Ucits VI 0912
description
Transcript of Ucits VI 0912
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UCITS VI Consultation Paper
Citibank International Plc, Ireland Branch
August 2012
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Table of Contents
1. UCITS VI Consultation Paper 1
2. UCITS Evolution UCITS to UCITS VI 2
3. 1. Eligible Assets 3
4. 2. Efficient Portfolio Management 4
5. 3. OTC Derivatives 5
6. 4. Extraordinary Liquidity Management Tools 6
7. 5. Depositary Passport 7
8. 6. Money Market Funds (MMFs) 8
9. 6.1 MMFs - Valuation & Capital 9
10. 6.2 MMFs Liquidity & Redemptions 10
11. 6.3 MMFs Investment Criteria & Rating 11
12. 7. Long-term Investments 12
13. 8. UCITS IV Improvements 13
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UCITS VI Consultation Paper
y Closing date of the consultation is 18 October 2012y Responses will be published in the following section of the European Commissions website:
http://ec.europa.eu/internal_market/consultations/2012/ucits/index_en.htm
y Areas covered can be summarised as follows: Product rules Liquidity Management Depositary Money market funds Long-term investments UCITS IV tweaking
The European Commission published a consultation paper on 26 July 2012 covering 8 topics for discussion with the aim of keeping the UCITS framework topical & in line with the evolution of the investment markets
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UCITS Evolution UCITS to UCITS VIStudy the past if you would define the future. Confucius
1988/89 2003 2011 To be implemented
UCITS UCITS III UCITS IV UCITS V UCITS VIEU Product Passport Definition of transferable
securitiesNew notification procedure Depositary role Eligible assets
Risk-Spreading Rules Derivatives allowed for investment purposes
Intro of Key Investor Information Document (KIID)
Depositary delegation Efficient portfolio management (EPM) techniques
Legislative Uniformity Intro of the simplified prospectus
Adapted Framework for Mergers
Depositary liability OTC derivatives
Derivatives for hedging purposes only
Intro of new corporate governance practices
Master-feeder Structures Depositary eligibility Liquidity management rules
New inter-regulatorcooperation arrangements
Remuneration principles & policies
Depositary passport
Management Company Passport
Sanctions Money market funds
Updated derivative investment restrictions
Long-term investments
Addressing UCITS IV
From UCITS to UCITS VI
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1. Eligible Assets
Review of asset scope & exposures Alignment of actual investment strategies with expectations for a UCITS product Additional development of asset liquidity rules Refinement of rules on exposure to non-eligible assets Distinguishing or limiting scope of eligible derivatives based on payoff Appropriateness of VaR as a measure of global exposure Derivatives limited to those traded on multilateral platforms only
Emergence of complex UCITS
Impact of G20 initiatives MiFID II and EMIR
Evaluation of current practices in UCITS portfolio management & assessment of certain fund investment policies
Drivers Areas Under Review
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2. Efficient Portfolio Management
Issues & risks related to the current use of EPM techniques Current market practice regarding use of EPM Limits attributable to assets that may be subject to EPM Current market practice regarding collateral received in EPM Criteria for collateral re-use, eligibility, liquidity & diversification Mandatory haircuts on collateral received in EPM EPM liquidity considerations Economic substance of EPM transactions Market practice & new criteria regarding provision of collateral in EPM Additional transparency to investors regarding EPM techniques, collateral received &
earnings achieved/distributed
EPM transparency
Counterparty risk
Collateral quality
Collateral reinvestment
Shadow banking
Assessment of current rules regarding certain types of transactions and management of collateral
Drivers Areas Under Review
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3. OTC Derivatives
Clarification of treatment of centrally cleared OTC derivatives Consistency of collateral for uncleared OTC derivatives & EPM transactions Risks resulting from contracting with a single counterparty Frequency of calculation of counterparty risk, issuer conc. & UCITS assets Introduction of a requirement to calculate counterparty risk/issuer conc. at least daily
EMIR
Exposure to a single counterparty
Frequency of counterparty exposure calcsvs.Frequency of UCITS portfolio vals.
