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Italy

Treasury Ministry Decree No. 703 of November 21 1996 setting out the criteria to be followed by the management of pension funds with regard to investments and the limits on investments and derivatives transactions has been published in the Official Gazette and is now in force.

The duties of the management of pension funds are:

  • to diversify investments;
  • to efficiently manage the portfolio;
  • to diversify the risks, including counterparty risks;
  • to minimize the cost of transactions and the management and operation of the fund; and
  • to maximize net yields of investments.

Pension funds can allocate their investments as follows:

  • cash, up to 20% of the assets of the pension fund;
  • units of closed-ended funds, up to 20% of the assets of the pension fund and 25% of the value of the closed-ended fund;
  • debt securities and stock securities not traded in regulated markets of EU countries, the US, Canada and Japan, up to 50%, provided their issuers are residents of OECD member states;
  • debt securities and stock securities traded in regulated markets of EU countries, the US, Canada and Japan issued by issuers non-resident in OECD countries or by non-OECD member states, up to 5% of the assets of the pension fund.

Investments in debt securities and stock securities (including derivatives giving entitlement to purchase other securities) made by pension funds must not exceed 15% if issued by the same issuer or by issuers belonging to the same group. However, this threshold does not apply to debt securities issued by OECD issuers.

Derivative transactions can be entered into provided:

  • the exposure to financial risk is equal to that resulting from a cash-settled purchase of the underlying financial instruments;
  • they eliminate the financial risk of the underlying securities;
  • they protect the underlying securities from the fluctuations of their prices; and
  • they ensure a higher degree of liquidity for the underlying investment without involving higher risks than those arising from cash-settled purchases.

Provisions relating to conflicts of interest are also set out in Decree 703.

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