Undertakings for collective investment

Transcription

Undertakings for collective investment 2010
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Undertakings for
collective investment
2010
Published by the SOCIETE DE LA BOURSE DE LUXEMBOURG S.A. and the Association
Luxembourgeoise des Fonds d’Investissement and containing the Luxembourg
laws and regulations regarding undertakings for collective investment as well as the related
circulars of the supervisory authority.
In case of divergence between this translation and the original French text, the French text
shall prevail.
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Undertakings for collective investment
Edition 2010
INTRODUCTION
Between 1986 and 2008, the Luxembourg Stock Exchange published and distributed a French-EnglishGerman textbook of the Luxembourg legislation governing undertakings for collective investment. The
textbook had eight subsequent and successful editions with an overall print of 40,000 copies. For its
part, the publication has contributed to the growth of the financial centre’s activity in connection with the
segment of undertakings for collective investment and, given its concept and contents; it has become a
major reference for the professionals operating in the undertakings for collective investment sector.
Due to this experience and in order to meet local professionals’ requests, the Luxembourg Stock
Exchange has decided to publish an update of the textbook with the collaboration of the Luxembourg
Association of Investment Funds. In its updated version, the textbook is published in English, French
and German, each comprising the law of 20 December 2002 on undertakings for collective investment
and the related regulatory texts. The publication includes footnotes and an index in alphabetical order.
The updated textbook is the result of an active co-operation between two reputed local law firms, Arendt
& Medernach and Elvinger, Hoss & Prussen that have compiled the legal and regulatory texts and
prepared the English and German translations.
This textbook has been further supplemented by PricewaterhouseCoopers with information such as the
SIF Law of 2007, the SICAR Law of 2004 as well as additional circulars of relevance.
Global Asset Management Industry Group
As a leading provider of professional services to the Asset Management industry and players,
PricewaterhouseCoopers has a multi-disciplinary team of proven professionals dedicated to the industry
and spanning over 95 territories worldwide. This team includes over 2,000 partners, supported by a
network of professionals, whose expertise and experience enable us to provide our clients with insights
into marketplace developments and global opportunities.
PricewaterhouseCoopers offers industry-focused solutions and strong implementation capability,
providing a globally co-ordinated approach to the asset management industry’s business needs.
Our expertise in Luxembourg
At PricewaterhouseCoopers we have extensively invested in building our Luxembourg Asset
Management practice over the years. With over 900 people dedicated to the servicing of the Asset
Management industry, among which 55 partners and more than 200 directors and managers, we have
a unique breadth and depth of expertise covering all elements of the investment fund value-chain.
We hope you find this publication of interest.
John Parkhouse
Luxembourg Asset Management Leader
TABLE OF CONTENTS
LAW DATED 20 DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE
INVESTMENT
Introductory part Definitions (Article 1)… ………………………………………………… 11
Part I.
UCITS
Chapter 1. Chapter 2. Chapter 3. Chapter 4. Chapter 5.
Chapter 6.
Chapter 7.
… …………………………………………………………………
General provisions and scope (Articles 2 to 4)………………
Common funds in transferable securities
(Articles 5 to 24)…………………………………………………
SICAVs in transferable securities (Articles 25 to 38)… ……
Other investment companies in transferable securities
(Articles 39 and 40)… …………………………………………
Investment policy of a UCITS (Articles 41 to 52)……………
UCITS situated in Luxembourg which market their units
in other Member States of the European Union
(Articles 53 to 57)… ……………………………………………
UCITS situated in other Member States of the European
Union which market their units in Luxembourg
(Articles 58 to 62)… ……………………………………………
15
15
Part II.
Other UCIs
Chapter 8.
Chapter 9.
Chapter 10.
Chapter 11.
… …………………………………………………………………
Scope (Articles 63 and 64)… …………………………………
Common funds (Articles 65 to 68)… …………………………
SICAVs (Articles 69 to 72)… …………………………………
UCIs which have not been constituted as common funds
or SICAVs (Articles 73 to 75)… ………………………………
Part III.
16
20
25
26
33
34
35
35
35
37
38
Foreign UCIs … ………………………………………………………………… 39
Chapter 12. General provisions and scope (Article 76)…………………… 39
Part IV.
The authorisation of management companies… …………………………… 40
Chapter 13. Management companies managing UCITS governed by
Directive 85/611/EEC (Articles 77 to 90)… ………………… 40
Chapter 14. Other management companies of Luxembourg UCIs
(Articles 91 and 92)… ………………………………………… 49
Part V.
