(1)(a) of the MMF Regulation (hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF) Policy Objective The MMF Regulation specifies that one of the risk factors that must be taken into consideration in the stress test scenarios is: a. hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF Baseline scenario The baseline scenario should be understood for this CBA as the application of the requirements in the Level 1 Regulation (i.e. the provisions of Article 28 of the MMF Regulation) without any 20 further specification, except those mentioned in sections 4.1 to 4.6 of the published Guidelines on MMF stress tests. This would leave discretion to managers of MMF to determine the definition of risk factors, calculation methodologies and presentation of results of the stress tests in the reporting template referred to in Article 37 of the MMF Regulation. This could clearly lead to a lack of harmonisation in the application of the provisions of the MMF Regulation across the MMF industry on a potentially sensitive issue. Indeed, uncertainty on the abovementioned requirement could lead to a situation where some MMFs or competent authorities of Member States would apply a stricter approach than others on the choice of the calculation methodologies and on the presentation of results of the stress tests, leading to greater uncertainty for investors of MMFs in the different Member States and lack of comparability of results. Options With respect to hypothetical changes in the level of liquidity of the assets held in the portfolio, the two options that are suggested could include: Option 1: Calibrated discount factor • The asset manager will apply the discount factors calibrated by ESMA to reflect the increase in liquidity premia due to deterioration of market liquidity conditions in a stress scenario. • For each relevant security (i.e. corporate and government bonds), the discount factors should be applied to the bid prices used for the valuation of the fund at the time of the reporting, according to their type and maturity (see Table A and Table B), to derive an adjusted bid price (𝑩𝒊𝒅𝒂𝒅𝒋 ): 𝑩𝒊𝒅𝒂𝒅𝒋 = (𝟏 − 𝒍𝒊𝒒𝒖𝒊𝒅𝒊𝒕𝒚 𝒅𝒊𝒔𝒄𝒐𝒖𝒏𝒕) ∗ 𝑩𝒊𝒅 𝒑𝒓𝒊𝒄𝒆 • The asset managers should estimate the impact of the potential losses by valuing investment portfolio at the derived adjusted bid price, 𝑩𝒊𝒅𝒂𝒅𝒋 , to determine the Stressed NAV and report the impact as a percentage of the reporting NAV: 21 𝑨𝒔𝒔𝒆𝒕 𝒍𝒊𝒒𝒖𝒊𝒅𝒊𝒕𝒚 𝒓𝒊𝒔𝒌 𝒊𝒎𝒑𝒂𝒄𝒕 (%) 𝑹𝒆𝒑𝒐𝒓𝒕𝒊𝒏𝒈 𝑵𝑨𝑽 − 𝑺𝒕𝒓𝒆𝒔𝒔𝒆𝒅 𝑵𝑨𝑽 = ∗ 𝟏𝟎𝟎 𝑹𝒆𝒑𝒐𝒓𝒕𝒊𝒏𝒈 𝑵𝑨𝑽 Option 2: Multiple quoted bid-ask spread • For each relevant security (i.e. corporate and government bonds), the manager of the MMF should consider the quoted bid and ask prices observed in an active market at the time of the reporting. • For each security, the stressed bid-ask spread should be calculated by multiplying the quoted bid-ask spread observed in an active market at the time of the reporting, as a percentage of the actual price, by fixed stress test factor specific to each type of asset considered (e.g. corporate and sovereign bonds). 𝑺𝒕𝒓𝒆𝒔𝒔𝒆𝒅 𝒃𝒊𝒅 ̵ 𝒂𝒔𝒌 = 𝑸𝒖𝒐𝒕𝒆𝒅 𝒃𝒊𝒅 ̵ 𝒂𝒔𝒌 𝒔𝒑𝒓𝒆𝒂𝒅 ∗ 𝑨𝒔𝒔𝒆𝒕 ̵ 𝒄𝒍𝒂𝒔𝒔 𝒔𝒕𝒓𝒆𝒔𝒔 𝒇𝒂𝒄𝒕𝒐𝒓 • As trading costs could become substantial in times of heightened stress and illiquidity, the asset-class specific stress factor should reflect the maximum loss due to the unfavourable liquidity condition for each relevant asset class (i.e. corporate and government bonds). • The potential loss in case of forced liquidation should be then computed as the average of the Stressed bid-ask spread weighted by the asset's proportion in the portfolio. Preferred Option ESMA will proceed with option 1 which limits the risk of inconsistency compared to option 2 by providing directly the discount factor. Furthermore, option 1 has been revised to improve consistency and minimise implementation costs by referring to other existing regulatory requirements. It now refers to valuation price instead of bid price. Such valuation price shall be consistent with use of the cautious valuation in line with Article 29

(3)(a). 2.2.

(1)(b) of the MMF Regulation (hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF) 22 Policy Objective Options b. The MMF Regulation specifies that one of the risk factors that must be taken into consideration in the stress test scenarios is:hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events; With respect 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, the two options that are suggested could include: Option 1: Base the stress test on credit spread to the extent possible: • For each security, managers of MMFs should apply the multiplying factor communicated by ESMA. • For each security, managers of MMFs should translate the corresponding change in spread into a haircut. • Managers of MMFs should measure the impact of the cumulated haircuts in percentage of NAV. Option 2: MMFs should measure the impact of an increase in credit spread, according to the following rules: • For each security, managers of MMFs should apply the increase in spread communicated by ESMA. • If no spread is available for an instrument, managers of MMFs should use the shock on the reference index given by ESMA. • For each security, managers of MMFs should translate the corresponding change in spread into a haircut. • Managers of MMFs should measure the impact of the cumulated haircuts in percentage of NAV. Additional Option: Managers of MMFs should also simulate the default of their two main exposures. The resulting impact on NAV would then be reported. Preferred Option ESMA preferred option is option 2, and the additional option, which limits the risk of inconsistency and the cost of implementation by using the same parameters communicated by ESMA. 23 2.3.

