China tightens supervision of money market funds by capping same-day redemption at US$1,560

China has strengthened oversight of the nation’s fast-growing US$1.2 trillion money market funds sector, capping instant same-day redemption at 10,000 yuan (US$1,560) from a single fund and banning payment companies from allowing investors to foot their bills with such funds directly.

Mainland’s money market funds have experienced problematic practices with regard to internet sales and redemption, harming the interests of investors and detrimental to fair play in the market, the People’s Bank of China, the nation’s central bank, and the top securities regulator, the China Securities Regulatory Commission, said in joint statement after issuing the new rules on Friday.

The rules take effect immediately.

The regulators said that some fund managers were “blindly” expanding their businesses by touting investors with “real-time, large sum redemptions” while noting that some payment companies were paying the redemption with their own cash in advance, creating liquidity crunch risks.

Such irregularities could “trigger liquidity risks in extreme market conditions, and threatens to cause systemic risks and are in need of regulation,” the statement said.

The new rules cap instant redemptions, which means investors can only withdraw 10,000 yuan from a single money market fund in one day. There is no daily limit on overnight redemptions however.

In addition, authorities have banned payment companies to pay with their own cash in advance to realise a “de facto” same-day redemption to lure investors.