Final Report on Guidelines on stress test scenarios under the MMF Regulation

19 December 2023
ESMA50-43599798-9011
Final Report
Guidelines on stress test scenarios under the MMF Regulation

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 1
Table of Contents
1 Executive Summary ....................................................................................................3
2 Background.................................................................................................................5
3 Feedback on the consultation......................................................................................8
4 Annexes ....................................................................................................................13
4.1 Annex I...............................................................................................................13
4.2 Annex II – Guidelines on MMF stress tests ........................................................24
1 Scope........................................................................................................................24
2 Purpose.....................................................................................................................24
3 The Compliance and reporting obligations.................................................................26
3.1 Status of the guidelines ......................................................................................26
3.2 Reporting requirements......................................................................................26
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)...............................................................................................................27
4.1 Guidelines on certain general features of the stress test scenarios of MMF .......27
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 ...............................................30
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 .................................................................................................................30
4.4 Guidelines on stress test scenarios in relation to hypothetical movements of the
interest rates and exchange rates .................................................................................31
4.5 Guidelines on stress test scenarios in relation to hypothetical levels of redemption....32
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......................33
4.7 Guidelines on stress test scenarios in relation to hypothetical macro systemic
shocks affecting the economy as a whole.....................................................................33

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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) ............................................................................33
4.8.1 Level of changes of liquidity............................................................................34
4.8.2 Level of change of credit risk ..........................................................................36
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 37
4.8.4 Levels of redemption ......................................................................................38
4.8.5 Macro-systemic shocks affecting the economy as a whole .............................41
5 Calibration.................................................................................................................44
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 ......................45
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 .................................................................................................48
5.3 Common reference parameters of the stress test scenarios in relation to
hypothetical movements of the interest rates ................................................................51
5.4 Common reference parameters of the stress test scenarios in relation to
hypothetical movements of the exchange rates ............................................................55
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 ............................................................................................59
5.6 Common reference parameters of the stress test scenarios in relation to
hypothetical levels of redemption..................................................................................60
5.7 Common reference parameters of the stress test scenarios in relation to
hypothetical macro systemic shocks affecting the economy as a whole........................62
6 Appendix ...................................................................................................................64

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 3 1 Executive Summary Reasons for publication
Article 28 of 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 conduct. These guidelines are updated at least every year taking into account the latest market developments. ESMA published the latest update of these guidelines on 30 November 20221 and their translation on 27 January 2023 (“the 2022 Guidelines” also referred to as ESMA34-49-4952 ). On 31st January 2023, ESMA published a Consultation Paper (CP)3 on the review of the methodology set in section 4.8 of the guidelines. The consultation closed on 28 April 2023. This 2023 final report includes:

Updated guidelines on the methodology to implement the scenario related to the
hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF.
Updated guidelines on specifications on the type of the stress tests and their
calibration, so that managers of MMFs have the information needed to fill in the corresponding fields in the reporting template mentioned in article 37 of the MMF Regulation (section 5 of the Guidelines). Contents
Section 3 summarises the feedback received to the consultation that ESMA carried out and
explains how ESMA has taken it into account.
Annex I sets out the cost-benefit analysis related to the updated guidelines.
Annex II contains the full text of the updated guidelines and the calibration of the scenarios
for 2023 (updates in red).
Next Steps
The Guidelines in Annex II 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 2023 parameters, will apply 2 months after the publication of translations of the Guidelines. After the start of the application

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 4 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) 2018/7084 . Until then, managers should use the parameters set in the 2022 Guidelines and report the results accordingly. 1 Final Report on Guidelines on stress test scenarios under the MMF Regulation (ESMA50-164-6583) 2 Guidelines on stress test scenarios under the MMF Regulation - 2022 update (europa.eu) 3 Consultation paper on the review of the methodology included in the Guidelines on stress test scenarios under the MMF Regulation 4 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).

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 5 2 Background
Article 28(7) of the Money Market Funds Regulation (MMFR)5 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 latest update of these guidelines on 30 November 2022 and their translation on 27 January 2023 (“the 2022 Guidelines”). 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 2023. These include: (i) prolonged period of low growth and elevated inflation resulting in higher vulnerabilities for households and firms (ii) deteriorating asset quality and profitability prospects for the banking, (iii) a disorderly asset price correction, (iv) a re-emergence of sovereign and corporate financing risk and debt sustainability concern and (v) accumulated risks in the real estate sector. Considering that the scenarios will reflect the assessment of systemic risk by ESMA, the ESRB and the ECB, ESMA has not conducted a public consultation on the calibration of the scenario. 6 On the contrary, ESMA consulted on the revision of the methodology set in section 4.8 of the guidelines from 31 January to 28 April 2023, and this consultation included also general questions to stakeholders on the full text of the Guidelines. The responses submitted on a non-confidential basis can be found on the ESMA webpage7 . The revised version of the Guidelines aims at improving the liquidity stress test by taking into account the interaction between liquidity and redemption pressures. This takes the form of a price impact representing the additional cost incurred by selling a large amount of securities in a market with few buyers. In addition, ESMA is seeking to improve the use of the stress-testing results to monitor the risk of contagion stemming from a shock affecting the EU MMF sector. ESMA and the NCAs currently use the reporting to assess the resilience of individual MMFs, and the impact of the different risk factors on the MMF sector. To go further, ESMA is now seeking to assess spillovers beyond the MMF sector. To do so, ESMA will use the information reported as part of the macro stress test and make assumptions to model internally the potential impact on 5 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). 6 The previous calibrations of the stress scenarios were not part of the public consultation either. 7 Responses to the consultation