General provisions applicable to UCITS and other UCIs……………………
Chapter 15. Authorisation (Articles 93 to 96)… ……………………………
Chapter 16. Organisation of supervision (Articles 97 to 108)… …………
Chapter 17. Obligations concerning information to be supplied to
unitholders (Articles 109 to 119)………………………………
Chapter 18. Criminal law provisions (Articles 120 to 126)… ……………
Chapter 19. Tax provisions (Articles 127 to 131)… ………………………
Chapter 20. Special provisions in relation to the legal form
(Articles 132 to 133 bis)… ……………………………………
Chapter 21. Transitional and repealing provisions
(Articles 134 to 138)… …………………………………………
50
50
51
59
63
65
67
68
3
Appendix I
Schedule A
Schedule B
Schedule C
… …………………………………………………………………
Information to be included in the prospectus…………………
Information to be included in the periodical reports…………
Contents of the simplified prospectus…………………………
70
70
75
77
Appendix II
Functions included in the activity of collective portfolio
management… ………………………………………………… 79
LAW OF 13 FEBRUARY 2007 RELATING TO SPECIALISED
INVESTMENT FUNDS… ……………………………………………………………………… 80
LAW OF 15 JUNE 2004 RELATING TO THE INVESTMENT COMPANY IN RISK
CAPITAL (“SICAR”)… ………………………………………………………………………… 103
GRAND-DUCAL REGULATION OF 14 APRIL 2003 ESTABLISHING THE
TERMS AND AMOUNT OF THE FIXED CAPITAL DUTY PAYABLE PURSUANT
TO ARTICLE 128 OF THE LAW OF 20 DECEMBER 2002 RELATING TO
UNDERTAKINGS FOR COLLECTIVE INVESTMENT……………………………………… 121
GRAND-DUCAL REGULATION OF 14 APRIL 2003 DETERMINING THE
CONDITIONS AND CRITERIA FOR THE APPLICATION OF THE SUBSCRIPTION
TAX REFERRED TO IN ARTICLE 129 OF THE LAW OF 20 DECEMBER 2002
RELATING TO UNDERTAKINGS FOR COLLECTIVE INVESTMENT…………………… 122
Grand-Ducal Regulation of 08 February 2008 relating to
certain definitions of the law of 20 December 2002 as amended
concerning undertakings for collective investment and
implementing the Directive 2007/16/EC of the European Commission
implementing Council Directive 85/611/EEC on the coordination
of laws, regulations and administrative provisions relating
to undertakings for collective investment in transferable
securities (UCITS) as regards the clarification of certain
definitions… ………………………………………………………………………………… 123
IML CIRCULAR 91/75 OF 21 JANUARY 1991……………………………………………… 132
Chapter A. Purpose and scope of the Law of 30 March 1988…………………………… 133
Chapter B. Definition of the meaning of UCI… …………………………………………… 134
I.Criteria by which the meaning of UCI is being defined.………………… 134
II.Practical application of the criteria retained for the definition of the
meaning of UCI… ………………………………………………………… 134
Chapter C. Classification of the UCIs situated in Luxembourg… ………………………
I.Definition of the UCIs governed by Part I of the Law
of 30 March 1988……………………………………………………………
II.Definition of the UCIs governed by Part II of the Law
of 30 March 1988……………………………………………………………
III. Status of UCITS (Part I) and of other UCIs (Part II) in the European
context… ……………………………………………………………………
4
136
136
136
138
Chapter D. Rules concerning the central administration of Luxembourg UCIs…………
I. Definition of the meaning of central administration in Luxembourg.……
II. Organisation of the central administration in Luxembourg………………
III. Execution of the accounting and administrative duties referred to by
the meaning of central administration in Luxembourg.… ………………
139
139
139
140
Chapter E. Rules concerning the depositary of a Luxembourg UCI.……………………
I. Conditions of admission to the activity of the depositary. ………………
II. General mission of the depositary.… ……………………………………
III. Specific duties of the depositary……………………………………………
IV. Liability of the depositary.… ………………………………………………
Rules applicable to UCITS governed by Part I of the Law of
30 March 1988.… ……………………………………………………………… I. Intervals at which the issue and redemption prices must be determined. …
II. Redemption by UCITS of their units or shares… ……………………… III. Requirements in respect of the constitution of assets… ……………… IV. Borrowings…………………………………………………………………… V. Method of calculation of the investment limits provided for by Chapter
5 of the Law of 30 March 1988.…………………………………………… 147
147
147
148
150
Chapter F. 152
152
152
152
154
154
Chapter G. Rules applicable to UCITS subject to Part II of the Law of
30 March 1988.… ……………………………………………………………… 155
I. Intervals at which the issue and redemption prices must be determined. … 155
II. Investment limits.… ………………………………………………………… 155
III. Borrowings.… ……………………………………………………………… 156
IV. Provisions applicable to UCITS which are subject to Chapter 11 of the
Law of 30 March 1988.… ………………………………………………… 156
Chapter H. Rules applicable to all UCITS.… ……………………………………………… 157
I. Techniques and instruments relating to transferable securities… …… 157
II. Techniques and instruments intended to hedge currency risks to which
UCITS are exposed to in the management of their assets and