(1)(c)(e) of the MMF Regulation (hypothetical movements of the interest rates and exchange rates and hypothetical widening or narrowing of spreads) Policy Objective c. The MMF Regulation specifies that one of the risk factors that must be taken into consideration in the stress test scenarios is:hypothetical movements of the interest rates and exchange rates; e. hypothetical widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied Options With respect to hypothetical movements of the interest rates and exchange rates, and the hypothetical widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied, managers of MMFs should apply stressed market parameters, according to the following rules: • Managers of MMFs should use the parameters published by ESMA: Interest rate yield shocks. Government bond yield shocks; FX shocks. • For fixed‐rate instruments, managers of MMFs should use the same reference rate curve for all instruments denominated in a given currency, originated at the same time, and the reference rate tenor should align with the original maturity of the instrument. For floating rate instruments, instruments may be contractually linked to a particular reference rate, in which case this rate is used as the reference rate instead. • Managers of MMFs should revaluate their portfolio considering the new parameters separately: Interest rates, exchange rates, bond yields; and express the impact of each risk factor in percentage of NAV. Preferred Option ESMA will proceed with the proposed option. The scenario will provide granular data points by currency and maturity to facilitate the implementation. Responses to the consultation indicated that the impact of the interest rate scenario and the “widening or narrowing of spreads 24 among indices to which interest rates of portfolio securities are tied” scenario may be identical. 2.4.

(1)(d) of the MMF Regulation (hypothetical levels of redemption) Policy Objective Options d. The MMF Regulation specifies that one of the risk factors that must be taken into consideration in the stress test scenarios is:hypothetical levels of redemption; With respect to hypothetical levels of redemption, the two options that are suggested could include: Option 1: MMF faces high weekly redemption requests from both institutional investors and retail investors. The stress test will assess the ability of the fund to meet the redemption pressures in two ways: 1) Reverse liquidity stress test: self-assessment of the maximum size of outflows the fund can face without distorting portfolio allocation. 𝐑𝐞𝐬𝐮𝐥𝐭 (%) = 𝐒𝐥𝐢𝐜𝐞 𝐨𝐟 𝐭𝐡𝐞 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐭𝐡𝐚𝐭 𝐜𝐚𝐧 𝐛𝐞 𝐥𝐢𝐪𝐮𝐢𝐝𝐚𝐭𝐞𝐝 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐜𝐡𝐚𝐧𝐠𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 𝐖𝐞𝐞𝐤𝐥𝐲 𝐨𝐮𝐭𝐟𝐥𝐨𝐰𝐬 ∗ 𝟏𝟎𝟎 In that scenario: - Assets must be sold in a consistent proportion; - Weekly liquid assets requirements specified in Article 24

(1)should be met. 2) Weekly liquidity stress test: weekly outflows derived from the monthly outflows will be compared with available weekly liquid assets, considered as the sum of highly liquid assets and weekly maturing assets. 𝐑𝐞𝐬𝐮𝐥𝐭 (%) = 𝐖𝐞𝐞𝐤𝐥𝐲 𝐥𝐢𝐪𝐮𝐢𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐖𝐞𝐞𝐤𝐥𝐲 𝐨𝐮𝐭𝐟𝐥𝐨𝐰𝐬 ∗ 𝟏𝟎𝟎 25 Additional option: The MMF faces net redemption of its two main investors. The impact of the stress test should be assessed according to the reverse liquidity stress test and the weekly liquidity stress test methodology. Preferred Option ESMA will proceed with option 1 and the additional option. Nevertheless, the methodology of the weekly liquidity stress test has been revised to be more consistent with existing provisions (e.g. by using definitions from Articles 24 and 25) to facilitate the implementation and consistency of the stress test. Based on the consultation, the reverse stress test was also adjusted to be more flexible. In particular, ESMA has removed the requirement for MMFs to keep the composition of their portfolio intact and request that they can only distort their portfolios to the extent that they respect regulatory requirements. 2.5.

(1)(f) of the MMF Regulation (hypothetical macro systemic shocks affecting the economy as a whole) Policy Objective Option Preferred Option e. The MMF Regulation specifies that one of the risk factors that must be taken into consideration in the stress test scenarios is:hypothetical macro systemic shocks affecting the economy as a whole; With respect to hypothetical macro systemic shocks affecting the economy as a whole, managers should: - Assess the impact of the redemption shock on weekly liquid assets; - Measure the combined impact of the different risk scenarios after redemption; - Report the result as a percentage of NAV; - Report the value of weekly liquid assets after stress as a percentage of NAV. ESMA decided to proceed with the proposed option. 26 The methodology has been revised to address issues related to the redemption component of the scenario, including the sequencing.

