of the exchange rates Scope of the scenario FX FX MMFR Typical assets (Appreciation of the EUR) (Depreciation of the EUR) Eligible assets Stressed Parameters Stressed Parameters -Certificate of deposit (CD) Yes Table 10 Yes Table 11 -Commercial Paper (CP) Yes Table 10 Yes Table 11 (a) money market instruments -Government bonds, treasury and local Yes Table 10 Yes Table 11 authority bills -Corporate bonds Yes Table 10 Yes Table 11 -Eligible securitisations Yes Table 10 Yes Table 11 (b) eligible securitisations and asset- backed commercial paper (ABCPs) -ABCPs Yes Table 10 Yes Table 11 (c) deposits with credit institutions -Deposits, of which time deposits Yes Table 10 Yes Table 11 -Financial derivative instruments dealt in on a Yes Table 10 Yes Table 11 (d) financial derivative instruments regulated market -Financial derivative instruments dealt OTC Yes Table 10 Yes Table 11 (e) repurchase agreements -Repos No No (f) reverse repurchase agreements -Reverse repos Yes Table 10 Yes Table 11 Extrapolation of Extrapolation the results to of the results to (g) units or shares of other MMFs -Shares issued by other MMFs Yes Yes shares issued shares issued by other MMFs by other MMFs 37 Table 10 FX shocks (appreciation of the EUR against the USD) relative changes (%) Exchange rate Geographic Area Description Shock name EU EURCZK represents 1 EUR per x CZK (Czech koruna) EURCZK 6 EU EURHUF represents 1 EUR per x HUF (Hungarian forints) EURHUF 18 EU EURPLN represents 1 EUR per x PLN (Polish zloty) EURPLN 15 EU EURRON represents 1 EUR per x RON (Romanian leu ) EURRON 3 EU EURSEK represents 1 EUR per x SEK (Swedish krona) EURSEK 11 Rest of Europe EURRSD represents 1 EUR per x RSD (Serbian dinar ) EURRSD 2 Rest of Europe EURNOK represents 1 EUR per x NOK (Norwegian krone) EURNOK 9 Rest of Europe EURGBP represents 1 EUR per x GBP (British pound) EURGBP 10 Rest of Europe EURCHF represents 1 EUR per x CHF (Swiss franc) EURCHF 5 Rest of Europe EURRUB represents 1 EUR per x RUB (Russian ruble) EURRUB 45 Rest of Europe EURTRY represents 1 EUR per x TRY (Turkish lira) EURTRY 21 North America USDCAD represents 1 USD per x CAD (Canadian dollar) USDCAD -6 North America EURUSD represents 1 EUR per x USD (US dollar) EURUSD 9 Australia and Pacific AUDUSD represents 1 AUD per x USD (Australian dollar) AUDUSD 9 Australia and Pacific NZDUSD represents 1 NZD per x USD (New Zealand dollar) NZDUSD 8 South and Central America USDARS represents 1 USD per x ARS (Argentine peso) USDARS -17 South and Central America USDBRL represents 1 USD per x BRL (Brazilian real) USDBRL -18 South and Central America USDMXN represents 1 USD per x MXN (Mexican peso) USDMXN -7 38 USDCNY represents 1 USD per x CNY (Chinese yuan Asia USDCNY -4 renminbi) Asia USDHKD represents 1 USD per x HKD (Hong Kong dollar) USDHKD -1 Asia USDINR represents 1 USD per x INR (Indian rupee) USDINR -2 Asia USDJPY represents 1 USD per x JPY (Japanese yen) USDJPY -8 Asia USDKRW represents 1 USD per x KRW (South korean won) USDKRW -10 Asia USDMYR represents 1 USD per x MYR (Malaysian ringgit) USDMYR -5 Asia USDSGD represents 1 USD per x SGD (Singapore dollar) USDSGD -5 Asia USDTHB represents 1 USD per x THB (Thai baht) USDTHB -6 USDTWD represents 1 USD per x TWD (New Taiwan -3 Asia dollar) USDTWD Africa USDZAR represents 1 USD per x ZAR (South African rand) USDZAR -11 Table 11 FX shocks (depreciation of the EUR against the USD) relative changes (%) Exchange rate Geographic Area Description Shock name EU EURCZK represents 1 EUR per x CZK (Czech koruna) EURCZK -5 EU EURHUF represents 1 EUR per x HUF (Hungarian forints) EURHUF -7 EU EURPLN represents 1 EUR per x PLN (Polish zloty) EURPLN -4 EU EURRON represents 1 EUR per x RON (Romanian leu ) EURRON -2 EU EURSEK represents 1 EUR per x SEK (Swedish krona) EURSEK -2 Rest of Europe EURRSD represents 1 EUR per x RSD (Serbian dinar ) EURRSD -1 Rest of Europe EURNOK represents 1 EUR per x NOK (Norwegian krone) EURNOK -8 Rest of Europe EURGBP represents 1 EUR per x GBP (British pound) EURGBP -5 Rest of Europe EURCHF represents 1 EUR per x CHF (Swiss franc) EURCHF -9 39 Rest of Europe EURRUB represents 1 EUR per x RUB (Russian ruble) EURRUB -40 Rest of Europe EURTRY represents 1 EUR per x TRY (Turkish lira) EURTRY -4 North America USDCAD represents 1 USD per x CAD (Canadian dollar) USDCAD 9 North America EURUSD represents 1 EUR per x USD (US dollar) EURUSD -12 Australia and Pacific AUDUSD represents 1 AUD per x USD (Australian dollar) AUDUSD -13 Australia and Pacific NZDUSD represents 1 NZD per x USD (New Zealand dollar) NZDUSD -13 South and Central America USDARS represents 1 USD per x ARS (Argentine peso) USDARS 18 South and Central America USDBRL represents 1 USD per x BRL (Brazilian real) USDBRL 14 South and Central America USDMXN represents 1 USD per x MXN (Mexican