Stress testing in investment funds

Work by AMIC on systemic risk in asset management has continued over the summer. While the AMIC Fund Liquidity Working Group is waiting for IOSCO to issue a consultation on leverage, ESMA has taken up new work on stress testing in investment funds.

ESMA organised on 19 July 2018 a roundtable with industry experts on liquidity stress testing of investment funds. The roundtable was organised as part of the process ESMA is following to prepare liquidity stress testing guidelines for UCITS funds and AIFs, in line with suggestions from the ESRB in its recommendation on liquidity and leverage risks in investment funds. Recommendation C on stress testing requests ESMA to develop guidance for firms for the stress testing of liquidity risk for individual AIFs and UCITS funds.

There will likely be a public consultation on the guidelines by the end of 2018 or early 2019 and final guidelines could be published by mid-2019.

With a view to contributing more formal industry views to ESMA’s work, particularly to the public consultation, AMIC and EFAMA are in the process of drafting a third joint report on systemic risk in investment focusing on stress testing in investment funds.

The basic structure would likely follow the previous AMIC/ EFAMA reports on liquidity risk management and leverage: the report would attempt to show the existing regulatory and practical initiatives regarding stress testing in order to highlight the robust framework already in place in Europe. The report will likely feature industry best practices to illustrate the kinds of stress testing currently being used, both for assets and redemptions. The report will also review the current international regulatory debate on stress testing, drawing on recent work by IOSCO and the FSB.

AMIC and EFAMA Secretariats are aiming to finalise a paper by the end of 2018.

Contact: Patrik Karlsson patrik.karlsson@icmagroup.org

AMIC Primary Market Investor Working Group

AMIC has established a new Primary Market Investor Working Group in June 2018, as outlined in the previous Quarterly Report update.

The first meeting took place on 13 June, where the working group agreed to (i) identify a standardised set of base terms from an investor perspective, (ii) agree a process for automating asset set-up (such as obtaining ISINs), (iii)

standardise engagement via a communication timeline and (iv) build FIX protocols and pipelines.

The second meeting of the working group took place on 5 September in London. AMIC invited a representative from an ICSD and the Association of National Numbering Agencies (ANNA) to discuss the generation and availability of ISINs during the issuance process. The working group heard that rigorous due diligence requirements on the issuer (AML/KYC/sanctions) are time consuming for the ICSDs when needing to generate ISINs for new or infrequent issuers. However, participants were pleased to learn that for drawdowns under programmes it should be possible to achieve ISINs before books open. The group also discussed further its draft set of base and initial deal terms, refining the terms and restructuring the format with helpful input from ICMA staff representing syndicates and issuers.

The next meeting of the AMIC Primary Market Investor Working Group will be organised in the period ahead and will focus on the draft set of base and initial deal terms by discussing the draft AMIC list with representatives of the syndicate and issuer communities.

ICMA buy-side members interested in participating in the work of this working group or proposing further topics in due course are encouraged to contact the AMIC Secretariat to find out more and to get involved.

Contact: Bogdan Pop bogdan.pop@icmagroup.org

MiFID II second FICC research unbundling survey

Following the success of the initial AMIC FICC Research Unbundling Survey and at the suggestion of the AMIC Executive Committee, the AMIC Secretariat has prepared and issued a follow up survey to assess the implementation of the MiFID II research unbundling rules.

Since MiFID II implementation, the market for investment research has evolved rapidly with research providers trying to identify a price that consumers of research are willing to pay. Meanwhile, research consumers are working to identify the value added of external research to their portfolios.

The initial AMIC survey was run in October 2017, less than three months before MiFID II came into effect. It was presented at the AMIC Conference in November 2017 and saw 33 firms respond of which two-thirds were asset managers or investment funds and roughly one third were private banks. The survey provided an idea of the direction of travel that the industry was following in respect of the new research rules.

The purpose of the second survey is to assist our members understand their peers’ views on research unbundling and to establish progress compared to the first survey. More specifically the survey will ask how firms have implemented the rules, whether the market for research has settled and to see what aspects firms still have difficulties with the rules.

This second survey is longer, more detailed and builds on the experience gained on the remaining challenges, difficulties and outstanding issues in the implementation of the MIFID II rules. The survey will attempt to understand investor firms’ attitudes towards roadshow participation, the use of research published freely on a website, trial periods, value assessment and cross-border implementation.

Following agreement by the AMIC Executive Committee on 19 September, the second AMIC FICC Research Unbundling survey was issued the week of 1 October with a deadline of Friday 26 October. Subject to agreement by the AMIC Executive Committee, the results of the survey will be made public at the AMIC Conference on 22 November and will also be published on the ICMA website. We encourage buy-side firms to respond so that the survey can provide a valuable reflection of the implementation of the research unbundling rules after the implementation of MiFID II.

Contact: Bogdan Pop bogdan.pop@icmagroup.org