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 6 other financial entities. The primary objective is to improve ESMA monitoring and to identify and measure systemic risk, in line with its mandate. While this assessment will build on data reported through the MMF reporting, it will not affect the way MMF managers implement and report the results of the scenario. 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.
While sections 4.8.1 on level of changes of liquidity and 5 on the calibration of the Guidelines have been updated, all the other sections of the 2022 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”. These internal stress tests could include other factors than those referred to in the 2022 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. With respect to the 2023 update of section 5 of the Guidelines, the shocks have been calibrated to be severe, consistent with the uncertainty deriving from the economic consequences of a re-intensification or prolongation of geopolitical tensions. Such environment would fuel supply-chain disruptions leading to lower growth, but also to higher prices. Second-round effects via the wage-price spiral would further exacerbate inflationary pressures, ultimately leading to a broad re-appraisal of market’s expectations of interest rates, shifting up yield curves over the whole maturity spectrum. The resulting tightening of financing conditions, combined with higher wages and sluggish economic growth, would weigh on corporates’ profitability. Households would also experience losses in real income and face stronger borrowing costs, amid higher unemployment. Banks’ income and solvency outlook would also eventually deteriorate substantially, due to increased funding costs and defaults.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 7 The surge in rates is further reflected in the parameters of the stress test scenarios in relation to hypothetical movements of the interest rates, whose severity materially increased compared to the 2022 Guidelines. Other scenarios have been updated with a degree of severity similar to the previous exercise. Corporate profitability expectations would reflect these degraded prospects, driving credit risk premia upwards, and resulting in a widening of credit spreads and rating downgrades worldwide. In addition, the sustained high risk-free rates, together with the prevailing pandemic-induced elevated level of government debt, would foster concerns about sovereign debt sustainability, putting further pressure on bond rates. Finally, such market reaction would also trigger a sudden revaluation of other financial assets and real estate prices, in an uncertain environment characterised by high volatility. The rapid repricing of financial instruments held at fair value would amplify the liquidity stress in the economy, which would be reflected in the widening of bid-ask spreads. The 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. Especially, they are consistent with the weekly outflows observed for MMFs during stress event in recent time. The resulting Guidelines include unchanged provisions related to internal stress test exercise to be carried out by managers of MMFs in sections 4.1 to 4.7. The section 4.8 on the establishment of additional common reference stress test scenarios includes changes to the assessment of the level of changes of liquidity in red. Section 5 of the Guidelines includes updated parameters in red which reflect the new scenario.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 8 3 Feedback on the consultation ESMA received 6 responses8 to its CP, one from an asset manager and the rest from asset managers’ associations. The following paragraphs detail the contents of the responses received on each question of the CP. ESMA had also requested the advice of the Securities and Markets Stakeholders Group (SMSG), but the SMSG chose not to opine. Summary of responses Q1: Do you have comments or suggestions based on your experience of the application of the current Guidelines (including credit, FX, interest rate and redemption scenarios)? Q1.a: Did you encounter any difficulty or challenge in understanding the requirements of the different stress tests in the current Guidelines? Q1.b: Do you deem that further clarifications are required to ensure that the current Guidelines are being implemented correctly beyond the proposals in the present Consultation Paper? If yes, please specify which parts of the Guidelines are concerned? Respondents generally reported that there are no challenges in understanding the current guidelines although some highlighted the resource implications of their implementation. One respondent considered that the current calibration of the liquidity stress tests was too high and could not be easily compared with actual movements of bid-ask-spreads. Similarly, several respondents considered that the calibration of the redemption scenario was too strong and unrealistic. One respondent considered that the FX stress test is not meaningful since the entire currency risk exposure must be hedged9 . One respondent considered that the reverse redemption stress tests does not allow for comparison at industry level. The current methodology necessitates some expert judgment to implement the solution, for example to define what the “regulatory requirements” are. 8 Responses to the consultation 9 According to recital 26 of the MMFR: “In the event that an MMF invests in assets labelled in another currency than the currency of the MMF, it is expected that the manager of the MMF would hedge the entire currency risk exposure, including via derivatives”.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 9 Indeed, for the purpose of this exercise managers need to assess how much they can redeem before breaching regulatory requirements, which include at least Diversification (Article 17 of the MMF Regulation); Concentration (Article 18 of the MMF Regulation); 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. One respondent highlighted that the impact of flows was dominant in the Macro stress test in comparison to the impact of the stress on NAV. ESMA’s response: the responses do not reveal any major challenge in implementing the current methodology. ESMA also takes note of the comments on the calibration, and the realism of some of the underlying assumptions. ESMA may take the opportunity to reconsider those assumption in future revisions of the Guidelines. Finally, ESMA is aware of the limitations when interpreting the results of the reverse stress test, but it is considered that they are generally informative. Q2: Do you agree that the price impact of asset sales should be taken into account? Most respondents considered that the introduction of a price impact in addition to the current liquidity discount was agreeable in principle. However, all respondents highlighted the data gaps preventing the calculation of a market impact. Therefore, they generally considered that while the proposal makes sense theoretically, it may lead to inconclusive results. ESMA’s response: there is a broad agreement to consider that it is sensible to take the price impact of market sales into account. ESMA shares the concerns regarding the data gaps and decided to proceed with a methodology which is simple and whose calibration can be easily reviewed when new data become available. Q3: What are your views on the different options? Option 1: Price impact factor increases with volume sold; Option 2: Market impact factor increases with the market footprint of the MMF for each individual instrument it holds in its portfolio. Q4: Do you have views on

the calculation of the size and market depth of the money markets MMFs
invest in (eligible money market instruments)?
the threshold in option 2 (i.e. the threshold regarding the individual asset
market footprint) above which the cost of liquidating positions may increase? Q5: Do you have views on the price impact factor, i.e. the impact on the price of an asset (in bps) for a given amount of sales under option 1 and 2?

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 10 Q6: Do you have views on any other options which would allow to take into account the interaction between liquidity and redemption pressures? Respondents generally recognised the rationale of assessing the interaction between liquidity and fund pressure, albeit acknowledging the technical difficulty. However, some respondents also indicated that the vertical slicing assumption was not entirely realistic, since MMF could also use part of their liquidity buffer to meet redemptions. Respondents expressed a preference for option 1, as option 2 was deemed even more difficult to calibrate due to the lack of transparency of the underlying market data. In addition, one respondent considered that option 2 made the absolute size of the fund a key and overly dominant determinant of the price impact. Another respondent rejected both options. Under option 1, respondents generally considered that it was difficult to provide a sound estimation of the price impact factor due to data gaps, while other respondents suggested to extrapolate the calibration of the price impact factor from the price impact actually observed during the March 2020 episode. Respondents generally considered that estimating the size and market depth was a very difficult exercise for money market instruments, due to data gaps. For that reason, no respondent provided views on the calculation of the threshold in option 2. ESMA’s response: Respondents expressed a preference for option 1 instead of option 2, even those who did not support the review. They highlighted a number of difficulties, in particular due to data limitation, but did not provide practical solutions to address the issues identified. In that context, ESMA staff considers that existing literature provide converging proposals that could be used for the revision of the methodology under option 1, while minimising the burden for reporting entities. Due to lack of support and alleged additional complexity in implementation, ESMA decided to discard option 2. Q7: Do you have views on the proposal that ESMA could use the information reported in the macro-systemic shock to assess systemic risk? Do you agree that the two options are not mutually exclusive and could be conducted in parallel? Q8: Do you have views on the methodology proposed and especially:

the proposal to measure the systemic impact on the money market, using
a price impact factor;
the data and calibration;