peso) USDMXN 12 USDCNY represents 1 USD per x CNY (Chinese yuan Asia USDCNY 7 renminbi) Asia USDHKD represents 1 USD per x HKD (Hong Kong dollar) USDHKD 1 Asia USDINR represents 1 USD per x INR (Indian rupee) USDINR 8 Asia USDJPY represents 1 USD per x JPY (Japanese yen) USDJPY 14 Asia USDKRW represents 1 USD per x KRW (South korean won) USDKRW 11 Asia USDMYR represents 1 USD per x MYR (Malaysian ringgit) USDMYR 6 Asia USDSGD represents 1 USD per x SGD (Singapore dollar) USDSGD 5 Asia USDTHB represents 1 USD per x THB (Thai baht) USDTHB 9 USDTWD represents 1 USD per x TWD (New Taiwan 7 Asia dollar) USDTWD Africa USDZAR represents 1 USD per x ZAR (South African rand) USDZAR 17 40 5.5 Common reference parameters of the stress test scenarios in relation to hypothetical widening or narrowing of spreads among indexes to which interest rates of portfolio securities are tied Scope of the scenario IR MMFR Typical assets (Interest rate swap) Eligible assets Stressed Parameters -Certificate of deposit (CD) Yes Table 8, 9 -Commercial Paper (CP) Yes Table 8, 9 (a) money market instruments -Government bonds, treasury and local authority bills Yes Table 8, 9 -Corporate bonds Yes Table 8, 9 -Eligible securitisations Yes Table 8, 9 (b) eligible securitisations and asset-backed commercial paper (ABCPs) -ABCPs Yes Table 8, 9 (c) deposits with credit institutions -Deposits, of which time deposits Yes Table 8, 9 -Financial derivative instruments dealt in on a regulated Yes Table 8, 9 (d) financial derivative instruments market -Financial derivative instruments dealt OTC Yes Table 8, 9 (e) repurchase agreements -Repos No (f) reverse repurchase agreements -Reverse repos Yes Table 8, 9 Extrapolation of the results to shares (g) units or shares of other MMFs -Shares issued by other MMFs Yes issued by other MMFs 41 5.6 Common reference parameters of the stress test scenarios in relation to hypothetical levels of redemption Scope of the scenario Redemption Redemption Redemption MMFR Typical assets (reverse liquidity ST) (weekly liquidity ST (2 main investors) Eligible assets Stressed Parameters Stressed Parameters Stressed Parameters -Certificate of deposit (CD) Yes Self-assessment Yes Table 12, 13 Yes Table 12 -Commercial Paper (CP) Yes Self-assessment Yes Table 12, 13 Yes Table 12 (a) money market instruments -Government bonds, treasury and Yes Self-assessment Yes Table 12, 13 Yes Table 12 local authority bills -Corporate bonds Yes Self-assessment Yes Table 12, 13 Yes Table 12 (b) eligible securitisations and -Eligible securitisations Yes Self-assessment Yes Table 12, 13 Yes Table 12 asset-backed commercial paper -ABCPs Yes Self-assessment Yes Table 12, 13 Yes Table 12 (ABCPs) (c) deposits with credit -Deposits, of which time deposits Yes Self-assessment Yes Table 12, 13 Yes Table 12 institutions -Financial derivative instruments Yes Self-assessment Yes Table 12, 13 Yes Table 12 (d) financial derivative dealt in on a regulated market instruments -Financial derivative instruments Yes Self-assessment Yes Table 12, 13 Yes Table 12 dealt OTC (e) repurchase agreements -Repos Yes Self-assessment No Table 12, 13 No Table 12 (f) reverse repurchase -Reverse repos Yes Self-assessment Yes Table 12, 13 Yes Table 12 agreements (g) units or shares of other MMFs -Shares issued by other MMFs Yes Self-assessment Yes Table 12, 13 Yes Table 12 42 Table 12 Table 13 Assets Article CQS Net outflows (%) Assets referred to in Article 17(7) which are highly liquid and 17(7) 1 Professional investor 40 can be redeemed and settled within one working day and have a residual maturity of up to 190 days 24(1) Cash which is able to be withdrawn by giving prior notice of Retail investor 30 five working days without penalty 25(1) 24(1) Weekly maturing assets 25(1) 24(1) Reverse repurchase agreements which are able to be terminated by giving prior notice of five working days 25(1) x100% = Weekly liquid assets (bucket 1) Assets referred to in Article 17(7) which can be redeemed and 17(7) 1,2 settled within one working week Money market instruments or units or shares of other MMFs 24(1) which they are able to be redeemed and settled within five 1,2 25(1) working days Eligible securitisations and asset-backed commercial paper 9(1)(b) 1 (ABCPs) x85% = Weekly liquid assets (bucket 2) 43 5.7 Common reference parameters of the stress test scenarios in relation to hypothetical macro systemic shocks affecting the economy as a whole Scope of the scenario MMFR Macro Typical assets Eligible assets Stressed Parameters -Certificate of deposit (CD) Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 -Commercial Paper (CP) Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 (a) money market instruments -Government bonds, treasury and local authority Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 