New Rule Would Limit MMF Investments In Low-Rated NCDs: Press

     BEIJING (MNI) - Regulators are considering implementing a new rule that

would limit money market funds' investments in low-rated negotiable certificates

of deposit (NCDs), according to a report in the Securities Times.

     The new rule would prohibit MMFs from investing in NCDs issued by banks

whose ratings are lower than "AA+", and no more than 10% of any MMF's

investments in NCDs could go toward NCDs rated lower than "AAA". 

     In addition, the new rule would require that NCDs, bonds, and deposits of a

bank owned by a single MMF managing company could not comprise more than 10% of

the net assets of the bank.

     Analysts said the new rule would not lead to a slowdown in the development

of money market funds.

     "More limits on the investments of money market funds will have a negative

impact on the yields money market funds can offer," Zhou Guannan and Chen Jing,

analysts at Hua Chuang Securities, said in a research note on Friday. "However,

the yields of money market funds still have a big advantage compared with

checking account deposits, so the scale of money market funds will not be

affected."

     But the new regulation would have a negative influence on low-rated banks,

they said.

     "The new regulation would cause small banks to have a more difficult time

to issue NCDs, which would cause yields to go up and raise the financing costs

of small banks," Zhou and Chen said. "The new regulation shows regulators'

worries about the risks of small banks, and indirectly restricts the banks'

ability to sell NCDs in order to conduct leveraged investments, which is also a

signal that regulators will further crack down on such activities."

--MNI Beijing Bureau; +86 10 85325998; email: he.wei@marketnews.com

--MNI Beijing Bureau; +86 (10) 8532-5998; email: vince.morkri@marketnews.com

[TOPICS: M$A$$$,M$Q$$$]