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the approach to assess spillovers to short-term issuers, including the
assumption that the short-term funding would not be rolled-over; Q9: Do you have views on the proposal to assess spillovers to short-term issuers? Do you have views on the data that could be used to assess short-term funding needs? Do you have views on potential rollover assumptions? One respondent agreed that the existing macro scenario for MMFs has not yet specifically captured macroprudential dynamics, and that it was the task of the authorities to analyse the level of systemic relevance and to consider whether and how to incorporate such potential impact in system wide stress testing to better understand collective behaviour dynamics. Another respondent supported the use of data by authorities for information and monitoring purposes in the context of systemic risk assessment. Several respondents expressed reservations about the accuracy of the underlying market data, and therefore the extrapolation of spill-over effects onto other market participants and the broader economy. Respondents agreed with the proposed methodology in principle but expressed doubts because the absence of accurate market-wide data would make the conclusions unreliable. Two respondents considered that it was relevant for ESMA to assess the extent to which unusual outflows from the MMF sector are likely to have a ‘spillover’ impact on funding more broadly. ESMA’s response: Respondents highlighted the same difficulties of calibration as for the liquidity stress test, due to data limitation. In addition, some respondents expressed concerns regarding the use of the results if not based on a robust methodology. In that context, ESMA staff considers that the improvement of the methodology of the liquidity stress test will help improving the assessment of the macro stress test. Q10. Do you agree with the approach taken by ESMA of not including a climate scenario in the stress test methodology? And if not, please share views on how climate risks should be taken into account and calibration of parameters. Q11: Do you see any possibility to include other environmental, social and governance issues in a stress test scenario? Respondents agreed with ESMA's position of not including a climate scenario in the stress test methodology. In addition to the limited exposure of MMFs to climate risk, respondents

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 12 pointed to the difficulty of any such related calibration. Some respondents did not exclude that such scenarios could become more relevant in the future, provided that the right data and methodology are available but were against any consideration of inclusion at this stage. Respondents indicated that they did not see other ESG stress scenarios applicable to MMFs. ESMA’s response: ESMA staff observe that a climate scenario or other ESG-related stress test will not be included in the current review due to the lower relevance of some of those risks in an MMF context. However, ESMA will keep this position under review as it develops methodology around climate stress testing in line with its recent mandates from the European Commission in this area, including on the ongoing one-off fit-for-55 climate risk scenario analysis10 . Q12: What are your views on the costs and benefits of the 2 options? Option 1: Price impact factor increases with volume sold; Option 2: Market impact factor. Q13: What are your views on the costs and benefits of the 2 options? Option 1:
Systemic impact on the money market; Option 2: Spillovers to short term issuers. As expressed in the response to Q2, respondents generally consider the approach relevant in theory but both options difficult to calibrate, with a preference for option 1. As expressed in the response to Q2 and Q7, respondents generally consider both options difficult to calibrate and expressed concerns about the conclusion that ESMA could draw from a systemic stress test. ESMA’s response: the responses to questions 12 and 13 confirm that option 1 would be easier to implement than option 2. Regarding the macro scenario, ESMA takes note of the concerns expressed. 10 The relevant stress testing mandates are in European Commission (2021), Strategy for Financing the Transition to a Sustainable Economy (COM/2021/390 final). For the detailed mandate for the one-off fit-for-55 climate risk scenario analysis, see European Commission (2023), Request for a one-off scenario analysis exercise.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 13 4 Annexes
4.1 Annex I
Cost-benefit analysis
The following options were identified and analysed by ESMA to address the policy objectives of the guidelines required under the MMF Regulation.

Guidelines under Article 28(1)(a) of the MMF Regulation (hypothetical changes in the
level of liquidity of the assets held in the portfolio of the MMF) The baseline scenario should be understood for this Cost-Benefit Analysis (CBA) as the application of the requirements in the Level 1 Regulation (i.e. the provisions of Article 28 of the MMF Regulation) and in the ESMA Guidelines without any further modification. Managers of MMFs would apply the discount factors specified in section 5 of the guidelines11 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. This approach is harmonised, leading to comparable results across MMFs. However, at the moment, the interaction between asset liquidity and redemption is not taken into account, which is not realistic compared to past stress episodes. Both of the proposed options suggest taking into account the interaction between liquidity and redemption pressures. The CBA is mostly qualitative, due to the data limitations regarding implementation costs. However, both option 1 and 2 of the liquidity stress test only represent an adjustment of the existing framework with no additional cost on an ongoing-basis. In that context, the implementation costs were considered proportionate to the objective of better measuring liquidity risk. ESMA considered the inclusion of innovation and environmental, social and governance related factors in the risk stress testing methodology. Especially climate risk has been identified as generally relevant for the asset management sector. However, due to the long term nature of the risks and the short term nature of the MMF, ESMA did not identify an impact of climate risk in the 2 scenarios considered for consultation. 11 The discount factor is calibrated on bid-ask spreads.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 14 Policy Objective Under Article 37(4), the MMF Regulation indicates that managers of MMFs should conduct common reference stress test scenarios and report the results in the reporting template mentioned in article 37(4) of the MMF Regulation. The MMF Regulation specifies that the different risk factors shall be taken in consideration in the stress test scenarios, including:
a. hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF; Under Article 28(7) of the MMF Regulation ESMA is requested to develop guidelines:
A. that establish common reference parameters of the stress test scenarios; B. that are updated at least every year taking into account the latest market developments. Baseline scenario Managers of MMFs would apply the discount factors specified in section 5 of the guidelines 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. This approach is harmonised, leading to comparable results across MMFs. However, at the moment, the interaction between asset liquidity and redemption is not taken into account, which is different compared to past stress episodes. Option 1 Managers of MMFs should apply the discount factors specified in section 5 of the guidelines 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

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 15 impact factor”). For each asset, MMFs should apply the price impact parameter specified in section 5 of the guidelines:
Finally, the manager of the MMF should estimate the impact of the potential losses by 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) calculating the impact as the difference between the reporting NAV and the sum of the stress NAV and the asset sales, in percentage of the reporting NAV. Option 2 Managers of MMFs should apply the discount factors specified in section 5 of the guidelines 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, based on the MMF market share. The “market footprint discount” is the impact on the price of an asset for a given amount of sales. The higher the market footprint of an asset, the more it impacts the price of the given (“market footprint discount”). For each individual asset, MMFs should apply the market footprint discount that will be specified in section 5 of the guidelines:

If the market footprint of an individual asset is below a
threshold 𝜶 specified in the section 5 of the Guidelines, the stress has no impact.
If the market footprint of an individual asset exceeds the
threshold, the applied discount is a function 𝒇 of the market footprint, calibrated by ESMA, multiplied by the value of asset sales. Finally, the manager of the MMF should estimate the impact of the potential losses by (a) valuing the investment portfolio at the derived adjusted price to determine the stressed NAV; (b) valuing assets sold at the derived adjusted price; and (c) calculating the impact as the difference