bills -Corporate bonds Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 (b) eligible securitisations and asset-backed -Eligible securitisations Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 commercial paper (ABCPs) -ABCPs Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 (c) deposits with credit institutions -Deposits, of which time deposits Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 -Financial derivative instruments dealt in on a Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 (d) financial derivative instruments regulated market -Financial derivative instruments dealt OTC Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 (e) repurchase agreements -Repos No Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 (f) reverse repurchase agreements -Reverse repos Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 (g) units or shares of other MMFs -Shares issued by other MMFs Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 44 Table 14 Net outflows (%) Professional investor 20 Retail investor 10 45 6 Appendix A. Example of stress combining the various factors mentioned in sections 4.2 to 4.7 with investors’ redemption requests A practical example of one possible implementation of the section “Combination of the various factors mentioned in the following sections 4.2 to 4.7 with investors’ redemption requests” is given below. The table below estimates the losses incurred by the MMF in the event of redemptions or market stress (credit or interest rate shocks). First scenario: credit premium shock of 25 bps Second scenario: interest rate shock of 25 bps Three largest Very stable investors investors (25%) (15%) ↓ ↓ Redemptions 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Initial 11 12 2 bps 3 bps 5 bps 6 bps 8 bps 9 bps portfolio bps bps First 13 18 24 32 45 66 110 236 7 bps 9 bps scenario bps bps bps bps bps bps bps bps Second 12 16 21 28 38 85 3 bps 4 bps 6 bps 9 bps scenario bps bps bps bps bps bps WAL (days) 105 117 131 149 169 192 219 249 290 320 This stress test shows that a redemption by the three largest investors (25% of net assets) would push the weighted average life (WAL) beyond the 120-day regulatory threshold (for a short-term money market fund) and cause the portfolio to lose in the region of 2-3 bps under normal conditions. The same level of cumulative redemptions with a 25 bps rise in credit premium would cause a loss of around 13-18 bps. 46 B. Example of redemptions based on an investor behaviour model, in accordance with the breakdown of liabilities by investor category. This implies the simulation of the behaviour of each type of investor and establishes a simulation based on the composition of the liabilities of the MMF. Example of investor Record redemptions for this classification and simulation investor type of their behaviour (the figures shown are not real): Investor type Over one Over one week Over one day month Large institutional 25% 75% 100% Group entity 20% 40% 40% (bank, insurance, own account) Investment fund 20% 65% 100% Small institutional 10% 25% 40% Private banking 15% 40% 75% network Retail investor 5% 10% 20% with distributor A Retail investor 7% 15% 20% with distributor B Stressed redemptions for this investor category Large institutional 75% Group entity 0% (bank, insurance, (in agreement own account) with the AMC) Investment fund 65% Small institutional 25% Private banking 40% network Retail investor 10% with distributor A Retail investor 15% with distributor B In order to build such a simulation of this kind, the manager needs to make assumptions about the behaviour of each investor type, based in part on historical redemptions. In the example above, the manager has noted that the retail investors who invested through distributor A are historically slower to exit in the event of difficulty, but that they exhibit the same behaviour over one month as retail investors who invested through distributor B. This fictitious example shows 47 a possible classification that the manager may use based on the data available on the liabilities of the MMF and the behaviour of its investors. C. Examples of global stress test scenarios that the manager could consider: i. the Lehman Brothers’ event with the calibration of all relevant factors one month ahead of the failure of this firm; ii. A) a scenario including a combination of the 3 following factors: i) a parallel shift in interest rate (x) ii) a shift in credit spreads (y) and iii) a redemption stress (z)); iii. B) a scenario including a combination of the 3 following factors: i) a parallel shift in interest rate (x) ii) a shift in credit spreads (y) and iii) a redemption stress (z)) Variables x, y and z being the worst figures/shifts experienced by the fund, on an independent basis, for the last 12 months. 48