Order ECM/1155/2025 of 14 October Regulating the Lending of Certain Securities and Financial Instruments of Collective Investment Undertakings

I. GENERAL PROVISIONS MINISTRY OF ECONOMY, COMMERCE AND ENTERPRISE 20793 Order ECM/1155/2025, of 14 October, regulating the lending of certain securities and financial instruments of collective investment institutions.

Article 30.6 of Law 35/2003, of 4 November, on Collective Investment Institutions, establishes that the securities and other assets forming the portfolio of financial collective investment institutions (CIUs) may be subject to securities lending operations within the limits and guarantees established by the Minister of Economy, Commerce and Enterprise.

Securities lending is a technique for efficient portfolio management consisting of the temporary transfer of certain financial instruments by a lender to a borrower, in exchange for other assets deposited as collateral and the payment of any agreed commissions.

The fundamental objective of this regulation is to enable the practice of securities lending by CIUs, allowing them to offer higher returns to their participants and shareholders, all without compromising investor protection and the security of their investments. To this end, the Order develops the rules applicable to securities lending operations, establishes a collateral regime for them, imposes internal control obligations on management companies and investment companies, and includes the obligations of the depositaries of the lending institutions, who must ensure compliance with the rules applicable to securities lending.

The Order is in line with Article 51.2 of Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), which establishes that Member States may authorize UCITS, under the conditions and limits they establish, to resort to techniques and instruments having as their object transferable securities and money market instruments, provided that the use of these techniques and instruments has the objective of efficient portfolio management.

The Order also takes into account the content of the Guidelines of the European Securities and Markets Authority (ESMA) on exchange-traded funds (ETFs) and other matters relating to UCITS (ESMA/2014/937ES) and Order EHA/888/2008, of 27 March, on operations of financial collective investment institutions with financial derivative instruments and clarifying certain concepts of the Regulations of Law 35/2003, of 4 November, on Collective Investment Institutions, approved by Royal Decree 1309/2005, of 4 November. Collective investment institutions carrying out securities lending operations must in any case comply with the rest of the obligations applicable to them.

Chapter I contains the general provisions on the operational procedures for securities lending for CIUs. It establishes the scope of the Order, the principles that should guide this practice, as well as the regime for possible lenders and borrowers. Regarding lenders, pursuant to Article 30.6 of Law 35/2003, of 4 November, on Collective Investment Institutions, the regulation enables securities lending by financial collective investment institutions included in Chapter I of Title III of said Law, with the exception of free investment CIUs, which could already lend their securities. As for potential borrowers, it lists the types of entities that may borrow securities from CIUs and requires them to demonstrate sufficient solvency.

Chapter II regulates the rules applicable to the securities lending operations of CIUs, establishing which securities are eligible for lending, the manner in which securities lending will be structured, the exercise of economic and political rights, and the regime for the cancellation of operations, among other aspects. Regarding eligible securities, in compliance with ESMA Guidelines on ETFs and other matters relating to UCITS (ESMA/2014/937ES), negotiable securities, including ETFs, and money market instruments will be included.

Chapter III, referring to collateral, establishes the mandatory nature of collateral for securities loans, introducing requirements regarding the level of coverage, delivery of collateral, admissible assets, and the possibility of reinvestment of collateral, among other issues.

Chapter IV contains information and internal control obligations for managers and investment companies, as well as the duties of settlement, custody, and supervision entrusted to depositaries.

The regulation contains a repealing provision that expressly repeals the Order of the Ministry of Economy and Finance of 31 July 1991, on the lending of securities by collective investment institutions and the regime for own resources, information, and accounting of management companies of collective investment institutions.

Final Provision First contains the competence titles under which the Order is issued. Final Provision Second authorizes the National Securities Market Commission to issue necessary provisions on accounting and specific information requirements regarding securities lending operations. Finally, Final Provision Third establishes the entry into force of the regulation on the day following its publication in the "Boletín Oficial del Estado".

The ministerial order complies with the principles of good regulation referred to in Article 129 of Law 39/2015, of 1 October, on the Common Administrative Procedure of Public Administrations.

The regulation is respectful of the principles of necessity and effectiveness, as its approval is necessary to allow securities lending by CIUs, in application of Article 30.6 of Law 35/2003, of 4 November, on Collective Investment Institutions. The regulation will allow Spanish CIUs to offer greater returns to their participants and shareholders, enhancing their competitiveness.

Regarding the principles of proportionality and efficiency, the objective of maximizing the profitability of CIUs through the regulation of securities lending must be balanced with sufficient protection of participants and shareholders. For this reason, it is necessary to introduce a series of rules, requirements, and limits, which constitute the minimum and essential safeguards to ensure that this practice is developed appropriately, guaranteeing transparency and risk control for the benefit of investors.

The regulation is consistent with the principle of legal certainty as it develops the specific provision of Article 30.6 of Law 35/2003, of 4 November, on Collective Investment Institutions, and clearly delimits the entities included in its scope of application, as well as the requirements and guarantees applicable to them. The content of the regulation is in accordance with national and Community legislation.