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 16 between the reporting NAV and the sum of the stress NAV and the asset sales, in percentage of the reporting NAV. Preferred Option Both options would address the interaction between liquidity and redemption pressures. ESMA will proceed with option 1 due to its estimated lower cost of implementation for supervised entities and regulators. Option 1 Description Benefits Stress scenarios simulate severe but plausible shocks. In the case of MMFs, a severe but plausible scenario is the correlation between a liquidity shock on the asset side and redemption requests. In turn, redemption requests lead to asset sales which exacerbate the initial liquidity stress. To take into account the interaction between liquidity and redemption pressures, ESMA suggests introducing a price impact representing the additional cost incurred by selling large amount of securities in a market with few buyers. For each asset, this interaction depends on the MMF market footprint and the depth of the underlying market. This approach is considered to be both more severe and more plausible than the current approach. In particular, it is more appropriate to simulate the COVID-19 related stress of March 2020. Costs to regulator The impact of the scenario will depend on the calibration of the price impact factor. This will necessitate development work on the regulators’ side (both ESMA and National Competent Authorities) with an impact on staff estimated as below 1 FTE before implementation. No additional IT resources will be involved. Compliance costs Compared with the current framework, the proposed approach would necessitate additional steps and therefore implementation costs:

An assessment of asset sales in response to redemption
requests.
An assessment of the asset sale impact on market prices.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 17 On the other hand, the implementation cost would be reduced by the fact that part of the relevant information (esp. portfolio information, outflows) is already collected for the purpose of the current stress test Guidelines. ESG-related aspects Climate risk is relevant in general for investment funds. However, the specificity of MMFs make it less relevant in the context of MMF stress tests:

MMFs are exposed to risks materialising in the short term
while climate-related risks are more long term.
MMFs exposures are predominantly towards financial
institutions and government, with less sectoral diversification compared to other funds. Proportionalityrelated aspects The option has identified benefits, as it will improve the plausibility of the scenario, and limited costs, taking into account the framework already in place. Option 2 Description Benefits Stress scenarios simulate severe but plausible shocks. In the case of MMFs, a severe but plausible scenario is the correlation between a liquidity shock on the asset side and redemption requests. In turn, redemption requests lead to asset sales which exacerbate the initial liquidity stress. To take into account the interaction between liquidity and redemption pressures, ESMA suggests introducing a price impact representing the additional cost incurred by selling assets with a high market footprint. This approach is considered to be both more severe and more plausible than the current approach. Especially, it is more appropriate to simulate the COVID-19 related stress of March 2020. Costs to regulator The impact of the scenario will depend on the calibration of a threshold by asset and an impact function. This will necessitate

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 18 development work on the regulator side with an impact on staff estimated as close to 1 FTE before implementation. No additional IT resources will be involved. Compliance costs Compared with the current framework, the proposed approach would necessitate additional steps and therefore implementation costs:

An assessment of asset sales in response to redemption
requests.
An assessment of the asset market footprint against the
threshold
An assessment of the price impact based on the impact
function
On the other hand, the implementation cost would be reduced by the fact that part of the relevant information (esp. portfolio information, outflows) is already collected for the purpose of the current stress test Guidelines. ESG-related aspects Climate risk is relevant in general for investment funds. However, the specificity of MMFs make it less relevant in the context of MMF stress tests:
MMFs are exposed to risks materialising in the short term
while climate-related risks are more long term.
MMFs exposures are predominantly towards financial
institutions and government, with less sectoral diversification compared to other funds. Proportionalityrelated aspects The option has identified benefit as it will improve the plausibility of the scenario, and limited costs, taking into account the framework already in place.

Guidelines under Article 28(1)(f) of the MMF Regulation (hypothetical macro systemic
shocks affecting the economy as a whole.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 19 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) and in the ESMA Guidelines without any further modification. The scenario would remain the combination of the consistent shocks specified in the macro scenario designed by the ESRB and the ECB, and the redemption shock calibrated by ESMA. A macro systemic shock causes an abrupt and sizeable repricing of risk premia in global financial markets characterised by a sharp increase in short term interest rate including swap rate, government bond yields and corporate bond yields and an adverse FX shock. In the wake of the market shock, liquidity demand rises sharply and investors ask for redemption. Outflows are calculated similarly to the redemption scenario by differentiating professional and retail investors. To meet the redemption requests, the fund sells assets in a stressed environment characterised by a widening of bid-ask spread as 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). However, the scenario does not specifically capture the macroprudential dynamics and systemic risk, including potential contagion effects to other market participants. Both proposed options suggest assessing the macroprudential impact on the market and contagion effects to other market participants. The CBA is mostly qualitative. In both options the costs will be only borne by regulators. ESMA did not identify an impact of innovation factors or environmental, social and governance related factors on the systemic impact on the market and contagion to other market participants. Policy Objective Under Article 37(4), the MMF Regulation indicates that managers of MMFs should conduct common reference stress test scenarios and report the results in the reporting template mentioned in article 37(4) of the MMF Regulation. The MMF Regulation specifies that the different risk factors shall be taken in consideration in the stress test scenarios, including:
f. hypothetical macro systemic shocks affecting the economy as a whole.
Under Article 28(7) of the MMF Regulation ESMA is requested to develop guidelines:
A. that establish common reference parameters of the stress test scenarios;

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 20 B. that are updated at least every year taking into account the latest market developments. Baseline scenario The scenario would remain the combination of the consistent shocks specified in the macro scenario designed by the ESRB and the ECB, and the redemption shock calibrated by ESMA. A macro systemic shock causes an abrupt and sizeable repricing of risk premia in global financial markets characterized by a sharp increase in short term interest rate including swap rate, government bond yields and corporate bond yields and an adverse FX shock. In the wake of the market shock, liquidity demand rises sharply and investors ask for redemption. Outflows are calculated similarly to the redemption scenario by differentiating professional and retail investors. To meet the redemption requests, the fund sells assets in a stressed environment characterised by a widening of bid-ask spread as 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). Option 1 In option 1, managers of MMFs should apply the scenario in the same way as in the current Guidelines. ESMA would then use the information reported as an input to assess the systemic impact on the money market, without changing the Guidelines. ESMA would use the outflows reported by MMF managers in the macro scenario (the “input factor”) and the portfolio information reported by MMF managers, to estimate and aggregate the asset sales in response, assuming a vertical slicing of fund portfolios whereby the same percentage of each asset is sold to meet redemptions. ESMA would assess the impact on asset prices. The more the fund will sell an asset, the more it will impact the price of the given asset (“price impact factor”). Considering the heterogeneity of liquidity in the market, the price impact factor may differ for each market. The price impact factor will be based on the best available estimates of price impact parameter, where the price impact parameter is the impact on the price of an asset (in bps) for a given amount of sales.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 21 Finally, ESMA would use the results to assess the impact on (1) money market instruments and (2) MMFs. Especially, it may allow to identify funds which are more impacted by a systemic stress than an idiosyncratic stress (e.g. because they are exposed to a money market instrument more affected by the aggregated sales). Option 2 In option 2, managers of MMFs should apply the scenario in the same way as in the current Guidelines. ESMA would then use the information reported as an input to assess the systemic impact on the money market, without changing the Guidelines. ESMA would use the outflows reported by MMF managers in the macro scenario (the “input factor”) and the portfolio information reported by MMF managers, to estimate and aggregate the asset sales in response, assuming a vertical slicing of fund portfolios whereby the same percentage of each asset is sold to meet redemptions. ESMA would aggregate asset sales of all MMFs by issuer category, reported under item (A.6.7) of MMF Reporting “Information on the assets held in the portfolio of the MMF”. For each issuer, this would represent a potential reduction in short-term funding. ESMA will assess the impact on each issuer category and compare it with the funding needs of the counterpart category, based on external data (e.g. EU bank short-term funding). Assuming that issuers cannot rollover their short-term debt they may experience a funding gap. The MMF stress could them spill over to other entities. Preferred Option ESMA suggests implementing both options, which are not mutually exclusive. Option 1 Description Benefits The current scenario does not specifically capture the macroprudential dynamics (esp. impact to and from other market participants). While a revision of MMF Regulation could eventually take this issue into account, ESMA suggests using the reported