1. Assessment of the impact of the various options
2. Hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF Option 1 Qualitative description Benefits The two methods proposed are both implicitly based on the assumption that an asset can be liquidated by paying to the liquidity provider a price for immediacy, i.e. a fair discount. The liquidity discount, that is the reduction in the value of an asset by due to the worsened liquidity conditions, is an increasing function of the cost of trading and inversely related to the average holding period of an asset. However, the first factor plays a more relevant role as the MMFs and short-term MMFs portfolios are composed of short-term instruments. Under normal market conditions, it is common practice to refer to a price within the bid-ask spread as the most representative of fair value i.e. the price that would be received to sell an asset (IFRS13). Moreover, the IAS39 indicates that the price used for measuring the fair value of an asset should be adjusted in case of a significant change in economic circumstances and reflect then the amount that an entity would receive in abnormal conditions (e.g. forced transaction, involuntary liquidation or distress sale). In case of stress, the mid-market price of an instrument can remain stable even when the bid-ask widens and no transaction can occur because of the absence of a buyer and/or the lack of marketability. The potential loss would be instead reflected in a lower bid price than the one available under normal conditions in an active market. Calibrating the liquidity discount consistently with the assessment of prevailing sources of (systemic) risk for the EU financial system allows to better gauge the effects of asset liquidity risk under an extreme but plausible stress scenario. The discount would then be applied to the price used for valuation, in line with the rules set at art. 29

(3)(a). 27 Costs Respondents point out data availability constraints and database cost. ESMA believes this cost is more associated with option

1. Option 1 is unlikely to lead to significant implementation costs to the extent that the discount is provided by ESMA and the implementation requires little computation. Option 2 Qualitative description Benefits The two methods proposed are both implicitly based on the assumption that an asset can be liquidated by paying to the liquidity provider a price for immediacy, i.e. a fair discount. The liquidity discount is an increasing function of the transaction costs and a decreasing function of the average holding period. However, the first factor plays a more relevant role as the MMFs and short-term MMFs portfolios are composed of short-term instruments. The use of the prevailing bid-ask spread considers the current market conditions, thus improving the plausibility of the scenario. Costs Compared to option 1, option 2 may lead to some additional costs in the form of data collection and computation based on internal models. In addition, there is a higher risk of inconsistency compared to option 1 which may incur additional cost for supervisors and reporting entities to achieve compliance.
2. Hypothetical changes in the level of credit risk of the assets held in the portfolio of the MMF, including credit events and rating events Option 1 Qualitative description Benefits Credit spreads represent the price of credit risk on the market. Thus, they can measure the short-term value loss of a portfolio. 28 Using a multiplying factor considers the current market conditions and thus reflect the risks prevailing at the moment of the stress. Costs The proposed approach may lead to some additional costs in the form of computation based on internal models, with a risk of heterogeneity of the results. Eventually, inconsistent results may incur additional cost for supervisors and reporting entities to achieve compliance. Option 2 Qualitative description Benefits Credit spreads represent the price of credit risk on the market. Thus, they can measure the short-term value loss of a portfolio. ESMA may provide the credit spreads for a wide range of securities, thus improving the consistency of the approach. Costs ESMA is providing detailed parameters for governments (by country and residual maturity) and corporate (by sector and rating) assets. In terms of cost it implies that the cost of acquiring additional data should be reduced. The proposed approach may lead to some additional costs in the form of computation based on internal models. However, the scenario remains simple with only one parameter to input. Additional option Qualitative description Benefits Assessing the default of the two main counterparties would add a dimension of concentration risk to the scenario. It will especially assess risks related to concentration and credit risk stemming from assets which do not have a credit spread. Costs The proposed approach is unlikely to lead to significant additional costs due to the simplicity of the assumption.
3. Hypothetical movements of the interest rates and exchange rates. Hypothetical widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied 29 Option 1 Qualitative description Benefits MMFs are exposed to interest rates risks, exchange rate and the movement of indices to which interest rates of portfolio securities are tied. Moreover, the scenario approved by the ESRB allows testing specifically the impact of a movement in the short part of the swap curve to which MMFs are exposed. Assessing such risks is therefore relevant in the context of MMF stress tests. Costs The proposed approach may lead to some additional costs in the form of computation based on internal models. However, the scenarios remain simple with only one parameter to input. Moreover, when the impact of the interest rate scenario and the “widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied” scenario are identical managers will be allowed not to report the result of the “widening or narrowing of spreads among indices to which interest rates of portfolio securities are tied” scenario, thus reducing the cost of implementation.
4. Hypothetical levels of redemption Option 1 Qualitative description Benefits Specifying outflows over a certain time horizon challenges MMFs capability to face redemption pressures in a short period of time. Liquidating positions without distorting portfolio allocation requires a technique known as slicing, whereby the same percentage of each asset type (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. Using a reverse stress test and a weekly liquidity stress test captures both the slicing and bucketing approaches. Finally, using a self-assessment for the reverse stress test compensate for the weights imposed in the weekly liquidity stress test, and vice-versa. Costs The weekly liquidity stress test is a new approach for managers, thus potentially generating implementation costs. Following the 30 consultation, the methodology of the weekly liquidity stress test has been revised to be more consistent with existing provisions (e.g. by using definitions from articles 24 and 25) to facilitate the implementation and consistency of the stress test. Improving consistency with existing definitions should also reduce the implementation cost. The self-assessment of the reverse stress test may lead to some additional costs. Following the consultation, the reverse stress test was adjusted to make it more flexible and in line with the reality. For that reason, we have removed the requirement for MMFs to keep the composition of their portfolio intact and request that they only distort their portfolios “to an extent acceptable”. Additional option Qualitative description Benefits MMFs may face difficulties if their investor base is concentrated. Assessing the redemption from the two main investors would add a dimension of concentration risk to the scenario Costs The proposed approach should not lead to significant additional costs due to the simplicity of the assumption.
5. Hypothetical macro systemic shocks affecting the economy as a whole. Option 1 Qualitative description Benefits Considering that a macro systemic shock may spread to all risk factors, ESMA proposes to keep the methodology simple for the first version of the guidelines and to ask the managers to report the combined impact of the different risk scenarios, including the redemption shock. In other words, they would be asked to use the same parameters they used for the different scenarios, but in a combined fashion. 31 In future version of the guidelines, ESMA may develop an ad hoc multi-variate scenario, with stressed parameters different from the individual scenarios. It may especially include a narrative, i.e. simulate the impact of a stress event. Costs The hypothetical macro systemic shock is the most sophisticated scenario since the combined impact is expected to be different from the sum of the stress test results of all individual risk factors. It shall rely on internal models. To minimize the cost of implementation and the risk of inconsistency, the scenario has been kept simple. Moreover, managers will have more time for the first reporting of the results. 32 3.2 Annex II (updates in red indicate additional text added which constitutes the 2019 update to the ESMA34-49-115 Guidelines) 1 Scope Who?
6. These guidelines apply to competent authorities, money market funds and managers of money market funds as defined in the MMF Regulation
7. What?
8. 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?
9. 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). 4 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). 33 2 Purpose
10. 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:

