“By definition, a reverse repo is the opposite of a repo, i.e. first buy assets and then resell them later” (final report, technical standards under SFTR and certain emir amendments, 31 March 2017, ESMA70-708036281-82, p. 353). On 4 December 2012, the European Securities and Markets Authority (ESMA) published its final guidelines 2012/722 on UCITS pensions and reverse retirement operations. These guidelines follow the consultation published in ESMA`s report and Consultation Document 2012/474 on the “revocability” of return agreements, published on 25 July last and containing guidelines on ETFs and other UCITS-related matters. UCITS in general and MMFs in particular make extensive use of reverse-pension arrangements (i.e.: Funds lend cash and receive securities guarantees), with some lending all of their cash on the terms of these agreements. Repurchase agreements (i.e. funds borrow cash and deposit securities guarantees) are expected to be of great interest to funds that will have to deposit cash guarantees with clearing houses when mandatory clearing of OTC derivatives applies from next year. ESMA has finalised its guidelines on securities lending (unlike repo and reverse pension schemes) in the ETF guidelines. The main directive on securities lending is that a “UCITS should ensure that it is still able to recall any securities lent or terminate a securities lending agreement into which it has entered”.
At that time, concerns were expressed that the application of this rule – i.e. all securities lent by the Fund had to be recalled immediately – to reverse-pension agreements would not allow funds to enter into term and pay-back agreements, and that is why ESMA continued to consult on this. . . .