liabilities.……………………………………………………………………… 161
Chapter I. Rules applicable to UCIs other than UCITS.… ……………………………… 162
I. Rules of the particular regime applicable to UCIs the principal object
of which is the investment in venture capital.… ………………………… 162
II. Rules of the particular regime applicable to UCIs the principal object
of which is the investment in futures contracts (commodity futures and/
or financial futures) and/or in options. … ………………………………… 164
III. Rules of the particular regime applicable to UCIs the principal object
of which is the investment in real estate assets.………………………… 165
Chapter J. Rules applicable to multiple compartment UCIs… …………………………
I. General principle.……………………………………………………………
II. Common funds. … …………………………………………………………
III. Investment companies………………………………………………………
IV. Common rules to all multiple compartment UCIs.… ……………………
169
169
169
170
171
5
Chapter K. Contents of the file in support of the application for authorisation of
UCIs.……………………………………………………………………………… 172
Chapter L.
Information and advertisement documents intended for investors.… ……
I. Prospectus…………………………………………………………………
II. Advertising documents… …………………………………………………
III. Financial reports.……………………………………………………………
IV. Use of the prospectus and periodical reports.……………………………
Chapter M. Financial information intended for the CSSF and the Statec… ……………
I. Content of the monthly and annual financial information… ……………
II. Collection of data provided for by tables O 1.1., O 4.1.
and O 4.2. ……………………………………………………………………
III. Reference date………………………………………………………………
IV. Delay for transmission………………………………………………………
V. Currency used in the statement……………………………………………
VI. Undertakings for collective investment with multiple compartments…
VII. Identification number… ……………………………………………………
VIII. Reference period……………………………………………………………
IX. Name of staff member………………………………………………………
X. Date of the first drawing-up of monthly and annual financial
information……………………………………………………………………
173
173
174
174
175
177
177
177
178
178
178
178
179
179
179
179
Chapter N. Rules applicable to management companies of common funds.… ……… 180
I. Information obligation of management companies vis-à-vis the
CSSF
… ………………………………………………………………… 180
II. Authorisation of the shareholders of a management company. ……… 180
Chapter O. Marketing rules applicable in Luxembourg.… ……………………………… 181
Chapter P. Obligation of UCIs to inform the CSSF on the audit made by the
auditor. …………………………………………………………………………… 182
Appendix: Monthly financial information concerning UCIs……………………………… 183
CSSF Circular 02/77 of 27 November 2002 concerning the
Protection of investors in case of NAV calculation error and
correction of the consequences resulting from non-compliance
with the investment rules applicable to undertakings for
collective investment… ……………………………………………………………… 184
CSSF CIRCULAR 02/80 OF 5 DECEMBER 2002 CONCERNING THE
SPECIFIC RULES APPLICABLE TO LUXEMBOURG UNDERTAKINGS FOR
COLLECTIVE INVESTMENT (“UCIS”) PURSUING ALTERNATIVE INVESTMENT
STRATEGIES… ………………………………………………………………………………… 194
CSSF CIRCULAR 02/81 OF 6 DECEMBER 2002 RELATING TO THE GUIDELINES
CONCERNING THE TASK OF AUDITORS OF UNDERTAKINGS FOR COLLECTIVE
INVESTMENT… ………………………………………………………………………………… 201
6
CSSF CIRCULAR 03/87 OF 21 JANUARY 2003 CONCERNING THE COMING INTO
effect OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS
FOR COLLECTIVE INVESTMENT… ………………………………………………………… 217
CSSF CIRCULAR 03/88 OF 22 JANUARY 2003 CONCERNING THE
Classification of the undertakings for collective investment
governed by the provisions of the Law of 20 December 2002
concerning undertakings for collective investment………………… 222
CSSF CIRCULAR 03/97 OF 28 FEBRUARY 2003 CONCERNING THE
PUBLICATION BY UNDERTAKINGS FOR COLLECTIVE INVESTMENT IN THE
REFERENCE DATABASE (“RÉFÉRENTIEL DE LA PLACE”) OF THE SIMPLIFIED
PROSPECTUSES AND THE FULL PROSPECTUSES AS WELL AS THE ANNUAL
AND SEMI-ANNUAL REPORTS.……………………………………………………………… 226
CSSF CIRCULAR 03/108 OF 30 JULY 2003 CONCERNING Luxembourg
management companies subject to Chapter 13 of the Law of
20 December 2002 concerning undertakings for collective
investment, as well as Luxembourg self-managed investment
companies subject to Article 27 or Article 40 of the Law of
20 December 2002 concerning undertakings for collective
investment.…………………………………………………………………………………… 228
CSSF CIRCULAR 03/122 of 19 December 2003 concerning
Clarifications on the simplified prospectus.………………………………… 243
CSSF Circular 04/146 of 17 June 2004 concerning Protection of
undertakings for collective investment and their investors
against Late Trading and Market Timing practices… …………………… 247
CSSF CIRCULAR 05/177 of 6 April 2005 concerning the Abolition of
any prior control by the CSSF of advertising material used by
persons and companies supervised by the CSSF; abrogation of
