13.2.2007   

EN

Official Journal of the European Union

C 31/1

1.1

An efficient and well-integrated financial system is important for the smooth and effective transmission of monetary policy throughout the euro area. While this applies to all segments of the financial system, it is of particular importance with regard to the market segment most directly relevant for the implementation of monetary policy, namely the money market. The European short-term securities market is the least integrated money market segment in the EU. Therefore, the ECB follows with particular attention regulatory as well as market-led initiatives that aim at enhancing the integration, development and transparency of short-term securities markets in Europe (4).

1.2

The even implementation and interpretation of EU legislation is a crucial dimension for building up the internal market in financial services. Against this background, the choice of a directive as the legal instrument to achieve this even implementation in this case seems to contradict the objective of the implementing measures in relation to the UCITS Directive, which is to clarify the definitions ‘in order to ensure uniform application of this Directive throughout the Community’ (5), to ‘enhance a common reading as to whether certain assets are eligible for investment under the UCITS Directive’, to ‘reduce the potential of divergent interpretations of the UCITS Directive’ and to ‘improve legal certainty and enable a more coherent interpretation of the UCITS Directive’ (6). A proposed implementing measure in the form of a regulation containing detailed provisions capable of direct application to all UCITS could more appropriately remedy the current uneven application of some general principles contained in the UCITS Directive (for instance, regarding the rules on the eligibility of money market instruments).

2.1

First, as regards disclosure and information requirements, the proposed directive introduces various requirements depending on the legal nature of the issuer. For example, for money market instruments issued by establishments subject to prudential supervision (7), the information can be confined to either information on the issue or issuance programme or on the legal and financial situation of the issuer prior to the issue of the money market instrument (8). Whereas for non-financial corporations (9) the requirements include information on the issue and issuance programme as well as on the legal and financial situation of the issuer. The Commission indicates that this differentiation takes into account that ‘e.g. certain certificates of deposits would have difficulties to comply with certain criteria under Article 5(2)’ of the proposed directive. In general, the ECB considers that for the smooth and efficient functioning of the market, it is important that adequate and standardised information, as well as standardised statistics, are accessible to market participants. Therefore, it is recommended to adopt the same wording for Article 5(3)(a) as for Article 5(2)(a) of the proposed directive.

2.2

Second, the inclusion of money market instruments issued by a Member State's local or regional authority (or, in the case of a Member State that is a federal State, a member of the federation) that are not guaranteed by a Member State under Article 5(2) ('other' issuers), rather than under Article 5(4) of the proposed directive (i.e. alongside other public entities of Member States), might require further consideration. Local, regional and federal authorities in the EU generally enjoy financial support from their respective Member States as well as a special status under national insolvency laws. Moreover, the question of whether the liabilities of local, regional and federal authorities in the EU are formally guaranteed by their Member States could raise complex questions in certain cases, and might not therefore provide an appropriate basis for differentiating instruments with or without guarantee. Consideration could be given to treating all regional, local and (for the UCITS Directive) federal authorities of Member States in the same way in both the ‘Level 1’ UCITS Directive (the first indent of Article 19(1)(h)) and the Prospectus Directive 2003/71/EC (10). Similar arguments can be made for public international bodies. Thus, the Commission might consider amending Article 5(2) of the proposed directive by deleting the reference to local, regional and federal authorities of Member States, as well as public international bodies, in order to treat all such public entities in the same way.

2.3

Third, Article 5(3)(c) of the proposed directive refers to the need for reliable statistics on the issue or issuance programme ‘or other data enabling an appropriate assessment of the credit risks related to the investment in such instruments’. It should be noted in this respect that the availability of reliable statistics and the availability of other data enabling an assessment of credit risks are two distinct and desirable features of a market, which overlap only partially. Therefore, one should not be treated as equivalent to the other. Furthermore, this criterion is partly redundant if read in conjunction with Article 5(1)(b) which already provides that, for the financial instruments referred to in Article 19(1)(h) of the UCITS Directive, information should be available allowing ‘an appropriate assessment of the credit risks related to the investment in such instruments’. Therefore, the reference to ‘or other data enabling an appropriate assessment of the credit risks related to the investment in such instruments’ in Article 5(3)(c) of the proposed directive should be deleted.

