On 25 July 2012, the European Securities and Markets Regulator (“ESMA”) published guidelines on ETFs and other UCITS issues (the “Guidelines”), which follow on from a process of discussion and consultation in 2011 and 2012 with industry stakeholders.  On the same date, ESMA also launched a consultation on certain aspects of the use of repo and reverse repo agreements by UCITS (the “Consultation”). 

The Guidelines cover the use of an identifier for UCITS ETFs; the treatment of secondary market investors of UCITS ETFs; UCITS’ use of EPM techniques and revenue arising in connection with securities lending arrangements; collateral management rules for OTC financial derivative transactions and securities lending arrangements; disclosure provisions regarding tracking error for index-tracking UCITS; financial indices eligible for UCITS investment; and requirements relating to swap-based UCITS.

Many of the provisions which appear in ESMA’s Guidelines have been flagged well in advance as part of the consultation process, such as the requirement for ETFs to include an identifier in their names and the new restrictions on eligible indices for UCITS.  However, some of the changes will require detailed consideration prior to implementation - such as the disclosure requirements in relation to revenue generated by securities lending arrangements.

In terms of when the Guidelines are due to take effect, we understand from ESMA that February 2013 is the estimated timeframe. There are grandfathering provisions within the new rules however which apply to various elements of the Guidelines, and we have provided details on these in our briefing note.

To access our full briefing note on ESMA’s Guidelines on ETFs and other UCITS Issues, please click here.  

Regarding its Consultation on repurchase and reverse repurchase agreements, the main focus of this paper is ESMA’s approach to the recallability of assets subject to repo and reverse repo arrangements entered into by UCITS.

In contrast to the approach for securities lending arrangements, ESMA puts forward a discrete proposal for repo and reverse repo arrangements which would allow a UCITS to permit a percentage of assets to be non-recallable at any time, at the initiative of the UCITS. ESMA is seeking comments and feedback in response to its Consultation by 25 September 2012.

For further details on the Consultation, please refer to our briefing note.

European Commission Launches UCITS VI Consultation

Within weeks of the publication of UCITS V proposals on depositary rules, remuneration and administrative sanctions, on 26 July 2012 the European Commission published a consultation paper on UCITS titled “Product Rules, Liquidity Management, Depositary, Money Market Funds, Long Term Investments”. This is colloquially referred to as the “UCITS VI” consultation. 

The Consultation poses a number of questions for interested stakeholders regarding:

  • Eligible assets and use of derivatives
  • EPM techniques
  • OTC derivatives
  • Extraordinary liquidity management rules
  • Depositary passport
  • Money market funds
  • Long term investments
  • Issues arising from UCITS IV  

We will be circulating a briefing on the Commission’s UCITS VI consultation shortly.  In the meantime, please do not hesitate to contact us if you require further details immediately. The closing date for submissions to the Commission in response to the UCITS VI consultation is 18 October 2012.

The consultation paper may be accessed here.

We welcome your queries in relation to any aspect of the matters highlighted in this email, with regard to which you may require further details or direct advice.