ESMA guidelines for ETFs and other UCITS

Dr Jonathan Pisani | Published on 06 Sep 2012

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The ESMA (European Securities and Markets Authority) has released a new publication entitled, ‘Guidelines on ETFs and other UCITS issues’ (ESMA/2012/474 of 25 July 2012). The document establishes guidelines addressing 6 key areas in the functioning of UCITS, namely:
1. The establishment of new disclosure requirements which are imposed on index-tracking UCITS in order to provide investors with further information on indices and tracking error risk;
2. The introduction of the identifier – UCITS ETF – which will indicate which ETFs are UCIT compliant;
3. The increase in information which should be provided to investors in relation to both actively-managed UCITS ETFs and passive index-tracking UCITS;
4. Rules to manage the collateral of over-the-counter financial derivative transactions and efficient portfolio management techniques entered into by UCITS to mitigate the risks of taking on unsecured counterparty risk;
5. Establishing that revenues arising from efficient portfolio management techniques, net of operational costs, should be returned to the UCITS; 
6. Requiring that investors, whether current or prospective, have open access to index calculation methodologies and index constituents and weightings;
These guidelines should significantly increase the quantity and quality of information receiving by investors, assisting in the safeguarding of their interests.

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