1. a)hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF;
2. 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;
3. c)hypothetical movements of the interest rates and exchange rates;
4. d)hypothetical levels of redemption;
5. e)hypothetical widening or narrowing of spreads among indexes to which interest rates of portfolio securities are tied;
6. f)hypothetical macro systemic shocks affecting the economy as a whole. 5. 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 2019, the section 4.8 of these guidelines is in particular updated so that managers of MMFs have the information needed to fill in the corresponding fields in the reporting template referred to mentioned in Article 37 of the MMF Regulation, as specified by Commission Implementing Regulation (EU) 2018/7085. This information includes specifications on the types of the stress tests mentioned in this section 4.8 and their calibration 34 3 Compliance and reporting obligations 3.1 Status of the guidelines 6. 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. 7. 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 8. 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 (

1. i)comply, (
2. ii)do not comply, but intend to comply, or (iii) do not comply and do not intend to comply with the guidelines. 9. 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. 10. A template for notifications is available on ESMA’s website. Once the template has been filled in, it shall be transmitted to ESMA. 35 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 11. 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”. 12. 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. 13. 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

1. i)the portfolio or net asset value of the MMF and
2. ii)the liquidity bucket(
3. 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. 36 14. With respect to liquidity, it is to be noted that liquidity risk may result from: (

1. i)significant redemptions; (
2. ii)deterioration of the liquidity of assets; or (iii) a combination of the two. Historical scenarios and hypothetical scenarios 15. With respect to both stress test scenarios on
3. i)the portfolio or net asset value of the MMF and
4. ii)the liquidity bucket(
5. 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. 16. 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. 17. 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. 18. 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. 19. 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 20. 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. 37 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 21. 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 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

1. 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.
2. In that context, some hypothesis on the behaviour of the manager with regard to honouring the redemption requests could be required.
3. A practical example of one possible implementation is given in Appendix. Stress tests in the case of CNAV and LVNAV MMFs
4. 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 38 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

1. 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.
2. 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). 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
3. 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.

1. 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 39 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
2. 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.

1. 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.
2. 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.
3. 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.
4. 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 40 4.4 Guidelines on stress test scenarios in relation to hypothetical movements of the interest rates and exchange rates
5. 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).

1. 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. 4.5 Guidelines on stress test scenarios in relation to hypothetical levels of redemption
2. With respect to the levels of redemption mentioned in Article 28

(1)(

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. 38. Stress tests on redemptions should include the specific measures which the MMF has the constitutional power to activate (for instance, gates and redemption notice). 39. 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 41 many ways to test liabilities and redemptions. Examples of significant redemption scenarios include
2. i)redemptions of a percentage of the liabilities
3. ii)redemptions equal to the largest redemptions ever seen iii) redemptions based on an investor behaviour model. 40. 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. 41. 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 type (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). 42. 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). 43. 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. 44. A practical example of one possible implementation is given in Appendix. 42 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 45. 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 46. 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.

1. 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.
2. 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) 49. 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. 43 4.8.1 Level of changes of liquidity 50. With respect to the level of changes of liquidity of the assets mentioned in Article 28

(1)(a) of the MMF Regulation: • Managers of MMFs should apply the discount factors specified in section 5 of the guidelines 6 to reflect the increase in liquidity premia due to deterioration of market liquidity conditions in a stress scenario. For each relevant transferable security, the discount factors should be applied to the price used for the valuation of the fund at the time of the reporting (𝐕𝐏𝐫𝐢𝐜𝐞) in accordance with Article 29

(3)(a), according to their type and maturity, to derive an adjusted price (𝐕𝐏𝐫𝐢𝐜𝐞𝐚𝐝𝐣 ): • 𝐕𝐏𝐫𝐢𝐜𝐞𝐚𝐝𝐣 = (𝟏 − 𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭) ∗ 𝐕𝐏𝐫𝐢𝐜𝐞 • The impact of the liquidity discount should be evaluated for the following assets: Sovereign Bonds, Corporate Bonds, Commercial Papers, ABCPs and eligible securitisations. The manager of the MMF should estimate the impact of the potential losses by valuing the investment portfolio at the derived adjusted price, 𝐕𝐏𝐫𝐢𝐜𝐞𝐚𝐝𝐣 , to determine the stressed NAV and calculate the impact as a percentage of the reporting NAV: • 𝐀𝐬𝐬𝐞𝐭 𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐫𝐢𝐬𝐤 𝐢𝐦𝐩𝐚𝐜𝐭 (%) = 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 − 𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 Notes: The following assets should be stressed: • Sovereign bonds, with a break down at country level; • Corporate bonds, distinguishing at least between investment grade and high yield instruments; • Commercial Papers, ABCPs and eligible securitisations, using the corporate bond parameters. The calibration is available in section 5 of the Guidelines. 6 The discount factor is calibrated on bid-ask spreads. 44 4.8.2 Level of change of credit risk 51. 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: 1) Credit spread stress test

