Securities lending arrangements permitted for UCITS

On 28 May 2012, the Romanian National Securities Commission (“CNVM”) published on its website Disposition no. 13 of 25 May 2012 (the “Disposition”), regarding the possibility of undertakings for collective investments in transferable securities (“UCITS”) entering into securities lending arrangements.

The management company of an UCITS or the self-managed UCITS can enter into a securities lending arrangement with other intermediaries (e.g. investment companies authorized by the CNVM, credit institutions authorized by the National Bank of Romania, etc.) that are participants in the central depositary system. Before pursuing securities lending activities, the UCITS should modify its prospectus, in accordance with CNVM Regulation 15/2004, so as to expressly indicate therein, at least:

(i) the scope of lending arrangements;

(ii) the conditions and limits for securities lending operations; and

(iii) the risks description, including the fact that these risks are adequately assessed in the UCITS risk management system.

Possible intra-group conflicts of interest will be mitigated by lending only under the terms set by the UCITS in its documents (e.g. prospectus) with respect to the price, rating, risk, etc. The limit up to which a UCITS may grant securities loans is 10% of its assets and for a period of time that must not exceed 30 days.

The UCITS can accept security in the form of cash, tradable government bonds with a maturity date longer than 12 months, as well as shares of listed companies included in the BET and BET-FI indices. A 120% overcollateralization is required for the entire period of the securities loan. However, the collateral cannot be used by the lender. The security agreement will indicate that the transfer of securities is made for lending purposes and does not imply an ownership transfer of securities.

The profit derived from securities lending arrangements is considered as UCITS income and will be registered accordingly for accounting purposes as the deposit interest rate.

The CNVM must be notified about the conclusion of a securities lending arrangement within 2 business days of an addendum to the standard contracts being entered into.

The provisions of the Disposition are also applicable to undertakings for collective investments other than UCITS (i.e. closed-end investment funds, closed-end investment companies), under the condition that the risk management regulations are respected.

The actual impact of the CNVM Disposition on the market will be assessed based on the data available in the future.

The aforementioned text is for information purposes only and must not be construed as legal advice, nor relied upon as enforceable legislation.