Europese Commissie stelt regels vast voor investeringen in opties, futures en swaps (en)

The European Commission has adopted two Recommendations to facilitate the common implementation of some crucial EU rules on collective investment funds (UCITS), such as unit trusts, common funds and SICAVs. These Recommendations will help Member States' regulators interpret in the same way the rules on how UCITS or "undertakings for collective investment in transferable securities" may invest in financial derivatives, such as options, futures or swaps, and on how fund managers should present the main elements of their funds to retail investors in a "simplified prospectus". UCITS are established in all Member States and their total assets amount to around four thousand billion euros.

Internal Market Commissioner Frits Bolkestein said: "Financial derivatives have become a common investment for fund managers. So we need a common approach to risk-management to ensure a level playing field and to protect retail investors. We also need to make sure that funds can be marketed transparently, fairly and competitively across borders. That means giving investors comprehensive information, in a form which allows them to compare different funds from different EU countries. That is why we want Member State authorities to ensure that the pan-European simplified prospectus now provided for under EU legislation on UCITS covers the same ground, in the same way, wherever the prospectus is issued."

Recommendation on UCITS' investment in derivatives

Buying or selling derivatives entails incurring risks, which are characterised by the so-called "leverage effect". In other words the actual risk-exposure taken via derivatives is not directly commensurate with the initial cash price paid, which is usually limited. But potential future liabilities arising from derivatives can be very significant. Therefore, the first Recommendation adopted by the Commission contains clear rules and principles to underpin robust risk-management standards for derivatives. Those standards aim to protect investors by ensuring that UCITS will at any time be able to meet liabilities incurred through dealing in derivatives. They must be calibrated to the real risk-profile of an individual UCITS' investments in derivatives.

Recommendation on the simplified prospectus for UCITS

The second Commission Recommendation concentrates on some critical components of the simplified prospectus that UCITS are required to make available to investors. That prospectus contains the basic information about the fund, such as the type of investment objectives and policy, the fund's risk profile, etc.

The Recommendation introduces, in particular, standardised ratios to make sure that retail investors can compare information on funds' operating costs (through the "Total Expense Ratio" or TER) and get in every case a figure for a fund's volume of transactions (through the "portfolio turnover rate"). Furthermore, it is also expected that the industry's own standard-setters will further develop their own detailed guidebooks for fund-managers, based on the Commission Recommendation.

Further work

The Member States are expected to inform the Commission, as far as possible by the end of September 2004, of the implementing measures taken further to each of the Recommendations. The Commission expects to receive their feedback on the early impact of that implementation by the end of February 2005. Based on such feedback, the Commission may, if need be, adopt further measures to consolidate pan-European standards.

Both Recommendations have been developed in close cooperation with Member State experts. They take into account, where relevant, existing standards and practice, but also call on Member States to do further harmonisation work to develop together detailed, calibrated standards, especially on derivatives.

It is therefore expected that, in due time, the experts of the Committee of European Securities Regulators (CESR), in cooperation with the Commission, will do further preparatory work on convergence of standards, as they are already expected to do for standards applying to UCITS depositaries(see IP/04/430).

Background

Under the original UCITS Directive 85/611/EEC, funds' use of derivatives was limited to hedging risks taken on equity and bonds. But Directive 2001/108/EC of January 2002 (see IP/01/1728) on UCITS' investments now allows these EU-harmonised investment funds to invest in financial derivative instruments for general investment purposes.

There are many different types of financial derivatives. These include swaps, whereby two parties exchange the sequence of cash flows that derives from one financial instrument against the sequence of cash-flows generated by another instrument (e.g. a fixed-interest rate against a floating rate) or futures, whereby a contract is drawn up to buy shares or currencies at a specified future date at a specified price. That futures contract may then be sold on to customers who believe they will be able to make a profit because the specified price for the security will be below the market price at the time the future transaction takes effect. Another basic type of derivative is an option, which gives its beneficiary the right to buy from or sell to the other contracting party a security or currency at a specified price within a specified future time period. Holders of options can then take advantage of any favourable movement in prices upwards if they have contracted to buy at a fixed price, downwards if they are selling. If there is an unfavourable movement, the holders do not exercise the option, but lose the price paid for it they thus limit their exposure to risk to the amount of that price. There are also many more complex and sophisticated types of derivative.

Directive 2001/107EC of January 2002 (see IP/01/1728) complements the aforementioned Directive on UCITS' investment by introducing, among other things, the simplified prospectus as a pan-European marketing tool, to be offered free of charge to those investing in UCITS funds, before the conclusion of the contract.

The simplified prospectus was designed to facilitate the process of cross-border marketing of UCITS and to enhance the comparability of the information provided to investors.

Under the Directive, fund managers require for their simplified prospectus only the approval of their home national authorities. Authorities in other Member States where the fund is marketed may require only the translation of the prospectus without any modifications to its structure and contents. Therefore, in order to ensure a similar level of protection of investors in all UCITS it is essential for Member States to take a common approach to the content of the simplified prospectus, the broad structure of which is already harmonised by the Directive.

The full text of the Commission's Recommendations is available at:

http://europa.eu.int/comm/internal_market/en/finances/mobil/ucits/index.htm