point II. of Chapter L. of IML circular 91/75; abrogation of the two
last sentences of point IV. 5.11 of CSSF circular 2000/15………………… 251
CSSF CIRCULAR 05/185 of 24 May 2005 concerning Luxembourg
management companies subject to the provisions of chapter
13 of the law of 20 December 2002 relating to undertakings for
collective investment, as well as self-managed investment
companies subject to the provisions of article 27 or article 40
of the law of 20 December 2002 relating to undertakings for
collective investment… ……………………………………………………………… 252
CSSF CIRCULAR 05/186 of 25 May 2005 concerning the Guidelines
of the Committee of European Securities Regulators (CESR)
regarding the application of transitional measures resulting
from directives 2001/107/EC and 2001/108/EC (UCITS III) amending
directive 85/611/EEC (UCITS I).…………………………………………………………… 254
CSSF CIRCULAR 06/241 of 5 april 2006 concerning the Concept
of risk capital under the Law of 15 June 2004 relating to the
investment company in risk capital (SICAR)… ………………………………… 256
7
CSSF CIRCULAR 06/267 OF 22 November 2006 CONCERNING THE
GUIDeLINES OF THE Technical specifications regarding the
communication to the CSSF, under the law on prospectuses
for securities, of documents for approval or for filing
and of notices for offers to the public of units or shares
of Luxembourg closed-end UCIs and admissions of units of
shares of Luxembourg closed-end UCIs to trading on a
regulated market………………………………………………………………………… 261
CSSF Circular 06/272 OF 21 DECEMBER 2006 CONCERNING THE Technical
specifications regarding the communication to the CSSF, under
the law on prospectuses for securities, of documents for the
approval or for filing and of notices for offers to the public of
securities issued by SICARs and admissions of securities issued by
SICARs to trading on a regulated market… ………………………………… 266
CSSF Circular 07/277 OF 9 January 2007 CONCERNING THE new
notification procedure in accordance with the guidelines of the
Committee of European Securities Regulators (CESR) concerning
the simplification of the UCITS notification procedure………………… 270
CSSF CIRCULAR 07/283 OF 28 february 2007 CONCERNING THE Entry
into force of the law of 13 February 2007 relating to specialised
investment funds… ……………………………………………………………………… 277
CSSF CIRCULAR 07/308 OF 2 August 2007 CONCERNING THE Rules
of conduct to be adopted by undertakings for collective
investment in transferable securities with respect to the use of
a method for the management of financial risks, as well as the
use of derivative financial instruments.… …………………………………… 280
CSSF CIRCULAR 07/309 OF 3 August 2007 CONCERNING THE riskspreading in the context of specialised investment funds (“SIF”)… 301
CSSF CIRCULAR 07/310 OF 3 august 2007 concerning the Financial
information to be provided by specialised investment
funds (“SIFs”)………………………………………………………………………………… 303
CSSF CIRCULAR 08/339 OF 19 February 2008 relating to the
Guidelines of the Committee of European Securities Regulators
(CESR) concerning eligible assets for investment by UCITS … ……… 324
CSSF CIRCULAR 08/356 OF 4 June 2008 CONCERNING THE Rules
applicable to undertakings for collective investment when
they employ certain techniques and instruments relating to
transferable securities and money market instruments… ………… 326
CSSF CIRCULAR 08/371 OF 5 september 2008 CONCERNING THE
Electronic transmission of prospectuses and financial
reports of UCIs and SIFs to the CSSF… ………………………………………… 335
8
CSSF CIRCULAR 08/372 OF 5 september 2008 CONCERNING THE
Guidelines for depositaries of specialised investment funds
adopting alternative investment strategies, where those funds
use the services of a prime broker… …………………………………………… 338
CSSF CIRCULAR 08/376 OF 23 october 2008 CONCERNING
THE Financial information to be submitted by investment
companies in risk capital (SICARs)… ……………………………………………… 341
CSSF CIRCULAR 08/380 OF 26 november 2008 CONCERNING THE
Guidelines of the Committee of European Securities Regulators
(CESR) concerning eligible assets for investment by UCITS…………… 345
PricewaterhouseCoopers Asset Management Partners… …………… 358
Index… ………………………………………………………………………………………… 360
9
law dated 20 December 2002 relating to
undertakings for collective investment
Preface
The amended law dated 20 December 2002 relating to undertakings for collective investment
has transposed into Luxembourg law the Directives of the European Parliament and of the
Council of the European Union of 21 January 2002 (2001/107/EC and 2001/108/EC).11
The terms used in the Luxembourg law correspond to a large extent to those of the European
Directives. In certain cases, deviations from the terms of the Directives are referred to in
footnotes. The footnotes also provide certain explanations inter alia relating to the specific
structures and procedures existing in Luxembourg.
