ISLA offer triparty collateral help
12 September 2013 Paris
Image: Shutterstock
The International Securities Lending Association (ISLA) have published a guide to using triparty collateral services under the ESMA guidelines for ETFs and other UCITS issues.
This guide is intended to help depositories in establishing their triparty collateral services under the new ESMA guidelines, which come in to full force in February 2014.
Part of the European Securities and Markets Authority’s guidelines on ETFs and other UCITS issues concerns collateral management for OTC derivative instruments and efficient portfolio management techniques (EPM), such as securities lending activities.
The new collateral requirements apply to all collateral received in the context of OTC derivative instruments and EPM techniques, including overcollateralisation.
The partner and head of investment management at Luxembourg law firm Arendt & Medernach, Claude Kremer, said that collateral received under arrangements involving a transfer of title may be held by a custodian that is not the depositary of the UCITS.
However, this action may only be done if the custodian is a delegate of the depositary and that the depositary remains liable if the collateral is lost, he said. Tripartite agreements remain possible subject to the new rules.
He added that the 20 percent limit per issuer for collateral received refers to the NAV of the UCITS, not the basket of collateral.
“Where government bonds are received as collateral, this limit applies to each government issuer, not each issue. Cash collateral received by UCITS cannot be used for clearing obligations under EMIR.”
This guide is intended to help depositories in establishing their triparty collateral services under the new ESMA guidelines, which come in to full force in February 2014.
Part of the European Securities and Markets Authority’s guidelines on ETFs and other UCITS issues concerns collateral management for OTC derivative instruments and efficient portfolio management techniques (EPM), such as securities lending activities.
The new collateral requirements apply to all collateral received in the context of OTC derivative instruments and EPM techniques, including overcollateralisation.
The partner and head of investment management at Luxembourg law firm Arendt & Medernach, Claude Kremer, said that collateral received under arrangements involving a transfer of title may be held by a custodian that is not the depositary of the UCITS.
However, this action may only be done if the custodian is a delegate of the depositary and that the depositary remains liable if the collateral is lost, he said. Tripartite agreements remain possible subject to the new rules.
He added that the 20 percent limit per issuer for collateral received refers to the NAV of the UCITS, not the basket of collateral.
“Where government bonds are received as collateral, this limit applies to each government issuer, not each issue. Cash collateral received by UCITS cannot be used for clearing obligations under EMIR.”
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