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27 November 2013

ESMA publishes updated Q&A on ETFs and other UCITS issues


ESMA has published an updated Questions and Answers concerning the Guidelines on ETFs and other UCITS issues.

The revised Undertakings for Collective Investment in Transferable Securities (UCITS) Directive puts in place a comprehensive framework for the regulation of harmonised investment funds within Europe. The extensive requirements with which UCITS must comply are designed to ensure that these products can be sold on a cross-border basis. The Directive of 2009 also introduced a management company passport.

The purpose of this document is to promote common supervisory approaches and practices in the application of the UCITS Directive and its implementing measures, with a specific focus on the guide-lines on ETFs and other UCITS issues (ESMA/2012/832). It does this by providing responses to questions posed by the general public and competent authorities in relation to the practical application of those guidelines.

The content of this document is aimed at competent authorities under UCITS to ensure that in their supervisory activities their actions are converging along the lines of the responses adopted by ESMA. However, the answers are also intended to help UCITS management companies by providing clarity as to the content of the UCITS rules, rather than creating an extra layer of requirements.

In most cases, UCITS ETFs do not have a direct relationship with secondary market investors of UCITS ETFs. Therefore, UCITS management companies are not required to be directly in contact with the secondary market investors of the UCITS ETF but should make sure that appropriate processes are in place in order to allow direct redemptions when needed. In this context, the reference to unit-holders in Article 92 of the UCITS Directive should be understood as including secondary market investors of UCITS ETFs.


The updated Q&A included two new questions and answers.

The first related to collateral management and ESMA confirmed that when a UCITS fund reinvests cash collateral, the reinvested cash collateral has to be taken into account for the calculation of the issuer concentration limits laid down in the UCITS Directive (for example, the 20 per cent of NAV limit that can be placed on deposit with an approved credit institution).

The second additional question dealt with the requirements related to acceptable financial indices. The original Guidelines stated that a UCITS fund should not invest in a financial index whose methodologies permitted retrospective changes to previously published index values ("backfilling"). In the updated Q&A, ESMA have confirmed that a financial index which permits retrospective changes due to calculation mistakes are not caught by this prohibition and, accordingly, a UCITS fund could invest in such a financial index assuming that it met the other requirements for an acceptable financial index.

 

Full guidelines



© ESMA


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