Securities Lending Times | Associations call for delay to SRD II

Eleven trade associations have jointly written to the European Commission requesting a 12-month delay to the timetable for implementing the second Shareholder Rights Directive (SRD II), currently scheduled to come into force in September.

SRD II is set to impact securities lending markets by changing rules around corporate governance, including requiring asset managers to disclose to institutional investors their use of proxy advisors and their policy on securities lending to the regulator.

Under the new rules, any lent shares under a securities lending agreement would also have to be recalled for voting at general meetings.

Among SRD II’s primary aims is to crack down on the misuse of voting rights, which have in the past been abused in several ways including via the borrowing of shares ahead of key corporate action dates to influence a company’s voting results.

After years of drafting and implantation, in-scope entities are expected to be able to demonstrate compliance with the minimum requirements as outlined in regulation by September.

However, the associations say that prior concerns around their members’ ability to meet this deadline have been compounded by the wide-spread disruption caused by the COVID-19 pandemic.
Consequently, they says it will be “difficult, or nearly impossible, to meet the implementation deadline of 3 September”.

Among the bodies to sign the letter, which was sent last week, are the International Securities Lending Association, the Association for Financial Markets in Europe, and the Securities Market Practice Group.

Other signatories of the letter include the European Banking Federation, the Association of Global Custodians, the European Central Securities Depositories Association, the European Savings and Retail Banking Group, the Associazione Intermediari Mercati Finanziari, the Association française des Professionnels des Titres, the European Association of Co-operative Banks, and EuropeanIssuers.

In outlining their rationale for the reprieve, the associations explain that 12 months are needed “in order to ensure that the SRD II implementation does not coincide (with further adverse impacts on all stakeholders) with the highly active period of annual general meetings and dividend distributions”.

The group note that these considerations are in line with the reasoning for selecting the current September deadline.

The associations acknowledge that the practical steps to applying a delay involve a lengthy legislative as EU regulatory timetables are enshrined in law. Therefore, the group says it would also welcome “alternative equivalent measures” that would amount to an unofficial delay.

The precedent for such action by EU regulators has been reinforced several times since the pandemic began including most recently with the Securities Financing Transaction Regulation, which was pushed back by three months due to pandemic-related disruption.

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