11
10
Directives of the European Parliament and of the Council of 21 January 2002 with a view to regulating
management companies and simplified prospectuses (2001/107/EC) and with regard to investment in UCITS
(2001/108/EC), amending Directive 85/611/EEC of the Council on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as
amended by the Directive of the Council of 22 March 1988 (88/220/EEC) and by the Directive of the European
Parliament and of the Council of 29 June 1995 (95/26/EEC).
LAW DATED 20 DECEMBER 2002 RELATING TO
UNDERTAKINGS FOR COLLECTIVE INVESTMENT
INTRODUCTORY PART:
Definitions
Note: The definitions are listed alphabetically and the order is therefore not consistent with
the French original. At the end of each definition a reference to the original French definition
is made.
Art. 1
For the purpose of this law:
1) “branch” shall mean a place of business which is a part of the management
company, which has no legal personality and which provides the services
for which the management company has been authorised; all the places of
business set up in the same Member State by a management company with
its registered office2 in another Member State shall be regarded as a single
branch. [This definition appears under item 25 in the French original and under
item 26 in the German translation]
2) “close links” shall mean a situation as defined in Article 2, paragraph (1) of
Directive 95/26/EC of the European Parliament and of the Council of 29 June
1995 modifying Directives 77/780/EEC and 89/646/EEC in the field of credit
institutions, Directives 73/239/EEC and 92/49/EEC in the field of non-life
insurance, Directives 79/267/EEC and 92/96/EEC in the field of life insurance,
Directive 93/22/EEC3 in the field of investment firms and Directive 85/611/EEC
in the field of undertakings for collective investment in transferable securities
(UCITS) with a view to reinforcing prudential supervision; [This definition
appears under item 19 in the French original and under item 7 in the German
translation]
3) “competent authorities” shall mean the authorities which each Member State
designates under Article 49 of Directive 85/611/EEC. [This definition appears
under item 1 in the French original and under item 25 in the German translation]
4) “CSSF” shall mean the Commission de Surveillance du Secteur Financier
(the Commission for the Supervision of the Financial Sector). [This definition
translation]
5) “depositary bank” or “depositary” shall mean a credit institution ensuring the
safe keeping of the assets of Luxembourg UCIs subject to Part I or Part II of
this law. [This definition appears under item 2 in the French original and under
item 5 in the German translation]
6) “Directive 78/660/EEC” shall mean the Council Directive 78/660/EEC of
25 July 1978 based on Article 54, paragraph (3), (g) of the Treaty on the
2
The English version of amended Directive 85/611/EEC refers to “headquarters” whereas the French version refers
to the registered office (siège social) and the German version to the “Sitz”.
3
Directive 93/22/EEC has been replaced by Directive 2004/39/EC of 21 April 2004 on markets in financial instruments (“MiFID”). Directive 2004/39/EC has been implemented into Luxembourg law by the law of 13 July
2007 on markets in financial instruments. In accordance with Article 173 of the law dated 13 July 2007 on
markets in financial instruments, any reference to Directive 93/22/EEC shall now be read as a reference to
Directive 2004/39/EC and references to terms defined or to Articles contained in Directive 93/22/EEC shall be read
as a reference to the equivalent term as defined in Directive 2004/39/EC or to the equivalent Article in Directive
2004/39/EC.