In application of the principle of transparency, and in compliance with Article 26 of Law 50/1997, of 27 November, of the Government, prior to the drafting of the ministerial order, the corresponding prior public consultation was carried out, and the draft ministerial order was submitted to a public hearing process by making it available to interested parties and affected sectors on the website of the Ministry of Economy, Commerce and Enterprise.

This Order is issued under the provisions of Articles 149.1.6th, which attributes to the State exclusive competence regarding commercial legislation, and 149.1.11th of the Spanish Constitution, which attributes to the State exclusive competence over the monetary system, currencies, exchange and convertibility, bases of credit regulation, banking, and insurance.

Therefore, in accordance with the Council of State, I order:

CHAPTER I General Provisions

Article 1. Object. This Order aims to establish the rules applicable to the lending of securities by financial collective investment institutions, in accordance with Article 30.6 of Law 35/2003, of 4 November, on Collective Investment Institutions.

For the purposes of this Order, "securities" shall mean financial instruments eligible for lending as established in Article 5.

Article 2. Principles applicable to securities lending operations.

1. Collective investment institutions, under the conditions established in this Order, may resort to securities lending operations, provided that the use of these operations has the objective of more efficient portfolio management in accordance with the criteria established in Article 18 of Order EHA/888/2008, of 27 March, on operations of financial collective investment institutions with financial derivative instruments and clarifying certain concepts of the Regulations of Law 35/2003, of 4 November, on Collective Investment Institutions, approved by Royal Decree 1309/2005, of 4 November.
2. These operations shall in no case cause collective investment institutions to deviate from the investment objectives provided for in their regulations, constitutive documents, or prospectuses.
3. The risks involved in securities lending operations must be adequately covered by the risk management processes of the collective investment institution, as provided in Article 18 of this Order.

Article 3. Lenders. The Order shall apply to financial collective investment institutions included in Chapter I of Title III of Law 35/2003, of 4 November, on Collective Investment Institutions, excluding free investment collective investment institutions regulated in Article 33 bis of said Law.

Article 4. Borrowers.

1. Only the following entities may be borrowers of securities, provided they are domiciled in Member States of the Organisation for Economic Co-operation and Development (hereinafter, OECD) or the European Union, excluding those that lack mechanisms of cooperation and information exchange with Spanish supervisory authorities: a) financial entities subject to supervision; b) central securities depositories; and c) central counterparty entities.
2. Collective investment institutions may carry out securities lending operations with the entities listed in the previous paragraph that, in the judgment of the management company, present sufficient solvency to meet their obligations.

CHAPTER II Rules Applicable to Securities Lending Operations

Article 5. Securities eligible for lending.

1. The securities and financial instruments contemplated in letters a) and b) of Article 2.1 of Law 6/2023, of 17 March, on Securities Markets and Investment Services, shall be eligible for lending.
2. The lending institution must have full ownership and free disposal of the securities delivered for lending, which must be free of any encumbrance or charge, and must not have any restrictions on their possible transfer.
3. The securities returned to the collective investment institution upon maturity of the operation must also be free of any encumbrance or charge, and not subject to any type of transfer obligation or restriction.

Article 6. Limits. The volume of lent securities shall not compromise the ability of the collective investment institution to meet redemption requests.

Article 7. Form of securities lending. Securities lending operations may be structured in the legal form deemed most appropriate, with the possibility of using standardized master contracts common in national or international practice. Contracts must provide for the liability of the borrower in case of non-compliance with its obligations and in situations of insolvency.

Article 8. Exercise of rights inherent to securities.

1. The lender, unless otherwise agreed, shall receive or be compensated for the patrimonial rights inherent to the lent securities.
2. When the exercise of political rights inherent to the lent securities corresponds to the lender, it shall be exercised as provided in Article 115.1.i) of Royal Decree 1082/2012, of 13 July, approving the Regulations for the development of Law 35/2003, of 4 November, on Collective Investment Institutions. When such exercise corresponds to the borrower, these securities shall not be taken into account for the purposes of Article 115.1.i) of Royal Decree 1082/2012, of 13 July.

Article 9. Specialized agents. The management company or, where applicable, the investment company may contract with specialized agents to carry out activities associated with securities lending, such as the management or reinvestment of collateral. Costs related to intermediation in the management or reinvestment of collateral shall be passed on to the collective investment institution, provided that this is standard market practice.

Article 10. Cancellation of operations. Securities lending operations may be terminated in advance at the request of the institution or its management company, so that the contractual clauses of each operation must always allow the collective investment institution to recover the lent securities or terminate the securities lending contract. Under no circumstances shall the economic conditions of the securities lending contract alter or distort what is provided in this Article regarding the immediate availability of the lent securities, in accordance with the settlement cycle of the corresponding market.

CHAPTER III Collateral

Article 11. Mandatory nature. Securities lending operations must be collateralized in the terms provided in this Chapter.

Article 12. Coverage of operations.

1. Securities lending operations must initially be covered by a guarantee whose market value is higher than the market value of the lent security. In determining the margin of the guarantee over the market value of the lent security, market practices shall be considered, as well as the nature and characteristics of the securities lent and the assets in which the guarantee is materialized.
2. The guarantee shall be updated daily and in accordance with market practices. Updates may be more frequent if so established by the parties.

