ESMA issued guidelines on ETFs and other UCITS issues (Guidelines). This publication consolidates the guidelines on ETFs and other UCITS issues (ESMA/2012/474) which issued in July and the guidelines on repo and reverse repurchase agreements (ESMA/2012/722) which issued in December.
The publication on 18 December 2012 triggered the period of two months within which national supervisors have to declare to ESMA whether they intend to comply with the Guidelines or otherwise explain the reasons for non-compliance. The Guidelines will apply from the end of this notification period (the Effective Date). Defined terms have the same meanings here as in the Guidelines.
Key elements of the guidelines on repurchase and reverse repurchase agreements for UCITS funds are as follows.
- For repurchase arrangements, UCITS should be able to recall at any time the assets subject to such arrangements.
- For reverse repurchase agreements, UCITS should be able to recall at any time the full amount of cash on either an accrued or a mark-to-market basis. However, when cash is recalled on a mark-to-market basis, the mark-to-market value of the reverse repurchase agreements should be used for the calculation of the net asset value of the UCITS.
- ESMA considers fixed-term repurchase and reverse repurchase agreements that do not exceed seven days as arrangements that allow the assets to be recalled at any time by the UCITS.
Transitional provisions for the Guidelines are as follows (Existing UCITS means UCITS that exist before the Effective Date).
- New UCITS created after the Effective
- Exsting UCITS that invest in financial indices which do not comply with the Guidelines must align their investments within 12 months of the Effective Date.
- Existing Structured UCITS are not required to comply with the Guidelines if they do not accept new subscriptions after the Effective Date. However, in order to be able to continue offering the underlying payoff to existing investors, they can actively manage their financial contracts.
- Existing UCITS must align their portfolio of collateral with the Guidelines within 12 months of the Effective Date. However, any reinvestment of cash collateral after the Effective Date must comply with the Guidelines immediately.
- Existing UCITS that have entered into revenue-sharing arrangements must comply with rules on prospectus disclosure of costs/fees arising from efficient portfolio management within 12 months of the Effective Date.
- An Existing UCITS ETF is not required to comply with Guidelines relating to identifiers until the earlier of a change to the fund name or twelve months after the Effective Date.
- Existing UCITS ETFs must comply with the provisions related to the treatment of secondary market investors from the Effective Date.
- Requirements relating to the contents of the fund documentation of an existing UCITS which it has issued prior to the Effective Date do not come into effect until the earlier of the update of that documentation or twelve months after the Effective Date.
- Requirements to publish information in the report and accounts of an existing UCITS do not apply in respect of any accounting period that ended before the Effective Date.