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 22 information as an input to assess the systemic impact on the money market, without changing the Guidelines. While the current Guidelines provide information on the individual resilience of MMFs, this would allow ESMA to assess the impact on the money market itself, and to identify funds which are more impacted by a systemic stress than an idiosyncratic stress (e.g. because they are exposed to a money market instrument more affected by the aggregated sales). Costs to regulator The implementation cost would be borne by ESMA, less than 1 FTE including development and implementation costs. Compliance costs Compared with the current framework, the proposed approach would not cause additional costs to managers of MMFs. ESG-related aspects Climate risk is relevant in general for investment funds. However, the specificity of MMFs makes climate risk less relevant in the context of MMF stress tests:

MMFs are exposed to risks materialising in the short term
while climate-related risks are more long term.
MMFs exposures are predominantly towards financial
institutions and government, with less sectoral diversification compared to other funds. Proportionalityrelated aspects The option has identified benefit and limited costs, taking into account the framework already in place. Option 2 Description Benefits The current scenario does not specifically capture the macroprudential dynamics (esp. impact to and from other market participants). While a revision of MMF Regulation could eventually take this issue into account, ESMA suggests using the reported information as an input to assess the systemic impact on the money market, without changing the Guidelines. While the current Guidelines provide information on the individual resilience of MMFs, this would allow ESMA to assess the impact on the funding needs of the counterpart category (the issuers). Assuming

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 23 that issuers cannot rollover their short-term debt they may experience a funding gap. The MMF stress could them spill over to other entities. Costs to regulator The implementation cost would be borne by ESMA, less than 1 FTE including development and implementation costs. Compliance costs Compared with the current framework, the proposed approach would not cause additional costs to managers of MMFs. ESG-related aspects Climate risk is relevant in general for investment funds. However, the specificity of MMFs makes climate risk less relevant in the context of MMF stress tests:

MMFs are exposed to risks materialising in the short term
while climate-related risks are more long term.
MMFs exposures are predominantly towards financial
institutions and government, with less sectoral diversification compared to other funds. Proportionalityrelated aspects The option has identified benefit and limited costs, taking into account the framework already in place.

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4.2 Annex II – Guidelines on MMF stress tests
Guidelines on MMF stress tests (updates in red indicate additional text added, parameter updates or amendments which constitute the 2023 update to the ESMA34-49-115 Guidelines) 1 Scope Who? These guidelines apply to competent authorities, money market funds and managers of money market funds as defined in the MMF Regulation12 . What? 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? 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 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:
12 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).

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 25 a) hypothetical changes in the level of liquidity of the assets held in the portfolio of the MMF; 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. 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 2023, sections 4.8 and 5 of these guidelines were in particular 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)
2018/70813
. This information includes specifications on the types of stress tests mentioned in
section 5 and their calibration.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 26 3 The Compliance and reporting obligations
3.1 Status of the guidelines
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. 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
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. 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. A template for notifications is available on ESMA’s website. Once the template has been filled in, it shall be transmitted to ESMA.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 27 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
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”. 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.
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

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 28 in the following sections 4.2 to 4.7 therefore apply to stress test scenarios on both aspects mentioned above. 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 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.
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. 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. 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. 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 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

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 29 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 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. In that context, some hypothesis on the behaviour of the manager with regard to honouring the redemption requests could be required. A practical example of one possible implementation is given in Appendix. Stress tests in the case of CNAV and LVNAV MMFs
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 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. 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

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 30 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 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. 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 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. 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;

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parallels shifts of the credit spreads of a certain level for all assets held in the portfolio.
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. 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. 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 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).
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

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 32 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
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. Stress tests on redemptions should include the specific measures which the MMF has the constitutional power to activate (for instance, gates and redemption notice). 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. 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. 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). 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). 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

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 33 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. A practical example of one possible implementation is given in Appendix.
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 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 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. 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. 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) 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.

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4.8.1 Level of changes of liquidity
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
guidelines14 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:
𝐏𝐫𝐢𝐜𝐞 𝐢𝐦𝐩𝐚𝐜𝐭 𝐟𝐚𝐜𝐭𝐨𝐫 = 𝐩𝐫𝐢𝐜𝐞 𝐢𝐦𝐩𝐚𝐜𝐭 𝐩𝐚𝐫𝐚𝐦𝐞𝐭𝐞𝐫 ∗ 𝐚𝐬𝐬𝐞𝐭 𝐬𝐚𝐥𝐞𝐬
For each relevant transferable security, managers of MMFs should apply the discount
factors and the price impact factors 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 − 𝐦𝐚𝐫𝐤𝐞𝐭 𝐢𝐦𝐩𝐚𝐜𝐭 𝐟𝐚𝐜𝐭𝐨𝐫) ∗ 𝐕𝐏𝐫𝐢𝐜𝐞
The impact of the liquidity discount should be evaluated for all assets including 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, 𝐕𝐏𝐫𝐢𝐜𝐞𝐚𝐝𝐣, to determine the stressed NAV; (b) valuing assets sold at the derived adjusted price, 𝐕𝐏𝐫𝐢𝐜𝐞𝐚𝐝𝐣; and (c) calculating the impact as a percentage of the reporting NAV:
14 The discount factor is calibrated on bid-ask spreads.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 35 𝐀𝐬𝐬𝐞𝐭 𝐥𝐢𝐪𝐮𝐢𝐝𝐢𝐭𝐲 𝐫𝐢𝐬𝐤 𝐢𝐦𝐩𝐚𝐜𝐭 (%) = 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 − (𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 + 𝐀𝐬𝐬𝐞𝐭𝐬 𝐒𝐚𝐥𝐞𝐬) 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 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 nonfinancial corporates and certificates of deposits, distinguishing at least between
investment grade and high yield instruments;
Commercial Papers, 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.

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4.8.2 Level of change of credit risk
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:

Credit spread stress test
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

Concentration stress test
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 %.

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 37 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 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
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.

