Money market funds set for partial reprieve in EU vote - document

By Huw Jones

LONDON, Feb 25 (Reuters) - Europe's trillion euro money market funds industry faces major reform on Thursday when European Union lawmakers vote on new rules aimed at avoiding investor runs in a crisis.

However, according to parliamentary compromises seen by Reuters, one type of money market fund (MMF) looks set to escape a requirement that industry said would spell its demise.

The original draft EU law proposed that so-called CNAV funds, a deposit-like facility mainly used by companies to park cash, should hold a capital buffer equivalent to 3 percent of their assets.

The aim is to ensure stability and avoid the panicked withdrawals seen when U.S. bank Lehman Brothers collapsed in 2008. The industry and corporate treasurers have said that such a buffer would make CNAV or constant net asset value funds, uneconomic.

Following intense negotiations in the European Parliament over the past week, a cross-party compromise has been reached on CNAVs, the document showed.

Three new categories of CNAVs would be created, one for holding EU government debt, another for retail investors and neither would be required to hold a capital buffer.

A third category, a so-called "low volatility" version, would effectively be a vehicle for phasing out remaining CNAV funds over five years.

All three would have fees and "gates" aimed at slowing down or stopping runs by making it harder and expensive for investors to pull out money in a crisis.

Ahead of vote in parliament's economic affairs committee at 0800 GMT on Thursday, Green Party lawmaker Eva Joly said the deal lets money market funds off the regulatory hook.

"The compromise text to be voted on Thursday would not include any capital buffer ... following intense industry lobbying," Joly said in a statement.

"CNAV funds for sovereign bonds and retail investors would be preserved in spite of their nefarious role in speculating on sovereign bonds."

The European Parliament and EU states have to jointly agree on a single text for the draft rules to become law. (Reporting by Huw Jones, editing by David Evans)