ESMA - Updated Q&A on ETFs and other UCITS issues

On January 9th 2015, the European Securities and Markets Authority ("ESMA") issued an updated version of its Q&A on the ESMA guidelines on ETFs and other UCITS issues (the "Q&A").

An additional sub-question has been issued under Question 5 relating to "Financial derivative instruments".

The purpose of such question is to clarify the scope of paragraph 39 of the guidelines on ETFs and other UCITS issues (ESMA/2012/832) (the "Guidelines") which provides that where the counterparty has discretion over the composition or management of the UCITS' investment portfolio or of the underlying of the financial derivative instrument, the agreement between the UCITS and the counterparty should be considered as an investment management delegation arrangement and should comply with the UCITS requirements on delegation.

The updated Q&A indicates that in the case where the role of the counterparty only involves implementing a set of rules and this set of rules is agreed in advance with the UCITS management company and does not allow the exercise of any discretion, the counterparty to the financial derivative instrument will not be considered as having any discretion over the composition of the underlying assets of the financial derivative instrument for the purpose of paragraph 39 of the Guidelines.