Industry Updates

Bank of Japan establishes ‘special rules’ for ETF lending

George Geddes

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The Bank of Japan (BoJ) has introduced an ETF lending facility as part of a measure of continued monetary easing initially agreed in April of this year.

As a result, the BoJ announced the establishment of a set of "special" rules for ETF lending.

With the aim of further facilitating the purchases of ETFs, BoJ will apply these special rules in addition to the principal terms of ETFs and J-REITs as well as the rules for purchases of ETFs to support firms’ proactively investing in physical and human capital.

At the time when BoJ initially set out to launch a lending facility in April, the bank’s holdings totaled roughly $250bn which represented 77% of Japan’s ETF market. Assets have since grown to $260bn.

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Counterparties that are eligible for the ETF lending include financial institutions that have a current account at the bank and are sufficiently creditworthy in light of capital conditions.

The lending of the ETFs will not be able to exceed 12 months. The trustee shall accept a cash collateral as the trust property from counterparties in advance.

Interest rates are to be determined by auction.

The rules were announced at the Monetary Policy meeting with additional forecasts including the bank will increase its amount outstanding in ETFs by ¥6trn ($55bn) each year.

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