Treatment of OTC derivatives cleared through central counterparties, assessment of operational risk & conflict of interest framework and frequency of calculation of counterparty risk exposure
Drivers Areas Under Review
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4. Extraordinary Liquidity Management Tools
Internal liquidity constraint policies Framework for dealing with liquidity bottlenecks Definition of exceptional cases for redemption suspensions Redemption suspension time-limits Deferred redemption quantitative thresholds and time limits Options for side-pockets Liquidity safeguards in ETF secondary markets Rules for execution of redemption orders in normal circumstances
UCITS redemption process
Redemption suspensions
Deferred redemptions
Side-pockets
ETF 2ndary markets
Assessment of the potential need for uniform guidance in dealing with liquidity issues
Drivers Areas Under Review
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5. Depositary Passport
Advantages & drawbacks of a passport from various perspectives Issues with current requirements vs possible issues of a fund-depositary separation Areas requiring additional harmonisation following the intro of the passport Fully-fledged authorisation regime vs reliance on other EU frameworks Specific issues around supervision of a depositary in a different jurisdiction
UCITS V
Assessment on the introduction of a cross-border passport for the performance of depositary functions
Drivers Areas Under Review
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6. Money Market Funds (MMFs)
The role of MMFs in liquidity management and possible alternatives Target investors and asset composition of MMFs Extent of repo trading and sec-lending by MMFs MMF collateral management strategies Potential for systemic risk of MMFs Need for more harmonised & detailed regulation of MMFs at EU level MMF categorisation by asset type and maturity
Systemic importance of MMFs
Shadow banking
Assessment of potential need to strengthen the resilience of the MMF market in order to prevent investor runs & systematic risk
Drivers Areas Under Review
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6.1 MMFs - Valuation & Capital
Additional regulation for CNAV MMFs, their activities reduced or phased out Introduction of capital buffers on CNAV MMFs and appropriate size/types of buffer Valuation methodologies other than mark-to-market in stressed market conditions
Constant NAV MMFs (CNAV MMFs)
vs.
Variable NAV MMFs (VNAV MMFs)
Assessment of potential need to strengthen the resilience of the MMF market in order to prevent investor runs & systematic risk
Drivers Areas Under Review
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6.2 MMFs Liquidity & Redemptions
Possibility for liquidity bottlenecks in current UCITS framework Viability of the introduction of a liquidity fee Viability of the introduction of redemption restrictions Liquidity constraint mechanisms Limits for weighted average maturity & weighted average life
Immediate redemptions vs.Asset maturity
Liquidity fees & constraints
Redemption restrictions
Assessment of potential need to strengthen the resilience of the MMF market in order to prevent investor runs & systematic risk
Drivers Areas Under Review
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6.3 MMFs Investment Criteria & Rating
Revision of the definition of MMF in the UCITS directive Banning the rating of MMFs Prohibition of investment criteria related to credit ratings Criteria needed for assessment of high quality assets
Overreliance on the opinions of credit rating agencies
Assessment of potential need to strengthen the resilience of the MMF market in order to prevent investor runs & systematic risk
Drivers Areas Under Review
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7. Long-term Investments
Current options and appetite of retail investors and fund managers Common framework for long-term investments Eligible asset types and characteristics Secondary market and liquidity constraints Diversification rules and portfolio weightings Use of leverage & derivatives Minimum lock-up periods Use of UCITS framework to ensure high investor protection Possibility for UCITS to invest in units of European Social Entrepreneurship Funds
Low level of liquidity
Socially responsible investments
Financing of infrastructure projects
Reduce capital mktpressure
Assessment of potential need for measures to promote long term investments & of the possible form of such measures
Drivers Areas Under Review
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8. UCITS IV Improvements
Delegated acts specifying administrative procedures & internal control mechanisms for investment companies
Additional master-feeder scenario conversion of feeder into ordinary UCITS Revision of the timelines for the mergers of UCITS Notification procedure
o Update notifications to move from written to electronic formo Clarification of share class info providedo Regulator-regulator notification for any changes to notification file
Alignment with the provisions of AIFMD
Deficiencies identified in the existing UCITS IV framework
Assessment of possible improvements to the rules concerning the manco passport, master-feeder structures, fund mergers & notification procedures
Drivers Areas Under Review
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Questions & Answers
For more information:
Ian McCarthy
Senior Fiduciary Monitoring Officer
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efficiency, renewable energy & mitigation
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Citi works with its clients in greenhouse gas intensive industries to evaluate emerging risks from climate change and, where appropriate, to mitigate those risks.
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UCITS VI Consultation PaperTable of ContentsUCITS VI Consultation PaperUCITS Evolution UCITS to UCITS VI1. Eligible Assets2. Efficient Portfolio Management3. OTC Derivatives4. Extraordinary Liquidity Management Tools5. Depositary Passport6. Money Market Funds (MMFs)6.1 MMFs - Valuation & Capital6.2 MMFs Liquidity & Redemptions6.3 MMFs Investment Criteria & Rating7. Long-term Investments8. UCITS IV ImprovementsQuestions & AnswersSlide Number 17