1. 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. • • 𝐂𝐫𝐞𝐝𝐢𝐭 𝐫𝐢𝐬𝐤 𝐢𝐦𝐩𝐚𝐜𝐭 (%) = 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 − 𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 2) Concentration stress test
2. 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: 𝐂𝐨𝐧𝐜𝐞𝐧𝐭𝐫𝐚𝐭𝐢𝐨𝐧 𝐫𝐢𝐬𝐤 𝐢𝐦𝐩𝐚𝐜𝐭 (%) = 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 − 𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 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. 45 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
3. With respect to the levels of change of the interest rates and exchange rates referred to in Article 28

(1)(

1. c)of the MMF Regulation, managers of MMFs should apply the following stressed market parameters using the parameters specified in section 5 of the guidelines in respect of (
2. 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 55. 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 56. 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 57. 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: 46 • • • 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

1. Managers of MMFs should revaluate 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: 𝐑𝐢𝐬𝐤 𝐟𝐚𝐜𝐭𝐨𝐫 𝐢𝐦𝐩𝐚𝐜𝐭 (%) = 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 − 𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 Notes: The calibration is available in section 5 of the Guidelines. 47 4.8.4 Levels of redemption
2. 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

1. 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 (%) = 𝐍𝐀𝐕 Notes: • 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 value
2. • 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: 7 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, For its definition, see the Guidelines on reporting obligations under Articles 3

(3)(d) and 24

(1),

(2)and

(4)of the AIFMD 48 Maximum weighted average maturity (WAM); Maximum weighted average life (WAL), daily maturing assets; and weekly maturing assets. • 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: 61. 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 25% of the professional investors and 15% 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)8 of the MMF Regulation which are highly liquid and can be redeemed and settled within one working day and have a residual maturity of up to 190 days. 24 (

1. e)1 Cash which is able to be withdrawn by giving prior notice of five working days without penalty. 24 (
2. e)25 (
3. d)Weekly maturing assets Reverse repurchase agreements which are able to be terminated by giving prior notice of five working days 24 (
4. e)25 (
5. d)24 (
6. e)25 (
7. d)x100% = Weekly liquid assets (bucket 1) Assets referred to in Article 17

(7)of the MMF Regulation which can be redeemed and settled within one working week. 17

(7)1,2 Money market instruments or units or shares of other MMFs which they are able to be redeemed and settled within five working days. 24 (e) 25 (e) 1,2 Eligible securitisations (ABCPs). 9

(1)(b) 1 and asset-backed commercial paper x85% = Weekly liquid assets (bucket 2) 8 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. 49 • Managers of MMFs should calculate the coverage of outflows by weekly liquid assets as a percentage in the following way: 𝐑𝐞𝐬𝐮𝐥𝐭 (%) = 𝐖𝐞𝐞𝐤𝐥𝐲 𝐥𝐢𝐪𝐮𝐢𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐖𝐞𝐞𝐤𝐥𝐲 𝐨𝐮𝐭𝐟𝐥𝐨𝐰𝐬 Notes: • 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/

1. • • 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 asset classes 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
2. 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. 𝐑𝐞𝐬𝐮𝐥𝐭 (%) = 𝐖𝐞𝐞𝐤𝐥𝐲 𝐥𝐢𝐪𝐮𝐢𝐝 𝐚𝐬𝐬𝐞𝐭𝐬 𝐈𝐧𝐯𝐞𝐬𝐭𝐞𝐝 𝐚𝐦𝐨𝐮𝐧𝐭 𝐨𝐟 𝐭𝐡𝐞 𝐭𝐰𝐨 𝐦𝐚𝐢𝐧 𝐢𝐧𝐯𝐞𝐬𝐭𝐨𝐫𝐬 Note: The calibration is available in section 5 of the Guidelines. 9 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 50 4.8.5 Macro-systemic shocks affecting the economy as a whole
3. With respect to the identification of macro-systemic shocks affecting the economy as a whole referred to in Article 28

