On 30 January 2012, the European Securities and Markets Authority ("ESMA") published a consultation paper setting out future guidelines on UCITS exchange traded funds ("ETFs") and other UCITS-related issues. The consultation paper follows an earlier discussion paper issued by ESMA in July 2011 which set out its policy orientations on guidelines for UCITS ETFs and Structured UCITS (see our earlier updates on the discussion paper generally and on the structured UCITS proposals specifically).
The proposals in the consultation paper detail future provisions relating to:
UCITS ETFs (physical and synthetic); index-tracking UCITS; efficient portfolio management techniques; total return swaps; and strategy indices for UCITS. The guidelines in relation to ETFs include a definition of UCITS ETFs and the use of an identifier for such funds, disclosure requirements for actively-managed ETFs and rules for protecting investors dealing on secondary markets. Helpfully, the draft guidelines do not propose to classify synthetic ETFs as "complex" products, as had been suggested in the policy orientations issued in June 2011. The current MiFID framework treats all UCITS as automatically non-complex instruments and therefore does not require UCITS to satisfy the appropriateness test, which requires an assessment of whether a potential investor has the necessary knowledge to understand the investment.
The primary focus of the draft guidelines is on disclosure requirements in...