In its response to the European Securities and Markets Authority’s (ESMA) call for evidence (CfE) on the review of the UCITS Eligible Assets Directive, the Federation of European Securities Exchanges (FESE) has stated its belief that a more flexible approach to the directive could improve market liquidity and the attractiveness of EU markets.
The CfE was launched following a formal request from the European Commission for technical advice on its review of the UCITS eligible assets directive. ESMA’s consultation investigated whether divergences had arisen across member states around this directive, with the goal of providing a series of recommendations on how it could be revised in line with market developments.
Comments on the CfE were submitted to ESMA between 7th May and 7th August 2024.
In its response, FESE particularly drew attention to the potentially detrimental impact of the 5/10/40 Rule for investments in transferable securities and money market instruments.
This rule states that funds can only invest up to 10% in a single issuer, and that concentrated investments in excess of 5% cannot exceed 40% of the total portfolio. FESE recommends that this structure be reviewed, and proposes the implementation of a more flexible 20/40 rule in its place.
In addition, the federation said, inconsistencies between banking, clearing and EU funds regulation are discouraging buy-side entities from using central clearing for their securities financing transactions. To rectify this, it suggests that targeted amendments are made to both the UCITS and money market fund frameworks to encourage more voluntary clearing and provide efficiencies for the buy-side.
In its response, the European Fund and Asset Management Association (EFAMA) advised that ESMA avoid “full-fledged review” of the eligible assets regime to ensure the credibility and recognition of the UCITS label is maintained. Instead, it says targeted guidance could facilitate “a more harmonised interpretation of the existing rules”.
©Markets Media Europe 2024
