COLL 5.4 Stock lending

1. (1)

   Subject to (2), this section applies to an ICVC, the depositary of an authorised fund and an authorised fund manager in any case where the authorised fund is a UCITS scheme or a non-UCITS retail scheme.9

2. (2)

   This section does not apply in any case where a UCITS scheme or a non-UCITS retail scheme is a regulated money market fund. The Money Market Funds Regulation sets out restrictions in relation to stock lending and repo contracts that apply in relation to regulated money market funds.9

1. (1)

   6An authorised fund may only enter into a stock lending arrangement or repo contract in accordance with the rules in this section if the arrangement or contract is:

   1. (a)

      for the account of and for the benefit of the scheme; and

   2. (b)

      in the interests of its unitholders.

2. (2)

   An arrangement or contract in (1) is not in the interests of unitholders unless it reasonably appears to the ICVC or authorised fund manager of an authorised fund to be appropriate with a view to generating additional income for the authorised fund with an acceptable degree of risk.

1. (1)

   An ICVC, or the depositary of an authorised fund acting in accordance with the instructions 6of the authorised fund manager4, may enter into a repo contract, or a1 stock lending arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C), but only if:

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   1. (a)

      all the terms of the agreement under which securities are to be reacquired by the depositary for the account of the ICVC, AUT or ACS4 are in a form which is acceptable to the depositary and are in accordance with good market practice;

      44
   2. (b)

      the counterparty is:1

      1
      1. (i)

         an authorised person; or1

      2. (ii)

         a person authorised by a Home State regulator; or1

      3. (iii)

         a person registered as a broker-dealer with the Securities and Exchange Commission of the United States of America; or1

      4. (iv)

         a bank, or a branch of a bank, supervised and authorised to deal in investments as principal, with respect to OTC derivatives by at least one of the following federal banking supervisory authorities of the United States of America:1

         1. (A)

            the Office of the Comptroller of the Currency;1

         2. (B)

            the Federal Deposit Insurance Corporation; 1and8

         3. (C)

            the Board of Governors of the Federal Reserve System; and1

         4. (D)

            [deleted]8

            1
   3. (c)

      high quality and liquid 6collateral is obtained to secure the obligation of the counterparty under the terms referred to in (a) and the collateral is:

      1. (i)

         acceptable to the depositary;

      2. (ii)

         adequate; and

         1
      3. (iii)

         sufficiently immediate.

         1
2. (2)

   The counterparty for the purpose of (1) is the person who is obliged under the agreement referred to in (1)(a) to transfer to the depositary the securities transferred by the depositary under the stock lending arrangement or securities of the same kind.

3. (3)

   (1)(c) does not apply to a stock lending transaction made through Euroclear Bank SA/NV's Securities Lending and Borrowing Programme.1

1. (1)

   Collateral is adequate for the purposes of this section only if it is:

   1. (a)

      transferred to the depositary or its agent;

   2. (aa)

      6for a UCITS scheme, received under a title transfer arrangement;

   3. (ab)

      6for a UCITS scheme, at all times equal in value to the market value of the securities transferred by the depositary plus a premium;

   4. (b)

      for a non-UCITS retail scheme, at all times 6at least equal in value 6to the value of the securities transferred by the depositary; and

   5. (c)

      for a non-UCITS retail scheme,5in the form of one or more of:

      1. (i)

         cash; or

      2. (ii)

         [deleted]1

         1
      3. (iii)

         a certificate of deposit; or

      4. (iv)

         a letter of credit; or

      5. (v)

         a readily realisable security; or1

         1
      6. (vi)

         1commercial paper with no embedded derivative content; or

      7. (vii)

         1a qualifying money market fund.

2. (1A)

   Where the collateral is invested in units in a qualifying money market fund managed or operated by (or, for an ICVC, whose ACD is) the authorised fund manager of the investing scheme or an associate of that authorised fund manager, the conditions in COLL 5.2.16 R (Investment in other group schemes) must be complied with whether or not the investing scheme is a UCITS scheme or a non-UCITS retail scheme.1

3. (2)

   Collateral is sufficiently immediate for the purposes of this section if:

   1. (a)

      it is transferred before or at the time of the transfer of the securities by the depositary; or

   2. (b)

      the depositary takes reasonable care to determine at the time referred to in (a) that it will be transferred at the latest by the close of business on the day of the transfer.

4. (3)

   The depositary must ensure that the value of the collateral at all times meets the requirement of either (1)(ab) or (1)(b), as appropriate6.

5. (4)

   The duty in (3) may be regarded as satisfied in respect of collateral the validity of which is about to expire or has expired where the depositary takes reasonable care to determine that sufficient collateral will again be transferred at the latest by the close of business on the day of expiry.

6. (5)

   Any agreement for transfer at a future date of securities or of collateral (or of the equivalent of either) under this section may be regarded, for the purposes of valuation under COLL 6.3 (Valuation and pricing) or this chapter, as an unconditional agreement for the sale or transfer of property, whether or not the property is part of the property of the authorised fund.

7. (6)

   Collateral transferred to the depositary is part of the scheme property for the purposes of the rules in this sourcebook, except in the following respects:

   1. (a)

      it does not fall to be included in any valuation for the purposes of COLL 6.3 or this chapter, because it is offset under (5) by an obligation to transfer; and

   2. (b)

      it does not count as scheme property for any purpose of this chapter other than this section.

8. (7)

   Paragraph (5) and (6)(a) do not apply to any valuation of collateral itself for the purposes of this section.

There is no limit on the value of the scheme property which may be the subject of repo contracts or1 stock lending transactions within this section.