Article 13. Delivery of collateral. The delivery of the guarantee must occur simultaneously in accordance with market standards or prior to the delivery of the lent securities.

Article 14. Liquidity of collateral. The management company or, where applicable, the investment company must establish, within the framework of the internal control obligations referred to in Article 18, mechanisms for controlling and monitoring the adequate liquidity of the assets provided as collateral.

Article 15. Admissible assets.

1. The guarantee must consist of one of the following assets: a) cash; b) deposits in credit institutions that are demand deposits or can be made liquid, with a maturity not exceeding twelve months, provided that the credit institution has its registered office in a Member State of the European Union or in any Member State of the OECD subject to supervision; c) shares and participations in CIUs whose investment objective is "monetary", as established in Circular 1/2009, of 4 February, of the National Securities Market Commission, on the categories of collective investment institutions based on their investment objective; d) investments from issuers regulated under Article 50.2(b) of Royal Decree 1082/2012, of 13 July; e) shares admitted to trading on a regulated market, when they are components of an index meeting the conditions provided in Article 50.2(d) of Royal Decree 1082/2012, of 13 July; and f) non-subordinated private debt admitted to trading on a regulated market.
2. The National Securities Market Commission may expand the list of assets in which guarantees can be materialized to include other assets with liquidity and security conditions analogous to those mentioned in the previous paragraph.
3. Securities delivered as collateral must be free of any encumbrance or charge.
4. Under no circumstances may the issuer of the assets accepted as collateral belong to the same group as the borrower.
5. In the event that, upon execution of the guarantee, the securities or assets are not consistent with the investment policy declared in the prospectus, the management company or, where applicable, the investment company must adjust the composition of its assets or modify its investment policy, quickly and diligently, always acting in the interest of participants and shareholders.

Article 16. Reinvestment of cash.

1. The management company or, where applicable, the investment company may reinvest the cash obtained as collateral in the following assets: a) deposits in credit institutions that are demand deposits or can be made liquid, provided that the credit institution has its registered office in a Member State of the European Union or in any Member State of the OECD subject to supervision; b) shares and participations in CIUs whose investment objective is "short-term monetary", as established in Circular 1/2009, of 4 February, of the National Securities Market Commission, on the categories of collective investment institutions based on their investment objective; c) public debt issued or guaranteed by a Member State of the European Union or any Member State of the OECD, provided they present high quality in the judgment of the management entity through an analysis of their characteristics; and d) temporary acquisitions agreed with credit institutions subject to supervision that have their registered office in a Member State of the European Union or in any Member State of the OECD.
2. At all times, the reinvestment of cash must respect the borrower's right to substitute the assets delivered as collateral based on acceptable guarantees previously agreed upon by the parties.
3. Under no circumstances may the issuer of the assets in which the cash is reinvested belong to the same group as the borrower. Without prejudice to the foregoing, cash may be reinvested in the temporary acquisitions mentioned in letter d) of the first paragraph with counterparties that are entities of the borrower's group, or with the borrower, when such temporary acquisitions have as underlying assets those indicated in letter c) of the first paragraph.
4. The reinvestment of cash must respect the investment policy contained in the prospectus, as well as the other rules applicable to the investment policy contained in Royal Decree 1082/2012, of 13 July.
5. The National Securities Market Commission may expand the list of assets in which cash can be reinvested to include other assets with liquidity and security conditions analogous. The management company or, where applicable, the investment company may not dispose of the other assets received as collateral.

CHAPTER IV Other Obligations

Article 17. Information obligations.

1. The management company or, where applicable, the investment company must clearly inform its investors in the prospectus of its intention to use securities lending operations, which shall include a detailed description of the risks derived from these activities, particularly counterparty risk and potential conflicts of interest, as well as their impact on the profitability of collective investment institutions. The use of these operations and instruments must be carried out in the best interest of the collective investment institutions.
2. The management company or, where applicable, the investment company must communicate in its prospectus the policy regarding direct and indirect operating costs and commissions derived from operations that may be deducted from the income obtained by the collective investment institutions. All income derived from efficient portfolio management techniques, net of direct and indirect operating costs, must be returned to the collective investment institution. The management company or, where applicable, the investment company must reveal the identity of the entities to which these direct and indirect costs and commissions are paid, and indicate whether they are related parties to the company or the depositary.
3. The annual report of the collective investment institution must also include detailed information on: a) the exposure obtained through these operations; b) the identity of the counterparties; c) the type and quantity of collateral received by the collective investment institution to reduce counterparty risk; and d) the income derived from the operations throughout the period in question, along with the operating costs and direct and indirect commissions incurred.

Article 18. Internal control obligations.

1. Collective investment institutions that lend their securities must ensure that risks are adequately captured by risk management procedures. In this regard, they must have explicit rules for the selection and diversification of counterparties, selection of agents or intermediation systems, and the execution of related-party transactions.
2. Regarding collateral, rules must be established for the control of its sufficiency, adequate diversification, valuation, reinvestment...