(1)(

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 Market shock Redemption shock Results Memo Parameters used for the calibration • FX Rate • EUR/USD etc. • Interest Rate • Swap rate • Credit • Gov. bond yields/ spreads • Spread among indices to which interest rates of portfolio securities are tied • Corp. bond yields/ spreads • Level of Redemption • % outflows • Asset liquidity • Bid/ask factor) • % NAV • Weekly liquid assets/ outflows • % outflows spread (discount 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 51 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. 15% from retail investors and 25% from professional investors. • 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, the outflows 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. 52 5 Calibration for 2019 64. The following section includes the 2019 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. 65. If managers need a parameter that is not indicated in this section, they may consult the adverse scenario on the ESRB website10. 10 https://www.esrb.europa.eu/mppa/stress/shared/pdf/esrb.stress_test190402_EIOPA_insurance~c5c17193da.en.pdf?172d96eff093ab8ed90c1 8efd3cf979f 53 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 Typical assets Eligible assets Liquidity -Certificate of deposit (CD) Stressed Yes Parameters Table 3 -Commercial Paper (CP) Yes Table 3 -Government bonds, treasury and local authority bills Yes Table 1,2 -Corporate bonds Yes Table 3 (
2. b)eligible securitisations and asset-backed commercial paper (ABCPs) -Eligible securitisations Yes Table 3 -ABCPs Yes Table 3 (
3. c)deposits with credit institutions -Deposits, of which time deposits -Financial derivative instruments dealt in on a regulated market -Financial derivative instruments dealt OTC No (
4. e)repurchase agreements -Repos No (
5. f)reverse repurchase agreements -Reverse repos No (
6. a)money market instruments (
7. d)financial derivative instruments (
8. g)units or shares of other MMFs -Shares issued by other MMFs No No Yes Extrapolation of the results to shares issued by other MMFs 54 Table 1 Table 2 Liquidity discount factor - Sovereign bonds by residual maturity - Reference countries (in %) 3M DE ES FR IT NL 0.06 0.23 0.05 0.47 0.04 6M 0.14 0.44 0.10 0.62 0.04 1Y 0.20 0.70 0.19 0.63 0.15 1.5Y 0.20 0.72 0.24 0.64 0.18 Liquidity discount factor - Sovereign bonds by rating and residual maturity (in %) 2Y AAA AA A BBB 0.20 0.75 0.30 0.65 0.20 Below BBB or unrated 3M 0.05 0.07 0.13 0.47 0.61 6M 0.09 0.18 0.25 0.55 0.72 1Y 0.18 0.32 0.70 0.70 0.82 1.5Y 0.19 0.42 0.72 0.72 0.94 2Y 0.20 0.53 0.75 0.75 0.98 Table 3 Liquidity discount factor - Corporate bonds by rating and residual maturity (in %) AAA AA A BBB Below BBB or unrated 3M 0.15 0.23 0.43 1.50 1.96 6M 0.28 0.56 0.79 1.77 2.30 1Y 0.56 1.02 2.24 2.24 2.91 1.5Y 0.60 1.35 2.32 2.32 2.95 2Y 0.64 1.69 2.40 2.40 2.99 55 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 -Certificate of deposit (CD) Credit (credit spreads) Stressed Parameters Yes Table 5 -Commercial Paper (CP) Yes Table 5 Yes Table 6 -Government bonds, treasury and local authority bills Yes Table 4 Yes Table 6 -Corporate bonds Yes Table 5 Yes Table 6 (
9. b)eligible securitisations and assetbacked commercial paper (ABCPs) -Eligible securitisations Yes Table 5 Yes Table 6 -ABCPs Yes Table 5 Yes Table 6 (
10. c)deposits with credit institutions -Deposits, of which time deposits -Financial derivative instruments dealt in on a regulated market -Financial derivative instruments dealt OTC No No No No No No (
11. e)repurchase agreements -Repos No No (
12. f)reverse repurchase agreements -Reverse repos No MMFR Typical assets Eligible assets (
13. a)money market instruments (
14. d)financial derivative instruments (
15. g)units or shares of other MMFs -Shares issued by other MMFs Yes Credit (2 main counterparties) Parameters Stressed Yes Table 6 No Extrapolation of the results to shares issued by other MMFs Yes Extrapolation of the results to shares issued by other MMFs 56 Table 4: Shocks to government bond credit spreads Credit Spread by residual maturity - Government bonds (basis points) Geographic Area EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EU EA (weighted averages) EU (weighted averages) EEA US JP Other advanced economies Emerging markets Country Austria Belgium Croatia Cyprus Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Latvia Lithuania Malta Netherlands Poland Portugal Romania Slovakia Slovenia Spain Sweden United Kingdom EA (weighted averages) EU (weighted averages) 3M 6M 1Y 2Y 12 11 3 49 85 12 13 12 3 55 95 13 16 14 3 71 125 16 20 22 4 71 125 17 EEA (including Switzerland) United States Japan Other advanced economies 8 13 5 67 69 56 58 3 9 24 9 85 23 23 21 35 65 42 38 25 30 30 44 85 42 8 14 5 75 77 62 65 3 9 26 10 95 25 26 23 39 73 46 42 27 33 33 48 95 52 9 17 5 98 101 81 85 3 11 33 12 125 31 32 30 50 95 60 54 35 42 42 61 127 77 13 23 5 114 121 84 102 19 24 41 15 125 66 48 34 58 113 60 79 42 44 