ESMA starts clock on UCITS guidelines compliance
19 December 2012 Paris
Image: Shutterstock
National authorities of EU member states have two months to let the European Securities and Markets Authority (ESMA) know whether they will comply with its consolidated guidelines on exchange-traded funds (ETFs) and other UCITS issues.
ESMA merged them with its guidelines on repo and reverse repo agreements on 18 December. They will become effective from the end of the two-month notice period.
The authority released proposals for UCITS funds entering into repo and reverse repo agreements in July as a part of its controversial guidelines on ETFs and other UCITS issues that affect securities lending.
It published its repo and reverse repo guidelines in their final form on 4 December following a consultation period.
Under the repo and reverse repo guidelines, UCITS funds should be able to recall assets that are subject to repo arrangements at any time, while those that are engaged in reverse repo should be able to recall the full amount of cash at any time on either an accrued or mark-to-market basis.
ESMA originally proposed allowing a proportion of assets “to be non-recallable at any time at the initiative of the UCITS”, and then only assets in overnight repo and reverse repo arrangements would be recallable at any time.
Its guidelines now apply to all fixed-term repo and reverse repo agreements that do not exceed seven days.
ESMA’s guidelines on ETFs and other UCITS caused confusion when they were published, leading some commentators to believe that under the guidelines all revenue that is earned from securities lending would have to be returned to a UCITS fund and its investors.
An ESMA spokesperson confirmed that all net revenue must be returned, but this does not include the cost of running a securities lending programme.
ESMA merged them with its guidelines on repo and reverse repo agreements on 18 December. They will become effective from the end of the two-month notice period.
The authority released proposals for UCITS funds entering into repo and reverse repo agreements in July as a part of its controversial guidelines on ETFs and other UCITS issues that affect securities lending.
It published its repo and reverse repo guidelines in their final form on 4 December following a consultation period.
Under the repo and reverse repo guidelines, UCITS funds should be able to recall assets that are subject to repo arrangements at any time, while those that are engaged in reverse repo should be able to recall the full amount of cash at any time on either an accrued or mark-to-market basis.
ESMA originally proposed allowing a proportion of assets “to be non-recallable at any time at the initiative of the UCITS”, and then only assets in overnight repo and reverse repo arrangements would be recallable at any time.
Its guidelines now apply to all fixed-term repo and reverse repo agreements that do not exceed seven days.
ESMA’s guidelines on ETFs and other UCITS caused confusion when they were published, leading some commentators to believe that under the guidelines all revenue that is earned from securities lending would have to be returned to a UCITS fund and its investors.
An ESMA spokesperson confirmed that all net revenue must be returned, but this does not include the cost of running a securities lending programme.
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