The Investment Management Association has written to member firms to consult on the treatment of asset-backed securities in the fixed income sectors.

In a letter from Nicola Kembey, head of sectors at the IMA, seen by Money Marketing, it was revealed that the asset manager trade body is also consulting on the maturity term at which a bond is treated as cash.

According to the IMA, recent monitoring of the corporate bond sector has revealed a number of funds with a “significantly sizeable” exposure to asset-backed securities.

The exposure would see a number of the funds fail sector requirements if the securities were to be excluded from core corporate securities exposure.

Funds in the sector must hold a minimum of 80 per cent in corporate securties to qualify for inclusion in the sector.

The IMA has asked members to comment on the use and type of asset-backed securities they believe should be qualifying assets in the sector and whether their opinion has changed over time towards the assets.

It is also asking members to comment on which distinctions should be made between different types of assets.

Proposals could see funds in the fixed income sectors restricted to 20 per cent of asset-backed securities in the strategic bond, high yield and global bond sectors, which could be included in the core 80 per cent of fixed income assets.

For the corporate bond sector this may only count for up to 10 per cent of the core 80 per cent holding.

The maturity term at which a bond is treated as cash could be changed to either three or 12 months. Another approach would consider the date at which the bond was purchased with a maturity of more than 12 months treated as a bond and fewer than 12 months treated as cash.

A further option would consider the introduction of intrest rate exposure, however, this would require a further review of the fixed income sectors.

The IMA has said it would prefer to adopt a methodology establishing a boundary between the money market and fixed income sectors, removing the scope for funds to hold high levels of short-term debt.

The circular sent earlier this month is due to close on May 2.