On 25 July 2012, the European and Securities Markets Authority (“ESMA”) published a Report and Consultation Paper which focuses on UCITS Exchange-Traded Funds (“ETFs”) and other UCITS issues (the “Final Guidelines”)(ESMA/2012/474).  

The Final Guidelines continue the work of the 22 July 2011 discussion paper which sets out policy orientations on guidelines for ETFs and structured UCITS (ESMA/2011/220), and the 30 January 2012 consultation paper on its guidelines on ETFs and other UCITS issues (the “Consultation Paper”)(ESMA/2012/44).  

The Consultation Paper set out proposals for guidelines on the following key areas:

  • Index-tracking UCITS;
  • Index-tracking leveraged UCITS;
  • Efficient portfolio management techniques;
  • Total Return Swaps; and
  • Strategy indices.  

The Final Guidelines include a Feedback Statement in relation to the Consultation Paper and sets out the guidelines in the key areas. In particular, the Final Guidelines provide that:

  1. In relation to UCITS ETFs, the identifier “UCITS ETF” must be used in order to differentiate these funds from other UCITS. The identifier is used in titles, fund rules, the Key Investor Information Document, the Prospectus and marketing material.
  1. For index-tracking and index-tracking leveraged UCITS, ample detail needs to be provided to investors.
  2. The investor is to be informed of efficient portfolio management techniques and its related risks in the UCITS Prospectus.
  3. In relation to financial derivatives instruments, how the risk diversification limits of the UCITS Directive should be calculated and applied.
  4. Certain aspects of the existing guidelines on Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS (CESR/10/788) are amended.  

The Final Guidelines are effective 2 months after publication on the ESMA website.  

The Final Guidelines can be found here