The attached analysis on the impact of the proposed FTT which is under discussion by 11 member states of the EU can be found here.
The analysis shows that at least 65% of the European securities lending market would be rendered uneconomic by the tax and that this would have negative consequences for long term investors, the financial markets and the supply of collateral in the system.
We will be sharing this analysis with key policymakers.
European Commission sets out details of FTT
The European Commission has now published its detailed proposals for an EU Financial Transaction Tax to be implemented under the "enhanced cooperation procedure" across France, Germany, and nine other EU Member States. Disappointingly, although somewhat expected the scope of the tax is very wide and it is proposed that securities lending and repo transactions will be subject to the tax on one leg of the transaction at 0.1%.
The ISLA Tax Group has been following developments and we will be considering what actions we may take to try and get a more appropriate outcome for securities lending transactions. We expect there to be considerable discussion and negotiation between the member states through 2013 and that it is likely that the measures proposed will change. We also believe that the timetable proposed by the Commission is extremely optimistic.
Attached is a link to a briefing note from Clifford Chance which provides more detail on the proposed scope of the proposal. A link to the Commission's draft is here.
The International Securities Lending Association (ISLA) is pleased to announce that Andrew Dyson will be assuming the newly created role of Chief Operating Officer starting March 2013. Previously Andrew had product responsibility for the Wholesale sector at Markit where he had overall responsibility for managing their securities finance consultancy business. A hugely experienced securities finance professional , Andrew also held positions at Dataexplorers, Prudential M&G and Deutsche Bank, spanning business development, risk management, agency securities lending and repo product management roles.
The new ISLA position was created to help the association meet the ever increasing demand for its services from member firms. As COO, Andrew will be responsible for a number of the association’s activities including bolstering ISLA’s ability to engage effectively with regulators and policymakers.
to see the full press release please select here
The International Securities Lending Association (ISLA) response to FSB’s Consultative Document: A Policy Framework for addressing Shadow Banking Risks in Securities Lending and Repos published 18th November 2012,sent to FSB 14 Jan 2013.
ESMA has now published the official translations of the UCITS ETF guidelines on its website today, which triggers a two month period during which national authorities have to declare to ESMA whether they plan to comply, or explain the reasons of non-compliance.
We are still expecting ESMA to publish a Q&A document to supplement the guidance but the timing of this is not known.
ESMA has published its final guidelines on repurchase and reverse repurchase agreements for UCITS funds. You may recall that when ESMA published it’s guidance for UCITS in the summer it consulted on the use of repos by UCITS with a view to issuing further guidance. The latest guidelines state that UCITS should only enter into such agreements if they are able to recall at any time any assets or the full amount of cash. ESMA considers fixed-term repurchase and reverse repurchase agreements that do not exceed seven days as arrangements that allow the assets to be recalled at any time.
The guidelines will now be translated into all EU languages and will be incorporated into ESMA’s guidelines on ETFs and other UCITS issues, which were published in July 2012. The full set of guidelines will enter into force two months after the publication of the translations
The FSB has published a consultation document in which it sets out certain policy recommendations for “Addressing Shadow Banking Risks in Securities Lending and Repo”. The FSB is looking for responses to its paper by 14th January and we will be setting up an initial call for members to start the process of formulating an ISLA response. As the paper has only just been published we have not yet reviewed it in detail. As expected the paper contains recommendations covering transparency, minimum haircuts, cash collateral reinvestment and rehypothecation. The paper also mentions CCPs but does not suggest that these be mandatory. Encouragingly the paper focuses on actual shadow banking risks as opposed to all securities lending activity (an approach which we have argued for). This appears to mean that the discussion around minimum haircuts is focused on financing transactions rather than vanilla securities lending.
We will produce a more thorough analysis of the paper shortly and set up a call in the next two weeks. In the meantime please feel free to share any observations or comments that you think are important.
http://www.financialstabilityboard.org/publications/r_121118b.pdf
ISLA responds to the European Commission’s consultation on UCITS
In this consultation the EC is seeking feedback on policy thinking for UCITS including their use of Efficient Portfolio Management techniques such as securities lending. ISLA’s response can be found here.