11
7)
8)
9)
10)
11)
12)
13)
14)
15)
4
12
annual accounts of certain types of companies, as amended. [This definition
translation]
“Directive 83/349/EEC” shall mean the Council Directive 83/349/EEC of
13 June 1983 based on Article 54, paragraph (3), (g) of the Treaty on consolidated accounts, as amended. [This definition appears under item 6 in the
French original and under item 17 in the German translation]
“Directive 85/611/EEC” shall mean the Council Directive 85/611/EEC of
20 December 1985 on the coordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable
securities (UCITS), as amended. [This definition appears under item 7 in the
“Directive 93/6/EEC” shall mean the Council Directive 93/6/EEC of 15 March
1993 on the capital adequacy of investment firms and credit institutions, as
amended. [This definition appears under item 8 in the French original and
under item 19 in the German translation]
“Directive 93/22/CEE shall mean Council Directive 93/22/EEC of 15 March 1993
on capital adequacy of investment firms and credit institutions, as amended.
[This definition appears under item 9 in the French original and under item 20
in the German translation]
“Directive 97/9/EC” shall mean the Directive 97/9/EC of the European Parliament
and of the Council of 3 March 1997 on investor-compensation schemes. [This
definition appears under item 10 in the French original and under item 21 in the
German translation]
“initial capital” shall mean the elements referred to in items 1) and 2) of Article
34, paragraph (2) of Directive 2000/12/EC of the European Parliament and
of the Council of 20 March 2000 relating to the taking up and pursuit of the
business of credit institutions4. [This definition appears under item 3 in the
a “management company’s home Member State” shall mean the Member
State in which the management company’s registered office is situated. [This
German translation]
“money market instruments” shall mean instruments normally dealt in on the
money market which are liquid, and have a value which can be accurately
determined at any time. [This definition appears under item 18 in the French
original and under item 8 in the German translation]
a “management company’s host Member State” shall mean the Member State,
other than the home Member State, within the territory of which a management
company has a branch or provides services. [This definition appears under
item 14 in the French original and under item 2 in the German translation]
Article 34, paragraph (2) items 1) and 2):
1) capital within the meaning of Article 22 of Directive 86/635/EEC, insofar as it has been paid up, plus share
premium accounts but excluding cumulative preferential shares;
2) reserves within the meaning of Article 23 of Directive 86/635/EEC and profits and losses brought forward as
a result of the application of the final profit or loss. The Member States may permit inclusion of interim profits
before a formal decision has been taken only if these profits have been verified by persons responsible for
the auditing of the accounts and if it is proved to the satisfaction of the competent authorities that the amount
thereof has been evaluated in accordance with the principles set out in Directive 86/635/EEC and is net of any
foreseeable charge or dividend.
16) “own funds” shall mean own funds as defined in Title V, chapter 2, Section
1 of Directive 2000/12/EC; this definition may, however, be amended in the
circumstances described in Annex V of Directive 93/6/EEC. [This definition
translation]
17) “parent undertaking” shall mean a parent undertaking as defined in Articles 1
and 2 of Directive 83/349/EEC. [This definition appears under item 11 in the
18) “qualifying holdings in a management company” shall mean any direct or
indirect holding in a management company which represents 10% or more
of the capital or of the voting rights or which makes it possible to exercise a
significant influence over the management of the management company in
which that holding subsists. For the purpose of this definition, the voting rights
referred to in Article 7 of the law of 4 December 1992 on the information to be
published in case of acquisition or disposal of a substantial participation in a
listed company shall be taken into account. [This definition appears under item
23 in the French original and under item 15 in the German translation]
19) “regulated market” shall mean the market defined in item 13 of Article 1 of
Directive 93/22/EEC5. [This definition appears under item 20 in the French
original and under item 9 in the German translation]
20) “SICAV” shall mean investment company with variable capital. [This definition
translation]
21) “subsidiary” shall mean a subsidiary undertaking as defined in Articles 1 and 2
of Directive 83/349/EEC; any subsidiary of a subsidiary undertaking shall also
be regarded as a subsidiary of the parent undertaking which is the ultimate
parent of those undertakings. [This definition appears under item 16 in the
22) “transferable securities” shall mean:
- shares6 and other securities equivalent to shares (“shares”),
- bonds and other debt instruments7 (“bonds”)8,
- any other negotiable securities which carry the right to acquire any such
transferable securities by subscription or exchange,
excluding the techniques and instruments referred to in Article 42. [This
German translation]
23) “UCI” shall mean undertaking for collective investment. [This definition appears
under item 21 in the French original and under item 13 in the German translation]
24) “UCITS” shall mean undertaking for collective investment in transferable
securities governed by Directive 85/611/EEC. [This definition appears under
item 22 in the French original and under item 14 in the German translation]
5
“Regulated market” is defined in Article 4, item 1.14 of Directive 2004/39/EC.
