Financial Market Council Reminds Collective Investment Schemes of 10% Limit on State Bond Repurchase Agreements
In a statement released yesterday, the Financial Market Council reminded managers and depositaries of collective investment schemes in transferable securities (UCITS) that, under current regulations, these investment vehicles are not allowed to enter into repurchase agreements for state bonds exceeding 10% of their assets. Managers and depositaries are required to respect this daily limit from the first day of the UCITS' activity, or face legal sanctions.
It appears that some UCITS have occasionally exceeded these limits. This is often the result of redemption operations that occur after the manager has set their investment plan. Corrections usually take place the following day.
Repurchase agreements are highly profitable and significantly boost overall returns. This contract allows the UCITS to sell securities and/or commercial papers to another legal entity or UCITS, with the irrevocable commitment of the seller to repurchase the underlying assets at a predetermined price and date. In essence, it is a lending operation for the buyer and a borrowing operation for the seller, with an interest rate freely set between the two parties. Not surprisingly, the more liquidity is lacking, the higher the rates. This is indeed the case in Tunisia.
In 2024, the entire market recorded 13,735 transactions of this type, compared to 9,589 in 2023. The increase also concerned the volume, which reached a record high of 70,110,475 million dinars. The majority of transactions concerned maturities of 8-90 days, representing 76.2% of the total volume.
