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4 Securities Lending to Support More Autonomous EU Capital Markets: Priorities for the Next 5 Years

Five Priorities for the New

Legislative Term (2019-2024),

Nine Concrete Recommendations Priority 1: Grow the Supply of Securities within CMU27

The best way to strengthen the ability for companies to tap EU capital markets financing, is by increasing the supply of
capital available in these markets.

Here, we consider five priority areas where EU policy makers can help bolster the securities lending market as a thriving, At the same time, Europe also faces a pensions gap, and should We would therefore urge the European Commission (EC)
well-regulated part of an EU CMU. These priorities take into account the role EU citizens expect financial services to play in stimulate its citizens to invest in the future. to review the UCITS framework to lift some of the restrictions
our economy and communities – in each case with concrete recommendations. For these reasons, it is important for the EU to encourage put on them to lend securities. Although we fully understand
citizens to reap the benefits of investing their savings in the UCITS products are meant to have certain built-in safety
mechanisms, we believe securities lending can make these
capital markets. Quality EU labels such as UCITS, ELTIFs funds more attractive for savers without jeopardising their
and more recently the PEPP are great vehicles for savers to structural integrity.
participate in capital markets.
Stronger participation of EU funds in the securities lending
Yet, UCITS funds, who are the largest supply source for business would also help reduce Europe’s increased reliance on
securities, currently account for a only 16% of the securities foreign supply in Europe’s securities lending market (e.g. via
out on loan, whilst representing 48% of potential supply of non-EU Sovereign Wealth Funds (SWFs)), which is most pertinent
2
securities . In addition, the take-up for ELTIF remains limited, for government bonds.
and the PEPP product has yet to kick off. One way to make
investing in these funds more attractive would be to allow them
to further participate in securities lending. The reason is that the
income a fund can generate from lending out its securities can
flow back to the investor, either in direct profit or by reducing
management fees.

Key Recommendations on CMU:
To both stimulate greater retail participation in EU capital markets and reduce growing dependency on non-EU supply of
securities, EU policy makers should:
1 In the short-term, review the current UCITS framework to allow them to further participate in securities lending.

2 Provide better access to central clearing for UCITS funds to allow them to compete more broadly with other major
trading blocks.

2 March 2019 ISLA Securities Lending Market Report: https://www.isla.co.uk/assets/smart-pdfs/isla-securities-lending-market-report/#p=12