Levels of change of the interest rates
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).
Levels of change of the exchange rates
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.
Levels of widening or narrowing of spreads among indices to which interest rates of
portfolio securities are tied
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).

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4) Results
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:
𝐑𝐢𝐬𝐤 𝐟𝐚𝐜𝐭𝐨𝐫 𝐢𝐦𝐩𝐚𝐜𝐭 (%) =
𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 − 𝐒𝐭𝐫𝐞𝐬𝐬𝐞𝐝 𝐍𝐀𝐕 𝐑𝐞𝐩𝐨𝐫𝐭𝐢𝐧𝐠 𝐍𝐀𝐕 Notes:
The calibration is available in section 5 of the Guidelines.
4.8.4 Levels of redemption
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.

Reverse liquidity stress test
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. 𝐑𝐞𝐬𝐮𝐥𝐭 (%) = 𝐌𝐚𝐱𝐢𝐦𝐮𝐦 𝐰𝐞𝐞𝐤𝐥𝐲 𝐭𝐫𝐚𝐝𝐚𝐛𝐥𝐞 𝐚𝐦𝐨𝐮𝐧𝐭 𝐭𝐡𝐚𝐭 𝐜𝐚𝐧 𝐛𝐞 𝐥𝐢𝐪𝐮𝐢𝐝𝐚𝐭𝐞𝐝 𝐰𝐢𝐭𝐡𝐨𝐮𝐭 𝐝𝐢𝐬𝐭𝐨𝐫𝐭𝐢𝐧𝐠 𝐭𝐡𝐞 𝐩𝐨𝐫𝐭𝐟𝐨𝐥𝐢𝐨 𝐚𝐥𝐥𝐨𝐜𝐚𝐭𝐢𝐨𝐧 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

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 39 week. Such assignment should be based on the shortest period during which such a position could reasonably be liquidated at or near its carrying value15 .

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.
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.

Weekly liquidity stress test:
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)16 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. 17(7) 1 15 For its definition, see the Guidelines on reporting obligations under Articles 3(3)(d) and 24(1), (2) and (4) of the AIFMD 16 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

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 40 Cash which is able to be withdrawn by giving prior notice of five working days without penalty. 24(1) 25(1) Weekly maturing assets 24(1) 25(1) Reverse repurchase agreements which are able to be terminated by giving prior notice of five working days 24(1) 25(1) 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(1) 25(1) 1,2 Eligible securitisations and asset-backed commercial paper (ABCPs). 9(1)(b) 1 x85% = Weekly liquid assets (bucket 2)

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) 2016/179917 .
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). 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. 17 https://eur-lex.europa.eu/legalcontent/EN/TXT/?toc=OJ%3AL%3A2016%3A275%3ATOC&uri=uriserv%3AOJ.L_.2016.275.01.0003.01.ENG

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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.

Concentration stress test
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.
4.8.5 Macro-systemic shocks affecting the economy as a whole
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 Market shock
FX Rate - EUR/USD etc.
Interest Rate
Credit
Swap rate
Gov. bond yields/ spreads

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Spread among indices to
which interest rates of portfolio securities are tied
Corp. bond yields/ spreads
Redemption shock
Level of Redemption
Asset liquidity
% outflows
Bid/ask spread (discount
factor)
Results
% NAV
Weekly liquid assets/
outflows
Memo - % 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, 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.

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ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 44 5 Calibration The following section includes the 2023 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. If managers need a parameter that is not indicated in this section, they may consult the adverse scenario on the ESRB website18 . 18 Stress testing (europa.eu)

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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 Liquidity Eligible assets Stressed Parameters (a) money market instruments -Certificate of deposit (CD) Yes Table 3, 4 -Commercial Paper (CP) Yes Table 3, 4 -Government bonds, treasury and local authority bills Yes Table 1,2, 4 -Corporate bonds Yes Table 3, 4 (b) eligible securitisations and asset-backed commercial paper (ABCPs) -Eligible securitisations Yes Table 3, 4 -ABCPs Yes Table 3, 4 (c) deposits with credit institutions -Deposits, of which time deposits No (d) financial derivative instruments -Financial derivative instruments dealt in on a regulated market No -Financial derivative instruments dealt OTC No (e) repurchase agreements -Repos Yes 4 (f) reverse repurchase agreements -Reverse repos Yes 4 (g) units or shares of other MMFs -Shares issued by other MMFs Yes Extrapolation of the results to shares issued by other MMFs

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Table 1 Table 2
Liquidity discount factor - Sovereign bonds by residual maturity - Reference countries (in %) Liquidity discount factor - Sovereign bonds by rating and residual maturity (in %) 3M 6M 1Y 1.5Y 2Y 3M 6M 1Y 1.5Y 2Y DE 0.18 0.26 0.65 0.76 0.87 AAA 0.19 0.33 0.80 0.91 1.02 ES 0.22 0.42 0.99 1.11 1.23 AA 0.19 0.39 0.90 1.01 1.11 FR 0.19 0.39 0.90 1.01 1.11 A 0.22 0.42 0.99 1.11 1.23 IT 0.19 0.36 0.80 0.93 1.07 BBB 0.22 0.42 0.99 1.11 1.23 NL 0.20 0.40 0.95 1.05 1.16 Below BBB or unrated 0.28 0.55 1.28 1.44 1.60
Table 3
Liquidity discount factor - Corporate bonds by rating and residual maturity ≤1Y >1Y AAA 1.16 1.28 AA 1.16 1.35 A 1.20 1.42 BBB 1.24 1.42 Below BBB or unrated 1.62 1.85

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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

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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 MMFR Typical assets Credit (credit spreads) Credit (2 main counterparties) Eligible assets Stressed Parameters Stressed Parameters (a) money market instruments -Certificate of deposit (CD) Yes Table 6 Yes Table 7 -Commercial Paper (CP) Yes Table 6 Yes Table 7 -Government bonds, treasury and local authority bills Yes Table 5 Yes Table 7 -Corporate bonds Yes Table 6 Yes Table 7 (b) eligible securitisations and assetbacked commercial paper (ABCPs) -Eligible securitisations Yes Table 6 Yes Table 7 -ABCPs Yes Table 6 Yes Table 7 (c) deposits with credit institutions -Deposits, of which time deposits No No (d) financial derivative instruments -Financial derivative instruments dealt in on a regulated market No No -Financial derivative instruments dealt OTC No No (e) repurchase agreements -Repos No No (f) reverse repurchase agreements -Reverse repos No No (g) units or shares of other MMFs -Shares issued by other MMFs Yes Extrapolation of the results to shares issued by other MMFs Yes Extrapolation of the results to shares issued by other MMFs