6
The English version of amended Directive 85/611/EEC refers to “shares in companies”.
7
The English version of amended Directive 85/611/EEC refers to “other forms of securitised debts”.
8
The French version of amended Directive 85/611/EEC uses “bonds” (obligations) as a defined term whereas the
English version uses the term “debt securities”.
13
25) a “UCITS home Member State” shall mean:
(a)with regard to a UCITS constituted as a common fund, the Member State in
which the management company’s registered office is situated;
(b)with regard to a UCITS constituted as an investment company, the Member
State in which the investment company’s registered office is situated. [This
definition appears under item 13 in the French original and under item 11 in
the German translation]
26) a “UCITS host Member State” shall mean the Member State, other than the
UCITS home Member State, in which the units of the common fund or of the
investment company are marketed. [This definition appears under item 12 in
the French original and under item 3 in the German translation]
The definitions are specified by a grand-ducal regulation.
14
PART I. - UCITS
Chapter 1. – General provisions and scope
Art. 2
(1) This Part applies to all UCITS situated in Luxembourg.
(2) For the purpose of this law, but subject to Article 3, UCITS shall be undertakings:
– the sole object of which is the collective investment in transferable securities
and/or in other liquid financial assets referred to in Article 41, paragraph
(1) of this law of capital raised from the public and which operate on the
principle of risk-spreading, and
– the units of which are, at the request of holders, redeemed9 directly or
indirectly, out of those undertakings’ assets. Action taken by a UCITS to
ensure that the stock exchange value of its units does not significantly
vary from their net asset value shall be regarded as equivalent to such
redemption.
(3) Such undertakings may be constituted under the law of contract (as common
funds10 managed by a management company11) or under statute (as investment
company12).
(4) Investment companies the assets of which are invested through the intermediary of subsidiary companies mainly otherwise than in transferable securities
or in other liquid financial assets referred to in Article 41, paragraph (1) of this
law shall however not be subject to this Part.
(5) UCITS which are subject to this Part are prohibited from transforming
themselves into investment undertakings which are subject to Part II of this
law.
Art. 3
The following shall not be subject to this Part:
– UCITS of the closed-ended type;
– UCITS which raise capital without promoting the sale of their units to the
public within the European Union or any part of it;
– UCITS the units of which, under their constitutional documents, may be
sold only to the public in countries which are not members of the European
Union;
– categories of UCITS determined by the CSSF, for which the rules laid down
in chapter 5 are inappropriate in view of their investment and borrowing
policies.
Art. 4
A UCITS shall be deemed to be situated in Luxembourg if the registered office
of the management company of the common fund or the registered office of
the investment company is situated in Luxembourg. The head office13 must be
situated in Luxembourg.
9
Whilst the English version of amended Directive 85/611/EEC uses the terms “repurchase or redeem” (in French
“rachat ou remboursement”), the law only uses the term “rachat” which corresponds to the term “repurchase”. This
translation will however use “redemption” which is the term most commonly used in the industry.
10
fonds commun de placement
11
société de gestion
12
société d’investissement
13
The French text of amended Directive 85/611/EEC and the law use the term “administration centrale” whereas
the English text of amended Directive 85/611/EEC uses the term “head office” and the German text of amended
Directive 85/611/EEC uses the term “Hauptverwaltung”.
15
Chapter 2. – Common funds in transferable securities
Art. 5
There shall be regarded as a common fund for the application of this Part any
undivided collection of transferable securities and other liquid financial assets
referred to in Article 41, paragraph (1) made up and managed according to
the principle of risk-spreading on behalf of joint owners who are liable only up
to the amount contributed by them and whose rights are represented by units
intended for placement with the public by means of a public or private offer.
Art. 6
The common fund shall not be liable for the obligations of the management
company or of the unitholders; it shall be answerable only for the obligations
and expenses expressly imposed upon it by its management regulations.
Art. 7
A common fund shall be managed by a management company which complies
with the conditions set out in chapter 13 of Part IV of this law.
(1) The management company shall issue registered certificates or bearer
securities, representing one or more portions of the common fund which it
manages, or, in accordance with the conditions laid down in the management
regulations, written confirmations of entry in the register of units or fractions of
units without limitation as to the splitting-up of units.
Rights attached to fractions of units are exercised in proportion to the fraction
of a unit held except for possible voting rights which can only be exercised for
whole units. The certificates and securities shall be signed by the management
company and by the depositary referred to in Article 17.
