ESMA drafts securities lending rules for ETFs
31 January 2012 Paris
Image: Shutterstock
ESMA has introduced requirements for ETF securities lending and collateral management while also broadening the scope to include all UCITS. In general, posted collateral should follow existing UCITS diversification rules and should have a documented and appropriate haircut policy for each category of assets, the European markets regulator said.
UCITS diversification rules essentially prescribe restrictions on the proportion of any single component of an index replicating product. ESMA's recommendations are being viewed as letting securities lending off lightly as fears had been growing that the practice might have had heavier regulatory requirements.
Steven Maijoor, ESMA Chair, said, “In outlining the draft future rules for investment funds today, ESMA is proposing to reinforce the legal framework applicable to ETFs and other types of UCITS. The aim of these guidelines is to enhance investor protection and limit the risk of certain practices by strengthening, in particular, the standards applicable to collateral received in the context of activities such as securities lending.
"Moreover, the proposed guidelines improve the quality of the information provided to investors to allow them to make informed investment decisions. Furthermore, the draft guidelines help address concerns arising from the increase in the number of complex products sold to retail investors and will contribute to the convergence of the regulatory framework for these products.”
Comments on the guidelines will be accepted to 30 March and final guidelines are expected to be ready for adoption by mid-2012.
ESMA's final guidelines will be published in the same year that the FSB is looking into regulation of activities related to securities lending and repos, which are expected to include measures on margins and haircuts. FSB's policy recommendations are expected at the end of 2012.
UCITS diversification rules essentially prescribe restrictions on the proportion of any single component of an index replicating product. ESMA's recommendations are being viewed as letting securities lending off lightly as fears had been growing that the practice might have had heavier regulatory requirements.
Steven Maijoor, ESMA Chair, said, “In outlining the draft future rules for investment funds today, ESMA is proposing to reinforce the legal framework applicable to ETFs and other types of UCITS. The aim of these guidelines is to enhance investor protection and limit the risk of certain practices by strengthening, in particular, the standards applicable to collateral received in the context of activities such as securities lending.
"Moreover, the proposed guidelines improve the quality of the information provided to investors to allow them to make informed investment decisions. Furthermore, the draft guidelines help address concerns arising from the increase in the number of complex products sold to retail investors and will contribute to the convergence of the regulatory framework for these products.”
Comments on the guidelines will be accepted to 30 March and final guidelines are expected to be ready for adoption by mid-2012.
ESMA's final guidelines will be published in the same year that the FSB is looking into regulation of activities related to securities lending and repos, which are expected to include measures on margins and haircuts. FSB's policy recommendations are expected at the end of 2012.
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