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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 36 48 58 61 EU Belgium 37 48 55 61 EU Bulgaria 54 56 72 78 EU Croatia 46 59 68 74 EU Cyprus 72 89 104 110 EU Czech Republic 71 87 103 109 EU Denmark 22 33 46 57 EU Finland 38 49 56 62 EU France 17 26 39 40 EU Germany 12 23 30 32 EU Greece 72 89 104 110 EU Hungary 13 22 39 40 EU Ireland 23 37 44 51 EU Italy 55 66 78 82 EU Latvia 50 64 73 80 EU Lithuania 47 60 69 76 EU Luxembourg 17 29 35 39 EU Malta 38 53 57 62 EU Netherlands 14 25 31 35 EU Poland 58 68 80 86 EU Portugal 62 74 87 100 EU Romania 35 43 58 67 EU Slovakia 49 63 72 79 EU Slovenia 16 27 34 37 EU Spain 52 63 71 78 EU Sweden 13 22 31 41 EA (weighted averages) EA (weighted averages) 29 39 49 52 EU (weighted averages) EU (weighted averages) 30 41 50 55 Advanced economies United Kingdom 14 25 36 43 Advanced economies Switzerland 30 31 33 35 Advanced economies Norway 14 26 34 45 Advanced economies United States 16 23 31 40 Advanced economies Japan 35 35 45 45 Advanced economies Advanced economies 23 29 37 42 non EU and non US Emerging markets 95 117 136 214

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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 121 92 129 137 AA 124 106 149 144 A 147 120 162 190 BBB 210 196 253 261 BB 273 247 313 329 B 329 297 372 329 ≤CCC 397 366 453 329
Table 7: Loss given default
Loss given default (%)
Senior exposure 45
Subordinated exposure 75

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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
IR
(Interest rate swap)
Eligible assets Stressed Parameters
(a) money market instruments
-Certificate of deposit (CD) Yes Table 8, 9
-Commercial Paper (CP) Yes Table 8, 9
-Government bonds, treasury and local authority bills Yes Table 8, 9 -Corporate bonds Yes Table 8, 9 (b) eligible securitisations and asset-backed commercial paper (ABCPs) -Eligible securitisations Yes Table 8, 9 -ABCPs Yes Table 8, 9 (c) deposits with credit institutions -Deposits, of which time deposits Yes Table 8, 9 (d) financial derivative instruments -Financial derivative instruments dealt in on a regulated market Yes Table 8, 9 -Financial derivative instruments dealt OTC Yes Table 8, 9 (e) repurchase agreements -Repos No (f) reverse repurchase agreements -Reverse repos Yes Table 8, 9 (g) units or shares of other MMFs -Shares issued by other MMFs Yes Extrapolation of the results to shares issued by other MMFs

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Table 8: Shocks to swap rates
Interest rate yield shocks absolute changes (basis points) Geographic Area Country Description 1M 3M 6M 1Y 2Y EU Euro area Interest rate swap on the EUR (euro) 87 99 112 120 130 EU Bulgaria Interest rate swap on the BGN (Bulgarian lev) 112 130 148 156 166 EU Czech Republic Interest rate swap on the CZK (Czech koruna) 110 112 125 133 144 EU Denmark Interest rate swap on the DKK (Danish krone) 91 105 115 124 132 EU Hungary Interest rate swap on the HUF (Hungarian forint) 170 182 191 206 222 EU Poland Interest rate swap on the PLN (Polish zloty) 101 108 124 133 144 EU Romania Interest rate swap on the RON (Romanian leu) 112 130 148 154 161 EU Sweden Interest rate swap on the SEK (Swedish krona) 92 105 115 126 135 Rest of Europe United Kingdom Interest rate swap on the GBP (British pound) 92 107 121 129 135 Rest of Europe Norway Interest rate swap on the NOK (Norwegian krone) 90 104 113 123 133 Rest of Europe Switzerland Interest rate swap on the CHF (Swiss franc) 64 83 107 122 136 Rest of Europe Turkey Interest rate swap on the TRY (Turkish lira) 195 250 305 322 340

ESMA - 201-203 rue de Bercy - CS 80910 - 75589 Paris Cedex 12 - France - Tel. +33 (0) 1 58 36 43 21 - www.esma.europa.eu 53 North America Canada Interest rate swap on the CAD (Canadian dollar) 98 112 127 137 141 North America United States Interest rate swap on the USD (US dollar) 97 111 126 133 139 Australia and Pacific Australia Interest rate swap on the AUD (Australian dollar) 99 113 139 142 152 South and Central America Chile Interest rate swap on the CLP (Chilean peso) 167 180 193 206 220 South and Central America Colombia Interest rate swap on the COP (Colombian peso) 218 224 246 251 256 South and Central America Mexico Interest rate swap on the MXN (Mexican peso) 168 171 184 220 235 Asia China Interest rate swap on the CNY (Chinese yuan) 98 115 135 154 177 Asia Hong Kong Interest rate swap on the HKD (Hong Kong dollar) 108 125 144 157 179 Asia Japan Interest rate swap on the JPY (Japanese yen) 8 9 14 19 29 Asia Malaysia Interest rate swap on the MYR (Malaysian ringgit) 34 51 83 104 107 Asia Singapore Interest rate swap on the SGD (Singapore dollar) 119 130 138 148 148 Africa South Africa Interest rate swap on the ZAR (South African rand) 162 166 169 188 210

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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 8 109 121 135 144 154 Other advanced economies Default value for countries not included in table 8 85 99 115 128 141 Other emerging markets Default value for countries not included in table 8 140 155 174 196 210

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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
FX
(Appreciation of the EUR)
FX
(Depreciation of the EUR)
Eligible assets Stressed Parameters Stressed Parameters (a) money market instruments -Certificate of deposit (CD) Yes Table 10 Yes Table 11 -Commercial Paper (CP) Yes Table 10 Yes Table 11 -Government bonds, treasury and local authority bills Yes Table 10 Yes Table 11 -Corporate bonds Yes Table 10 Yes Table 11 (b) eligible securitisations and assetbacked commercial paper (ABCPs) -Eligible securitisations Yes Table 10 Yes Table 11 -ABCPs Yes Table 10 Yes Table 11 (c) deposits with credit institutions -Deposits, of which time deposits Yes Table 10 Yes Table 11 (d) financial derivative instruments -Financial derivative instruments dealt in on a regulated market Yes Table 10 Yes Table 11 -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 (g) units or shares of other MMFs -Shares issued by other MMFs Yes Extrapolation of the results to shares issued by other MMFs Yes Extrapolation of the results to shares issued by other MMFs

