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COLLECTIVE INVESTMENT AND SECURITIES LOAN INSTITUTIONS. AN UNJUSTIFIABLE LEGISLATIVE LACK

"We must not forget that the majority of Spanish IICs are UCITS funds and the prohibition we are questioning is significantly damaging millions of small investors"
Gregorio Arranz Pumar. Lawyer.

One of the main anomalies of our financial system is the almost absolute prohibition that weighs on the IIC to be able to mobilize their portfolios via loan of values.

Indeed, although article 30.6 of IIC Law 35/2003 enabled the Ministry of Economy to regulate this figure, the truth is that such regulation has not occurred (DA V of RD 875/2015, on account entries, it only allows IICs to lend securities to facilitate the operation of credit to the market and stock market settlement). 

The prohibition supported by the IIC notably restricts the use in our country of the figure of the securities lending, a figure that, as is well known, has a clearly positive impact on the securities market since, among other effects:

  • Increase settlement efficiency and reduce risks.
  • It gives stability to prices and adds liquidity.
  • It allows borrowers to use a much broader range of investment strategies and especially the power to act as “market makers”.

In addition, and very especially, the prohibition that Spanish IICs still suffer from being securities lenders, deprives them of:

  • A very useful way to maximize the profitability of your portfolio with minimal risk (due to the guarantees that are always used).
  • A way to diversify your sources of income and reduce costs (especially custody).

Do not forget that Most of the Spanish IICs are UCITS funds and the prohibition that we question is significantly harming millions of small investors who are the main claimants of said products.
On the other hand, since 2005, with the so-called UCITS III, European regulations allow IICs to use securities lending, considering it as the prototype technique for better portfolio management. Subsequent to UCITS III, the Implementation Directive 2007/16 and the guidelines of the CESR and then the ESMA have clarified and specified their use.

In September 2008, the Ministry of Economy had finalized the preparation of a draft Order for the development of the aforementioned article 30.6, which was even favorably ruled by the Council of State and which was not approved due to the circumstances of the moment. It was a text that combined security and flexibility, and that satisfied not only the industry, but also and especially the CNMV for the precautions and prudential rules it included.

The aforementioned project, with minimal changes, should become the norm as soon as possible, mainly for the benefit of small investors and thus eliminating a domestic singularity that is clearly at odds with the European regulatory landscape today.

Gregorio Arranz Pumar. Lawyer.

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About the Blog

Blog Tribute Antonio Moreno

Blog Tribute Antonio Moreno

Blog tribute to Antonio Moreno Espejo, who was Director of Authorizations and Registrations, National Securities Market Commission (CNMV), co-director of the Financial Markets Forum of Fide and Member of the Academic Council of FIDE. This collective blog contains articles and reflections generated by people who regularly participate in the Financial Markets Forum of Fide.

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