CSSF Circular 14/592 On Guidelines Of ESMA On ETFs And Other UCITS Issues

The CSSF published on September 30 Circular 14/592, implementing into Luxembourg's regulatory framework the revised guidelines issued by the European Securities and Markets Authority on August 1 on ETFs and other UCITS issues for regulators and UCITS management companies. The changes took effect on October 1.

The circular, which supersedes CSSF Circular 13/559, applies to UCITS funds (those subject to Part I of Luxembourg's investment funds law of December 17, 2010) and to individuals involved in their operation and supervision.

The new guidelines provide for a derogation from the rules that limits the maximum exposure of a basket of collateral to a given issuer to 20% of the UCITS fund's net asset value.

The requirement for sufficient diversification with regard to issuer concentration is now deemed to be respected if the UCITS receives a basket of collateral whose maximum exposure to a single issuer is 20% of the fund's NAV from a counterparty with which it is undertaking efficient portfolio management and over-the-counter derivative transactions.

When a UCITS is exposed to different counterparties, the various baskets of collateral must be aggregated to measure compliance with the 20% single issuer limit. However, as a derogation, the fund may be fully collateralised with different securities and money market instruments issued or guaranteed by an EU member state, one or more local authorities, a third country, or a public international body to which at least one member states belong.

In this...