44 75 141 78 Emerging markets 50 85 161 161 57 Table 5: Shocks to corporate bond and ABS credit spreads (all maturities) Corporate credit spreads (basis points) Rating Non-financial Financial covered Financial ABS 39 40 41 66 78 91 103 44 52 113 163 188 213 237 57 63 124 180 204 234 269 76 96 116 160 208 238 270 AAA AA A BBB BB B Below B or unrated Table 6: Loss given default Loss given default (%) Senior exposure Subordinated exposure 45 75 58 5.3 Common reference parameters of the stress test scenarios in relation to hypothetical movements of the interest rates Scope of the scenario MMFR Typical assets Eligible assets IR (Interest rate swap) Stressed Parameters -Certificate of deposit (CD) Yes Table 6, 7 -Commercial Paper (CP) Yes Table 6, 7 -Government bonds, treasury and local authority bills Yes Table 6, 7 -Corporate bonds Yes Table 6, 7 (
16. b)eligible securitisations and asset-backed commercial paper (ABCPs) -Eligible securitisations Yes Table 6, 7 -ABCPs Yes Table 6, 7 (
17. c)deposits with credit institutions -Deposits, of which time deposits -Financial derivative instruments dealt in on a regulated market -Financial derivative instruments dealt OTC Yes Table 6, 7 Yes Table 6, 7 Yes Table 6, 7 (
18. e)repurchase agreements -Repos No (
19. f)reverse repurchase agreements -Reverse repos Yes Table 6, 7 Yes Extrapolation of the results to shares issued by other MMFs (
20. a)money market instruments (
21. d)financial derivative instruments (
22. g)units or shares of other MMFs -Shares issued by other MMFs 59 Table 6: Shocks to swap rates Geographic Area EU EU EU EU EU EU EU EU EU Rest of Europe Rest of Europe Rest of Europe Rest of Europe North America North America Australia and Pacific South and central America South and central America South and central America Asia Asia Asia Asia Asia Asia Asia Asia Africa Country Euro Area Croatia Czech Republic Denmark Hungary Poland Romania Sweden United Kingdom Norway Russia Switzerland Turkey Canada US Australia Chile Colombia Mexico China Hong Kong India Japan Korea Malaysia Singapore Thailand South Africa Interest rate yield shocks absolute changes (basis points) Description Interest rate SWAP on the EUR (Euro) Interest rate SWAP on the HRK (Croatian Kuna) Interest rate SWAP on the CZK (Czech Koruna) Interest rate SWAP on the DKK (Danish Krone) Interest rate SWAP on the HUF (Hungarian Forint) Interest rate SWAP on the PLN (Polish Zloty) Interest rate SWAP on the RON (Romanian Leu) Interest rate SWAP on the SEK (Swedish Krona) Interest rate SWAP on the GBP (British Pound) Interest rate SWAP on the NOK (Norwegian Krone) Interest rate SWAP on the RUB (Russian Ruble) Interest rate SWAP on the CHF (Swiss Franc) Interest rate SWAP on the TRY (Turkish Lira) Interest rate SWAP on the CAD (Canadian Dollar) Interest rate SWAP on the USD (US Dollar) Interest rate SWAP on the AUD (Australian Dollar) Interest rate SWAP on the CLP (Chilean Peso) Interest rate SWAP on the COP (Colombian Peso) Interest rate SWAP on the MXN (Mexican Peso) Interest rate SWAP on the CNY (Chinese Yuan) Interest rate SWAP on the HKD (Hong Kong Dollar) Interest rate SWAP on the INR (Indian Rupee) Interest rate SWAP on the JPY (Japanese Yen) Interest rate SWAP on the KRW (South Korean Won) Interest rate SWAP on the MYR (Malaysian Ringgit) Interest rate SWAP on the SGD (Singapore Dollar) Interest rate SWAP on the THB (Thai Baht) Interest rate SWAP on the ZAR (South African Rand) 1M 53 53 -4 53 74 25 153 26 98 20 122 31 197 46 93 33 206 162 245 13 208 263 9 134 90 116 164 10 3M 53 53 -4 53 74 25 153 26 98 20 122 31 197 46 93 33 206 162 245 13 208 263 9 134 90 116 164 10 6M 60 60 -4 60 83 28 172 30 110 22 137 35 221 51 105 37 232 183 276 14 235 296 10 150 101 130 184 11 1Y 80 80 -5 80 111 37 229 40 146 30 183 46 295 68 140 50 309 243 368 19 313 395 14 200 134 173 245 14 2Y 71 71 3 71 119 53 217 55 130 39 184 54 307 70 125 62 376 276 360 17 320 394 19 209 153 176 257 25 60 Table 7 Shocks to swap rates (default values for countries not included in table 6) Interest rate yield shocks absolute changes (basis points) Geographic Area EU Other advanced economies Other emerging markets Description Default value for countries not included in table 6 Default value for countries not included in table 6 Default value for countries not included in table 6 1M 59 39 231 3M 59 39 231 6M 66 44 260 1Y 89 59 346 2Y 88 66 363 61 5.4 Common reference parameters of the stress test scenarios in relation to hypothetical movements of the exchange rates Scope of the scenario MMFR Typical assets Eligible assets FX (Appreciation of the EUR) Stressed Parameters FX (Depreciation of the EUR) Parameters Stressed -Certificate of deposit (CD) Yes Table 8 Yes Table 9 -Commercial Paper (CP) Yes Table 8 Yes Table 9 -Government bonds, treasury and local authority bills Yes Table 8 Yes Table 9 -Corporate bonds Yes Table 8 Yes Table 9 (
23. b)eligible securitisations and assetbacked commercial paper (ABCPs) -Eligible securitisations Yes Table 8 Yes Table 9 -ABCPs Yes Table 8 Yes Table 9 (
