On July 20, the European Securities and Markets Authority (“ESMA“) published a letter it has written to the European Commission about share cancellation under the Regulation on money market funds ((EU) 2017/1131) (“MMF Regulation“).

The letter responds to a January 2018 letter from the Commission in which it agreed with ESMA’s analysis that the practice of share cancellation is not compatible with the MMF Regulation.

ESMA calls on the Commission to make public the text of an opinion of the Legal Service of the Commission on the compatibility of the reverse distribution mechanism or share cancellation with the MMF Regulation. It appears the opinion has been shared with some market participants, but not all. ESMA is of the view that the Commission needs to make its interpretation clear to ensure a proper and consistent interpretation and implementation of the MMF Regulation.

The MMF Regulation started to apply from July 21, 2018.