ETF guidelines rule on lending revenues

gavellaw booksGuidelines for practices within the exchange-traded funds (ETFs) sector require revenue from securities lending to be returned to the fund. The guidelines were released this week by the European Securities and Markets Authority (ESMA) after a consultation exercise about the regulatory regime in which ETFs and certain other Ucits funds operate, with an emphasis on the use of ‘efficient portfolio management’ techniques, such as securities lending. ESMA said the exercise showed that existing regulations were not sufficient to take account of specific features and risks associated with these types of funds and practices. ESMA stopped short of limiting the amount of a portfolio that can be put on loan, but it did say securities on loan should be instantly recallable.

Securities lending applies to physically constructed ETFs, though other guidelines affect those that replicate indices using over-the-counter (OTC) swaps. For example, collateral for mitigating counterparty risk from OTC financial derivative transactions should comply with “very strict” qualitative criteria and specific limits in relation to diversification.

Steven Maijoor, ESMA chair, said the guidelines were aimed at strengthening investor protection.

 Joe Linhares, head of iShares in Europe, the Middle East and Africa at BlackRock’s iShare’s business, said the guidelines were a positive step towards investor understanding of risks but that various guidelines should apply also to other exchange-trade products. ©2012 funds europe

Executive Interviews

INTERVIEW: Put your money where your mouth is

Jun 10, 2016

At Kempen Capital Management, they believe portfolio managers should invest in their own funds. David Stevenson talks to Lars Dijkstra, CIO of the €42 billion manager.

EXECUTIVE INTERVIEW: ‘Volatility is the name of the game’

May 13, 2016

Axa Investment Managers chief executive officer, Andrea Rossi, talks to David Stevenson about bringing all his firm’s subsidiaries under one name and the opportunities that a difficult market...


ROUNDTABLE: Beyond the hype

Oct 13, 2016

The use of smart beta investing continues to grow. Our panel, made up of both providers and users, discusses what the strategy actually means, how it should be used and the kind of pitfalls that may arise when using this innovative investment technique.

MIFID II ROUNDTABLE: Following the direction of travel

Sep 07, 2016

Fund management firms Aberdeen and HSBC Global meet with specialist providers to speak about how the industry is evolving towards MiFID II.