The deployment of the Money Market Diagnostic Framework (MMDF) is an invaluable in-depth analytical exercise, offering regulators insights into the current status and priorities to develop their money market.

Access the MMDF portal

purpose

Well-functioning money markets are indispensable for multiple reasons. Among them, they allow central banks to transmit monetary policy, provide an anchor for interest rates at longer maturities and above all, allow for the effective distribution of liquidity and risk amongst market participants. Read more about the fundamental role of money markets to emerging market and developing country (EMDC) capital market development.

The Money Market Diagnostic Framework (MMDF) offers a visually represented baseline drawn from an in-depth, query-based assessment of a country’s money market. The resulting report and recommendations serve as a starting point for sequential and well-structured development of the local money market and with that the wider financial system. On the back of results, Frontclear offers regulators technical assistance in for example, to address legal and regulatory obstacles and/or market infrastructure needs.

The MMDF results inform local regulators and are a targeted deepening to the general research and reports regularly produced by Frontclear on EMDC money markets. A key objective of the MMDF is to harmonize and align diagnostic approaches to money market development among IFIs and policymakers. Email MMDF@frontclear.com for more information

structure

The Money Market Diagnostic Framework (MMDF) is founded on four building blocks central to money market development.

These are:

  1. current level of money market development;
  2. market environment;
  3. central bank activity;
  4. market resources.

Each of the four building blocks are evaluated based on the degree to which underlying topics are working well. This review process is question driven.

building blocks

-1-current level of MM development -2-environment -3-CB activity -4-resources

topics

prudential regulation legal infrastructure transaction costs payment system credit risk post-trade infrastructure monetary policy framework market segments benchmark rates, yield curve collateral in interbank operations market participants collateral in interbank operations information availablefor market participants communication informationfor regulators CB operations reserve requirement banking sector liquidity collateral in CB operations counterparties market HR information technologies CB HR

application

The MMDF is a public, comprehensive query-based tool available for the benefit of EMDC regulators and technical assistance providers. Its deployment is facilitated by the online MMDF Portal, funded and maintained by the Frontclear Technical Assistance Programme (FTAP) and its partners.

The MMDF Portal allows for online collection of data and input from local regulators and market participants. The collected information is reviewed and completed through interviews with the representatives of these parties. It forms a solid basis on which to score and detail the current money market status and developments. An MMDF can be fully implemented in 3 to 3.5 months’ time.

results

The Money Market Diagnostic Framework (MMDF) has been or is being implemented in over 10 countries across MENA, EECA, and SSA. Results are confidential unless otherwise agreed with the local regulator. For insights into the full impact of Frontclear and its network on money market development see the latest Impact Report.

Here is a snapshot of anonymized country-level results per building block and key observations:

1: current level of money market development

foreignparticipants money market segments (instruments) marketparticipants collateral in market operations benchmarkmarket rates informationfor the market yield curve country A country B country C 100 % 80 % 60 % 40 % 20 % 0 %

typical issues

  • (credit risk) segmentation amongst participants
  • lack of activity or liquidity in market segments
  • lack of a valid benchmark rate or index
  • lack of transparency regarding pricing and volumes traded

2: environment

CB paymentsystem processes payment system infrastructure post-tradeinfrastructure general legalinfrastructure legal infrastructureof derivatives monetary policyframework credit risk prudentialregulation country A country B country C 0 % 20 % 40 % 60 % 80 % 100 %

typical issues

  • monetary policy not conducive to market development
  • lack of adequate local market infrastructure
  • lack of enforceability of best practice transaction documentation under the local legal framework

3: central bank activities

reserve requirements system CB standing facilities CB communication CB windowsof operations counterparties collateral inCB operations aggregateliquidity fine-tuningoperations structuraloperations main instrument,key rate informationfor regulators country A country B country C 100 % 80 % 60 % 40 % 20 % 0 %

typical issues

  • design of central bank operations disincentivizes market trading
  • inconsistencies in the deployment of monetary policy instruments
  • lack of information in central bank forecasting models
  • lack of transparency to market participants on monetary policy implementation

4: resources

country A country B country C 0 % 20 % 40 % 60 % 80 % 100 % CB HR marketHR informationtechnologies

typical issues

  • insufficient staffing in the relevant units
  • lack of experience and/or knowledge regarding the use of money market products (e.g. repo, derivative products)
  • lack of experience and/or knowledge of industry best practices
  • lack of professional trading platforms and treasury software
financial markets development company
© 2024 Frontclear. All rights reserved. Our Privacy Policies & Disclaimer