24. c)deposits with credit institutions -Deposits, of which time deposits -Financial derivative instruments dealt in on a regulated market -Financial derivative instruments dealt OTC Yes Table 8 Yes Table 9 Yes Table 8 Yes Table 9 Yes Table 8 Yes Table 9 (
25. e)repurchase agreements -Repos No (
26. f)reverse repurchase agreements -Reverse repos Yes Table 8 Yes Extrapolation of the results to shares issued by other MMFs (
27. a)money market instruments (
28. d)financial derivative instruments (
29. g)units or shares of other MMFs -Shares issued by other MMFs No Yes Table 9 Yes Extrapolation of the results to shares issued by other MMFs 62 Table 8 FX shocks (appreciation of the EUR against the USD) relative changes (%) Geographic Area Description Exchange rate name EU EU EU EU EU EU EU EU EU EU Rest of Europe Rest of Europe Rest of Europe North America North America Australia and Pacific Australia and Pacific South and central America South and central America South and central America Asia Asia Asia Asia Asia Asia Asia Asia Africa USDBGN represents 1 USD per x BGN (Bulgarian Lev) EURCZK represents 1 EUR per x CZK (Czech Koruna) EURGBP represents 1 EUR per x GBP (British Pound) EURHRK represents 1 EUR per x HRK (Croatian Kune) EURHUF represents 1 EUR per x HUF (Hungarian Forints) USDNOK represents 1 USD per x NOK (Norwegian Krone) EURPLN represents 1 EUR per x PLN (Polish Zloty) EURRON represents 1 EUR per x RON (Romanian Leu ) EURRSD represents 1 EUR per x RSD (Serbian Dinar ) USDSEK represents 1 USD per x SEK (Swedish Krona) EURCHF represents 1 EUR per x CHF (Swiss Franc) EURRUB represents 1 EUR per x RUB (Russian Ruble) EURTRY represents 1 EUR per x TRY (Turkish Lira) USDCAD represents 1 USD per x CAD (Canadian dollar) EURUSD represents 1 EUR per x USD (US Dollar) AUDUSD represents 1 AUD per x USD (Australian Dollar) NZDUSD represents 1 NZD per x USD (New Zealand Dollar) USDARS represents 1 USD per x ARS (Argentine Peso) USDBRL represents 1 USD per x BRL (Brazilian Real) USDMXN represents 1 USD per x MXN (Mexican Peso) USDCNY represents 1 USD per x CNY (Chinese Yuan Renminbi) USDHKD represents 1 USD per x HKD (Hong Kong Dollar) USDINR represents 1 USD per x INR (Indian Rupee) USDJPY represents 1 USD per x JPY (Japanese Yen) USDKRW represents 1 USD per x KRW (South Korean Won) USDMYR represents 1 USD per x MYR (Malaysian Ringgit) USDSGD represents 1 USD per x SGD (Singapore Dollar) USDTHB represents 1 USD per x THB (Thai Baht) USDZAR represents 1 USD per x ZAR (South African Rand) USDBGN EURCZK EURGBP EURHRK EURHUF USDNOK EURPLN EURRON EURRSD USDSEK EURCHF EURRUB EURTRY USDCAD EURUSD AUDUSD NZDUSD USDARS USDBRL USDMXN USDCNY USDHKD USDINR USDJPY USDKRW USDMYR USDSGD USDTHB USDZAR Shock -25.4 -2.2 11.1 0.1 -5.2 -23.2 -1.5 0.0 -1.9 -25.4 3.7 10.1 13.5 -13.0 25.4 17.5 18.0 -0.8 -12.2 -7.9 -0.7 -0.1 -2.5 -8.7 -2.1 -2.3 -10.4 -2.3 -14.0 63 Table 9 FX shocks (depreciation of the EUR against the USD) relative changes (%) Geographic Area EU EU EU EU EU EU EU EU EU EU Rest of Europe Rest of Europe Rest of Europe North America North America Australia and Pacific Australia and Pacific South and central America South and central America South and central America Asia Asia Asia Asia Asia Asia Asia Asia Africa Description USDBGN represents 1 USD per x BGN (Bulgarian Lev) EURCZK represents 1 EUR per x CZK (Czech Koruna) EURGBP represents 1 EUR per x GBP (British Pound) EURHRK represents 1 EUR per x HRK (Croatian Kune) EURHUF represents 1 EUR per x HUF (Hungarian Forints) USDNOK represents 1 USD per x NOK (Norwegian Krone) EURPLN represents 1 EUR per x PLN (Polish Zloty) EURRON represents 1 EUR per x RON (Romanian Leu ) EURRSD represents 1 EUR per x RSD (Serbian Dinar ) USDSEK represents 1 USD per x SEK (Swedish Krona) EURCHF represents 1 EUR per x CHF (Swiss Franc) EURRUB represents 1 EUR per x RUB (Russian Ruble) EURTRY represents 1 EUR per x TRY (Turkish Lira) USDCAD represents 1 USD per x CAD (Canadian dollar) EURUSD represents 1 EUR per x USD (US Dollar) AUDUSD represents 1 AUD per x USD (Australian Dollar) NZDUSD represents 1 NZD per x USD (New Zealand Dollar) USDARS represents 1 USD per x ARS (Argentine Peso) USDBRL represents 1 USD per x BRL (Brazilian Real) USDMXN represents 1 USD per x MXN (Mexican Peso) USDCNY represents 1 USD per x CNY (Chinese Yuan Renminbi) USDHKD represents 1 USD per x HKD (Hong Kong Dollar) USDINR represents 1 USD per x INR (Indian Rupee) USDJPY represents 1 USD per x JPY (Japanese Yen) USDKRW represents 1 USD per x KRW (South Korean Won) USDMYR represents 1 USD per x MYR (Malaysian Ringgit) USDSGD represents 1 USD per x SGD (Singapore Dollar) USDTHB represents 1 USD per x THB (Thai Baht) USDZAR represents 1 USD per x ZAR (South African Rand) Exchange rate name USDBGN EURCZK EURGBP EURHRK EURHUF USDNOK EURPLN EURRON EURRSD USDSEK EURCHF EURRUB EURTRY USDCAD EURUSD AUDUSD NZDUSD USDARS USDBRL USDMXN USDCNY USDHKD USDINR USDJPY USDKRW USD