After years of agr’oing, the Irish securities lending market looks as if it is just around the corner. At the Irish Stock Exchange, Brian Healey has been propelling the move to bring the facility to the market in Dublin.
Securities lending had not developed in Ireland mainly due to tax impediments, points out. But these have at last fallen away under sustained market pressure over the years on the government and tax authorities.
“We worked with other market participants to convince the Inland Revenue (IR) and other authorities that the securities lending would bring additional liquidity to the market and facilitate the growth of capital markets. We argued that it would be useful addendum to the trading of stocks on the market.,” he says
“There were two main tax issues. The first related to capital gains tax, where lending was deemed to be a disposal and gave rise to capital gains tax.” That problem was disposed of in a recent Finance Act, but there remained the issue of the taxation of manufactured dividends, he says.
Finally, the Inland Revenue issued at the middle of this year a practice note clearing stocklending from the tax point of view. “This allows a six-month time horizon for these lending transactions,” says Healey. “We had looked for a 12-month period but IR was not prepared to go that far.”
With the main hurdles to lending out of the way, Healey is now working with member firms about the new regime. “Another thing we have done is produce a draft master stock lending agreement, so that the market would start with a document which would have currency in the market, rather than have a multiplicity of agreements.” This is now with lawyers before going out to market -wide consultation, with custodians, asset managers, registrars and so on.
A market wide working party is being set up and the exchange wants to make this as broad as possible to flesh out the operation of the new regime. “We have a very good working model in what happens in the UK. The Irish market is very close to what happens there. For example, we settle in Crest, which supports stock lending very well,” he points out.
He hopes that the new facility could up and running by the beginning of 2000, There has to be regulatory input from the Central bank of Ireland, and it is impossible to gauge how long it will take to produce a lawyer-proof market lending agreement. So far the reactions from the institutions have been mixed, says Healey.
“Some are enthusiastic, and others are very lukewarm. But initially, we do not see it being a particularly large market”. ”
Fennell Betson

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