CSSF's Work On Closet Index Tracking

On 28 July 2017, the CSSF published a press release relating to its work with regard to closet index tracking. This follows a statement issued by the European Security Market Authority (ESMA) dated 2 February 2016 which provided details on its supervisory work on potential closet index tracking (see previous Fund News article).

The CSSF performed its own investigations on the basis of ESMA's statement. Apart from the quantitative measures used by ESMA (i.e. Active Share, Tracking Error and R2), the CSSF included qualitative criteria such as the actual management style and the disclosure to investors.

As a result, the CSSF was not able to identify any UCITS domiciled in Luxembourg which qualifies as closet index tracker, except for one isolated case still under scrutiny.

Nevertheless, the CSSF acknowledges the fact that investor disclosure on the use of a benchmark can be improved for some of the funds under review. Accordingly, the concerned management companies were asked by...