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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
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           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
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