On 9 January 2015, ESMA published an updated Q&A in respect of its guidelines on ETFs and other UCITS Issues.
Two new questions and answers have been added to the Q&A. They relate to: (a) the role of the counterparty to a derivative; and (b) the re-investment of cash collateral obtained in respect of OTC derivatives and efficient portfolio management techniques.
Financial Derivative Instruments
In any arrangement whereby a derivative counterparty’s role only involves implementing a set of rules agreed in advance with the UCITS management company and does not allow the exercise of any discretion by the counterparty, the derivative counterparty will not be considered as having any discretion over the composition of the underlying assets of the financial derivative instrument.
When a UCITS reinvests cash collateral in short-term money market funds in accordance with paragraph 43(j) of the Guidelines, it must comply with the requirements of Article 50(e)(iv) of the UCITS Directive. This means that short term money market funds in which UCITS may reinvest cash collateral should not invest more than 10% of the assets of the money market funds in units of other UCITS or other collective investment undertakings.