Bakouchi & Habachi-HB Law Firm in Casablanca look at the market in securities lending in Morocco

According to economic experts, Morocco has the largest and most developed economy in the North African region.

Its banking and financial services sector is supported by a developing and sophisticated legal system. One of the laws recently promulgated is the law relating to lending securities.

The deployment of securities lending transactions was initiated in the United States in the 19th century. The objective was to meet a need for adjustment of several incidents caused by pending payment / delivery, due to skyrocketing transactional volumes of listed shares.

The increased use of securities lending operations was also motivated to address the short sales of securities, which were regarded as one of the triggers of the financial crisis of 2008.

Morocco initiated the institutionalisation and regulation of securities lending transactions towards the end of 2012, through the enactment of the Law 45-12 “the Law” on securities lending, which erects securities lending in an autonomous market under the control of the capital market authority - Autorité Marocaine des Marchés de Capitaux.

Thus, Article 1 of the aforementioned Law has defined “securities lending” as a contract by which one party gives full ownership to another party for an agreed compensation, securities, and through which - the contract – the borrower irrevocably undertakes to return the securities and pay compensation to the lender on a date agreed between the two parties.

So, the securities lending is strictly regulated by the Law that provides many compulsory obligations that the parties should respect:

These obligations seem to strengthen the practicality of enacting securities lending transactions, and secondly provide collateral framework to the parties.

These include:

• the conclusion of a framework agreement based on an agreement established for this purpose by the administration;
• guarantees adapted to the specificities of the securities lent;
• the regime of extinguishing obligations;
• the penalty system in case of failure of either party;
• the submission of these securities lending operations to the control of capital market authority “Autorité Marocaine des Marchés de Capitaux”

In this regard, we will study the main provisions provided by the Law.

Persons authorised in securities lending operations

Article 6 of the Law has granted banks and some organisations exclusivity regarding intermediation on securities lending. The text does not list these organisations, but makes their response to prior authorisation by the administration. If exclusivity is consecrated, the eligibility of these organisations is indexed to the adequacy of resources made available by them to the realization of this type of transaction.

Furthermore, the status of the borrowers is also determined. Indeed, Article 2 of the Law provides that securities borrowing may only be carried out by legal entities subject to corporate tax and having certified their synthesis states last year before the loan transaction by “Organisme de Placement collectif en Valeurs Mobilières” and “Organisme de Placement en Capital-Risque”.

The definition of the lenders in turn, is not determined, allowing in our view, any natural or legal person to lend securities subject to meet the conditions referred to in Articles 4 and 5 of the aforementioned law No. 45-12.

Securities subject to securities lending

Lending transactions may relate only to shares and securities that are securities listed on the stock exchange, negotiable debt securities and securities issued by the Treasure.

Loan term

Article 8 of the Law has limited the length of any title loan agreement for up to one year.

This time limitation is inherent in the very nature of securities lending transactions, but is also a prevention against the distortion that can be made.

Extinction of obligations arising out of lending transactions

Securities lending operations are terminated either on the due date, or earlier based on an application for restitution of the securities lent, or in connection with a securities transaction, or as a result of the occurrence of an event of default or new circumstances such as these cases are listed in Chapter IV of the Law.

Effects of extinction of obligations resulting from the termination of the securities lending transactions

The Law provides that the realisation of a termination of a securities lending agreement, releases the parties from their obligations to the payment or provision for terminated lending.

In addition, when the securities in question or those delivered under a collateral are listed on the stock exchange, the transfer of title becomes final thereon as set by the general regulations of the stock exchange.
In addition, receivables and liabilities inherent in cancelled operations are in turn, subject to compensation. To this end, the balance resulting from the termination is adopted in accordance with the terms of the framework agreement signed between the parties.

Moreover, when the termination is due to the failure of one of the parties, the law entitles the non-defaulting party, to seek reimbursement adjoining the costs and expenses incurred, including those of any judicial proceedings initiated, that the applicant is able to justify.

This limitation does not seem to exclude the claim for damages under the ordinary rules (Civil law).