Article 50 (2) (a) of the UCITS Directive - 26/11/2012
ESMA's opinion of the Article 50 (2) (a) of the UCITS Directive
The ESMA published on 20th November 2012 a formal opinion on its interpretation of the Article 50 (2) (a) of the UCITS Directive (sometimes referred to as the “trash ratio”). The article states:
“A UCITS shall not invest more than 10% of its assets in transferable securities or money market instruments other than those referred to in paragraph 1; …”
As the reference is made only to “transferable securities” or “money market instruments”, ESMA wish to clarify that collective investment undertakings cannot be held within the trash ratio.
Therefore, for UCITS funds, the only eligible investments into other units or shares of collective investment undertakings are those defined in Article 50 (1) (e) of the UCITS Directive.
ESMA have allowed UCITS until 31 December 2013, at the latest, to divest from any non-compliant collective investment schemes held within their portfolios. ESMA requires that any resulting portfolio re-organisation is made in the best interests of the UCITS’ investors.
The Luxembourg regulator, the CSSF, has also confirmed this position via its press release dated 23 November 2012, again allowing a maximum of circa 13 months for UCITS to dispose of any collective investment undertakings which do not comply with Article 50 (1) (e) of the Directive. The CSSF also clarifies that no additional acquisitions of collective investment schemes should be made which do not comply with Article 50 (1) (e) of the UCITS Directive.
Article 50 (1) (e) of the UCITS Directive is transposed in Luxembourg law by Article 41 (1) (e) of the law of 17 December 2010.
Article 50 (2) (a) of the UCITS Directive is transposed in Luxembourg law by Article 41 (2) (a) of the law of 17 December 2010.
We trust this information is of assistance and remain at your disposal for any further questions.
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