EFAMA comments to CESR's Issues Paper on Hedge Fund Indices

08 December 2006

EFAMA issued its response to to CESR’s Issues Paper on the classification of Hedge Fund Indices (HFIs). It believes that HFIs should be classified as financial indices and therefore derivative instruments based on HFIs should be considered as eligible assets for UCITS. The evaluation of HFIs should follow the same criteria as for indices with other underlying assets, as set out in the draft Commission Directive on Eligible Assets.

In view of the differences among HFIs, no general a priori decision as to their classification should be made, but rather the characteristics of each index should be evaluated individually.

As long as the general criteria set by Level 2 implementing legislation are fulfilled and the high level of UCITS investor protection is thus guaranteed, investors should be able to benefit from products that allow additional diversification and keep up with financial product innovation.

Finally, EFAMA strongly believes that the assessment whether HFIs fulfil relevant criteria for eligibility should be left to the UCITS which, in case of doubt, can then refer to the competent authority. The requirement for third-party certification would represent a departure from current practice and is unwarranted.

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