In an opinion dated 20 November 2012, the European Securities and Markets Authority (ESMA), affirmed its understanding of Article 50(2)(a) of Directive 2009/65/EC (the so-called UCITS Directive). This is commonly referred to as the "trash bucket".
This formal opinion is the result of differing interpretations of this provision between the EU Member States. In particular, Luxembourg has taken a liberal interpretation in the past.
Under Article 50(2)(a) of the UCITS Directive, a UCITS can invest up to 10% of its assets in transferable securities or money market instruments other than those referred to in paragraph (1) of the same Article. Article 41, (2), a) of the Luxembourg law of 17 December 2010 on UCIs (the 2010 Law), which transposes the UCITS Directive into Luxembourg law, contains the same provision.
The question at stake is whether under this rule, a UCITS can invest in collective investment undertakings (CIS) other than those conforming to Article 50(1)(e) of the UCITS Directive.
In its opinion, ESMA made it clear that the derogation of Article 50(2)(a) does not apply to Article 50(1)(e) but only to its subparagraphs (a) to (d) and (h).
As a consequence, a UCITS can only invest in CIS that fulfil the conditions laid out in Article 50(1)(e) of the UCITS Directive i.e., Article 41, (1), e) of the 2010 Law.
In a press release dated 23 November 2012, the Luxembourg supervisory authority (CSSF) adopted ESMA's position. The CSSF further states that, as suggested by ESMA, existing UCITS have until 31 December 2013 to render their portfolio compliant with the ESMA interpretation, observing the best interests of their investors. Moreover, the CSSF communicated that, as from the date of its press release, all new investments by UCITS must be in conformity with the ESMA interpretation.