Insights

Revised Q&A on ESMA’s guidelines on ETFs and other UCITS issues

On 9 January 2015, ESMA issued an updated version of its “Questions and Answers on ESMA’s guidelines on ETFs and other UCITS issues”.

Overview

This Q&A contains new Questions and Answers in ‘Section 3: Secondary Market’ and in ‘Section 4: Efficient Portfolio Management Techniques’.

Question 5f confirms that for the purposes of paragraph 39 of ESMA’s Guidelines on ETFs and other UCITS issues, counterparty to a financial derivative instrument will not be considered as having any discretion over the composition of the underlying assets of the financial derivative instrument.

Question 6f confirms that when a UCITS reinvests cash collateral in short-term money market funds pursuant to paragraph 43 (j) of the guidelines, the requirement of Article 50(e)(iv) of the UCITS Directive also applies to short-term money market funds in which UCITS may reinvest cash collateral. 

Question 5f

For the purpose of paragraph 39 of the guidelines, would the counterparty to a financial derivative instrument be considered as having discretion over the composition of the underlying assets of the financial derivative instrument under the following arrangement? The role of the counterparty only involves implementing a set of rules and this set of rules is agreed in advance with the UCITS management company and does not allow the exercise of any discretion by the counterparty.

  • Answer: 
    No, in such circumstances the counterparty to the financial derivative instrument will not be considered as having any discretion over the composition of the underlying assets of the financial derivative instrument. 

Question 6n

When a UCITS reinvests cash collateral in short-term money market funds pursuant to paragraph 43 (j) of the guidelines, should the short-term money market funds comply with the requirements of Article 50(e)(iv) of the UCITS Directive (i.e. the short-term money market funds should not invest more than 10% of their assets in aggregate in other money market funds)?

  • Answer:
    Yes, the requirement of Article 50(e)(iv) of the UCITS Directive also applies to short-term money market funds in which UCITS may reinvest cash collateral.
     
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