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Table 10
FX shocks (appreciation of the EUR against the USD) relative changes (%) Geographic Area Description Exchange rate name Shock EU EURCZK represents 1 EUR per x CZK (Czech koruna) EURCZK 4.80 EU EURHUF represents 1 EUR per x HUF (Hungarian forints) EURHUF 10.90 EU EURPLN represents 1 EUR per x PLN (Polish zloty) EURPLN 7.52 EU EURRON represents 1 EUR per x RON (Romanian leu ) EURRON 2.87 EU EURSEK represents 1 EUR per x SEK (Swedish krona) EURSEK 9.33 Rest of Europe EURRSD represents 1 EUR per x RSD (Serbian dinar ) EURRSD 2.10 Rest of Europe EURNOK represents 1 EUR per x NOK (Norwegian krone) EURNOK 12.85 Rest of Europe EURGBP represents 1 EUR per x GBP (British pound) EURGBP 8.79 Rest of Europe EURCHF represents 1 EUR per x CHF (Swiss franc) EURCHF 5.72 Rest of Europe EURTRY represents 1 EUR per x TRY (Turkish lira) EURTRY 16.95 North America USDCAD represents 1 USD per x CAD (Canadian dollar) USDCAD -5.92 North America EURUSD represents 1 EUR per x USD (US dollar) EURUSD 7.86 Australia and Pacific AUDUSD represents 1 AUD per x USD (Australian dollar) AUDUSD 10.59 Australia and Pacific NZDUSD represents 1 NZD per x USD (New Zealand dollar) NZDUSD 10.44 South and Central America USDARS represents 1 USD per x ARS (Argentine peso) USDARS 9.24

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Table 11
FX shocks (depreciation of the EUR against the USD) relative changes (%) Geographic Area Description Exchange rate name Shock EU EURCZK represents 1 EUR per x CZK (Czech koruna) EURCZK -6.44 EU EURHUF represents 1 EUR per x HUF (Hungarian forints) EURHUF -13.46 EU EURPLN represents 1 EUR per x PLN (Polish zloty) EURPLN -8.38 EU EURRON represents 1 EUR per x RON (Romanian leu ) EURRON -2.70 EU EURSEK represents 1 EUR per x SEK (Swedish krona) EURSEK -5.47 Rest of Europe EURRSD represents 1 EUR per x RSD (Serbian dinar ) EURRSD -1.95

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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 MMFR Typical assets IR (Interest rate swap) Eligible assets Stressed Parameters (a) money market instruments -Certificate of deposit (CD) Yes Table 8, 9 -Commercial Paper (CP) Yes Table 8, 9 -Government bonds, treasury and local authority bills Yes Table 8, 9 -Corporate bonds Yes Table 8, 9 (b) eligible securitisations and asset-backed commercial paper (ABCPs) -Eligible securitisations Yes Table 8, 9 -ABCPs Yes Table 8, 9 (c) deposits with credit institutions -Deposits, of which time deposits Yes Table 8, 9 (d) financial derivative instruments -Financial derivative instruments dealt in on a regulated market Yes Table 8, 9 -Financial derivative instruments dealt OTC Yes Table 8, 9 (e) repurchase agreements -Repos No (f) reverse repurchase agreements -Reverse repos Yes Table 8, 9 (g) units or shares of other MMFs -Shares issued by other MMFs Yes Extrapolation of the results to shares issued by other MMFs

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5.6 Common reference parameters of the stress test scenarios in relation to hypothetical levels of
redemption
Scope of the scenario
MMFR
Typical assets
Redemption
(reverse liquidity ST)
Redemption
(weekly liquidity ST
Redemption
(2 main investors)
Eligible assets Stressed Parameters Stressed Parameters Stressed Parameters (a) money market instruments -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 -Government bonds, treasury and local authority bills Yes Self-assessment Yes Table 12, 13 Yes Table 12 -Corporate bonds Yes Self-assessment Yes Table 12, 13 Yes Table 12 (b) eligible securitisations and asset-backed commercial paper (ABCPs) -Eligible securitisations Yes Self-assessment Yes Table 12, 13 Yes Table 12 -ABCPs Yes Self-assessment Yes Table 12, 13 Yes Table 12 (c) deposits with credit institutions -Deposits, of which time deposits Yes Self-assessment Yes Table 12, 13 Yes Table 12 (d) financial derivative instruments -Financial derivative instruments dealt in on a regulated market Yes Self-assessment Yes Table 12, 13 Yes Table 12 -Financial derivative instruments dealt OTC Yes Self-assessment Yes Table 12, 13 Yes Table 12 (e) repurchase agreements -Repos Yes Self-assessment No Table 12, 13 No Table 12 (f) reverse repurchase agreements -Reverse repos Yes Self-assessment Yes Table 12, 13 Yes Table 12 (g) units or shares of other MMFs -Shares issued by other MMFs Yes Self-assessment Yes Table 12, 13 Yes Table 12

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Table 12 Table 13
Assets Article CQS Net outflows (%)
Assets referred to in Article 17(7) which are highly liquid and can be redeemed and settled within one working day and have a residual maturity of up to 190 days 17(7) 1 Professional investor 40 Cash which is able to be withdrawn by giving prior notice of five working days without penalty 24(1) Retail investor 30 25(1) Weekly maturing assets 24(1) 25(1) Reverse repurchase agreements which are able to be terminated by giving prior notice of five working days 24(1) 25(1) x100% = Weekly liquid assets (bucket 1) Assets referred to in Article 17(7) 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(1) 1,2 25(1) Eligible securitisations and asset-backed commercial paper (ABCPs) 9(1)(b) 1 x85% = Weekly liquid assets (bucket 2)

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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
Typical assets
Macro
Eligible assets Stressed Parameters
(a) money market instruments
-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 -Government bonds, treasury and local authority bills Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 -Corporate bonds Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 (b) eligible securitisations and asset-backed commercial paper (ABCPs) -Eligible securitisations Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 -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 (d) financial derivative instruments -Financial derivative instruments dealt in on a regulated market Yes Tables 1,2,3,4,5,6,7,8,10,11, 12, 14 -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

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Table 14
Net outflows (%)
Professional investor 20
Retail investor 10

64
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 investors (25%) ↓ Very stable investors (15%) ↓ Redemptions 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Initial portfolio 2 bps 3 bps 5 bps 6 bps 8 bps 9 bps 11 bps 12 bps First scenario 7 bps 9 bps 13 bps 18 bps 24 bps 32 bps 45 bps 66 bps 110 bps 236 bps Second scenario 3 bps 4 bps 6 bps 9 bps 12 bps 16 bps 21 bps 28 bps 38 bps 85 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.

65
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 classification and simulation of their behaviour (the figures shown are not real): Investor type Record redemptions for this investor type Over one day Over one week Over one month Large institutional 25% 75% 100% Group entity (bank, insurance, own account) 20% 40% 40% Investment fund 20% 65% 100% Small institutional 10% 25% 40% Private banking network 15% 40% 75% Retail investor with distributor A 5% 10% 20% Retail investor with distributor B 7% 15% 20% Stressed redemptions for this investor category Large institutional 75% Group entity (bank, insurance, own account) 0% (in agreement with the AMC) Investment fund 65% Small institutional 25% Private banking network 40% Retail investor with distributor A 10% Retail investor with distributor B 15% 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

66 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 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.

Final Report on Guidelines on stress test scenarios under the MMF Regulation

Lineage: In force

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