SECURITIES LENDING & REPO MARKETS

A CACEIS PRODUCT DEVELOPMENT PUBLICATION - OCTOBER 2010

OVERVIEW OF THE SECURITIES FINANCING MARKETS

The EMA

1.3.3

The European Master Agreement (EMA) was released in 1999 by the European Banking Federation in co-operation with the European Savings Banks Group. The EMA aimed to consolidate into a single set of harmonised documents, various master agreements used within the euro zone and certain neighbouring countries, particularly for repurchase trans- actions and securities lending. At the same time, parties to the EMA are able to choose the applicable law, jurisdiction and contractual language and can take into account various specific national legal requirements. The EMA was primarily designed to replace master agreements existing under the laws of various continental European countries, which were used predominantly (though not exclusively) in a domestic context. It should also be suitable, however, for cross-border transactions.

1.3

The EMA is a multi-jurisdictional and multi-product agreement:

> Multi-jurisdictional: It is intended to be used in different jurisdictions under the laws of different jurisdictions in different languages, particularly within the EU;

> Multi-product: It enables market participants to document potentially all trading transac- tions under a single master agreement, including repurchase transactions and securities loans. The structure of the agreement is open for new product annexes to be added in order to expand the scope of the agreement to include other financial transactions, such as FX, swaps and options 6 .

In the framework of arrangements involving an agent or principal intermediary, it is highly recommended to sign an operating memorandum between the beneficial owner and this intermediary (e.g. custodian bank), in addition to these standard agreements. This document should describe in detail all processes from the nego- tiation to the termination of the transaction. > Thus, the arrangements to be followed in the event of a rights issue or other cor- porate action should be clearly established by all parties before a security loan is made, with due recognition of local market rules and practice and any deadlines imposed by the various parties’ local agents or custodians. Moreover, lenders need to be aware that if they lend their entire holding of a particular security, they may cease to receive information about corporate events in relation to it. > In the context of securities recall or collateral substitution, the rights and obliga- tions of each party, as well as the procedure to follow and the time period allow- able for the return of securities, should be clearly established.

6 Source : European Savings Banks Group, Press Release: “European Master Agreement is published”, 29 October 1999

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