2.4

Fourth, the reference to the ‘control of the information’ by ‘an appropriately qualified third party’ in Article 5(2)(c) of the proposed directive gives rise to some important difficulties of interpretation. In its previous explanatory notes (11), the Commission indicated that dealers, auditors, public bodies or other market structures could be eligible to the extent that they are not subject to instructions from the issuer. According to the Commission, the purpose of this criterion is to ensure that information on instruments issued by corporate entities — particularly considering that these entities are not supervised or regulated — is reliable and subject to a qualified scrutiny. However, the Commission's proposal leaves some flexibility as to how this can be achieved and does not impose a specific structure. It is not clear who should ultimately decide on the ‘appropriateness’ of the third party. In addition, Article 5(2)(c) of the proposed directive provides that the control of the information concerns both the issue or the issuance programme and the legal and the financial situation of the issuer. However, depending on the nature of the third party, the controling entity will not necessarily ‘control’ both of these elements. For instance, an auditor will control the financial situation of the issuer but not the programme. It is doubtful that law firms and dealers could be considered as controlling financial information. Moreover, a public entity might control the programme but not necessarily the financial situation of the issuer. Lastly, the introduction of unspecified information control mechanisms by ‘an appropriately qualified third party’ (12) into the proposed directive would seem to approximate the information requirements for money market instruments to those applied for formal prospectuses. In this respect it should be underlined that prospectus requirements appear to be exhaustively covered by the Prospectus Directive, under which money market instruments are exempted from the definition of securities (13).

2.5

Evidently, the discretion granted to Member States regarding the application of this criterion contradicts the objective of these implementing measures, which is to provide more legal certainty and to ensure uniform application. Therefore, unless it is possible to clarify the meaning of the provision, which seems to be problematic in view of the various situations possibly covered, it is suggested to drop this criterion altogether.

2.6

Fifth, Article 5(4) of the proposed directive provides that, for all money market instruments covered by the first indent of Article 19(1)(h) of the UCITS Directive (except those referred to in paragraph 2 of this Article), appropriate information shall consist of information on the issue or issuance programme or on the legal and financial situation of the issuer prior to the issue of money market instrument. In terms of issuers, the first indent of Article 19(1)(h) of the UCITS Directive covers in particular non-Member States, the EU, the European Investment Bank, the ECB and central banks of a Member State. This proposed provision would therefore apply to the investment by collective investment undertakings in certain instruments issued by central banks and used in the implementation of monetary policy (14). Taking into account the fact that the information on the issuer's legal and financial situation would not be of direct relevance for UCITS investors in the case of central banks, and also having regard to the Eurosystem's prerogatives regarding the conditions of issuance of such instruments (15), the ECB proposes to amend Article 5(4) of the proposed directive in order to exclude all money market instruments issued by either the ECB or a Member State central bank from the application of that paragraph.

2.7

Finally, Article 3(2) of the Commission's proposed directive defines money market instruments as instruments normally dealt in on the money market which fulfil one of the following criteria: (i) they have a maturity at issuance of up to 397 days; or (ii) they have a residual maturity of up to 397 days; or (iii) they undergo regular yield adjustments in line with money market conditions at least every 397 days; or (iv) their risk profile corresponds to that of financial instruments which have a maturity of up to 397 days or are subject to a yield adjustment as referred to in point (iii). The Commission's attention is drawn to the fact that this definition is not consistent with the definition of money market instruments in Regulation ECB/2001/13 (16), which refers to a residual maturity of up to and including one year, or regular yield adjustments in line with money market conditions at least every 12 months. The ECB is aware that the proposed 397 day period is the outcome of a suggestion by CESR that the 12-month maturity be extended to 397 days to include the risk of settlement delays which may result in a breach in the event of a delay in settling the instrument (17). It is suggested to return to the solution proposed by the Commission in earlier drafts of the proposed directive, which set a maturity period of one year ‘without prejudice to any additional delay for settlement as provided for in the issue or the issuance programme’.