Such signatures may be reproduced mechanically.
(2) Ownership of units shall be determined and transfer thereof shall be effected
in accordance with the rules laid down in Articles 40 and 42 of the law of
10 August 1915 concerning commercial companies, as amended14.
Art. 8
Art. 9
(1) Units shall be issued at a price arrived at by dividing the net asset value of the
common fund by the number of units outstanding; such price may be increased
by expenses and commissions, the maximum amounts and procedures for
collection of which may be determined by a grand-ducal regulation for which
an opinion from the CSSF shall be sought15.
(2) Units may not be issued unless the equivalent of the net issue price is paid into
the assets of the common fund within the usual time limits. This provision shall
not preclude the distribution of bonus units.
14
Articles 40 and 42 of the law of 10 August 1915 concerning commercial companies, as amended:
40.Ownership of registered shares shall be established by an entry in the register prescribed in the foregoing
Article.
Certificates recording such entries shall be issued to the shareholders.
Transfers shall be carried out by means of a declaration of transfer entered in the said register, dated and
signed by the transferor and the transferee or by their duly authorised representatives, and in accordance with
the rules on the assignment of claims laid down in Article 1690 of the Civil Code. The company may accept and
enter in the register a transfer on the basis of correspondence or other documents recording the agreement
between the transferor and the transferee.
Subject to any contrary provisions of the Articles, transmission, in the case of death, shall be validly established
vis-à-vis the company, provided that no objection is lodged, on production of a death certificate, the certificate
of registration and an affidavit (acte de notoriété) attested by a juge de paix or a notary.
42.The transfer of bearer shares shall be made by the mere delivery of the certificate.
15
No such regulation exists at this time.
16
(3) Unless otherwise provided for in the management regulations of the fund, the
valuation of the assets of the fund shall be based, in the case of officially listed
securities, on the last known stock exchange quotation, unless such quotation
is not representative. For securities not so listed and for securities which are
so listed, but for which the latest quotation is not representative, the valuation
shall be based on the probable realisation value, estimated with care and in
good faith.
Art. 10 The purchase and sale of the assets may only be effected at prices conforming
to the valuation criteria laid down in paragraph (3) of Article 9.
Art. 11 (1) Neither the holders of the units nor their creditors may require the distribution
or the dissolution of the common fund.
(2) A common fund must redeem its units at the request of any unitholder.
(3) The redemption of units shall be effected on the basis of the value calculated in accordance with Article 9, paragraph (1), after deduction of any applicable expenses and commissions, the maximum amounts and procedures for
collection of which may be determined by grand-ducal regulation for which an
opinion from the CSSF shall be sought16.
Art. 12 (1) By way of derogation from Article 11, paragraph (2):
a) the management company may in the cases and according to the procedures provided for by the management regulations of the fund temporarily
suspend the redemption of units. Suspension may be provided for only in
exceptional cases where circumstances so require and where suspension
is justified having regard to the interest of the unitholders;
b) the CSSF may, in the interest of the unitholders or of the public, require the
suspension of the redemption of units, in particular where the provisions of
laws, regulations or agreements concerning the activity and operation of
the common fund are not observed.
(2) In the cases referred to in paragraph (1) a), the management company must
without delay communicate its decision to the CSSF and, if its units are
marketed in other EU Member States, to the competent authorities of such
States.
(3) The issue and redemption of units shall be prohibited:
a) during any period where there is no management company or depositary;
b) where the management company or the depositary is put into liquidation
or declared bankrupt or seeks a composition with creditors, a suspension
of payment or a court-controlled management or is the subject of similar
proceedings.
Art. 13 (1) The management company shall draw up the management regulations for
the common fund. Such regulations must be lodged with the registry17 of
the district court18 and its publication in the Mémorial19 will be made through
a notice advising of the deposit of such document with the registry, all in
accordance with the provisions of the law of 10 August 1915 concerning
16
17
The lodging is in fact made with the Registre de Commerce et des Sociétés.
18
tribunal d’arrondissement
19
The Mémorial C, Recueil des Sociétés et Associations is the part of the official gazette in which certain required
corporate publications and notifications are made.
17
commercial companies, as amended. The provisions of such regulations shall
be deemed accepted by the unitholders by the mere fact of the acquisition of
such units.
(2) The management regulations of the common fund shall at least contain the
following provisions:
a) the name and duration of the common fund, the name of the management
company and of the depositary,
b) the investment policy according to its proposed specific objectives and the
criteria therefor,
c) the distribution policy within the scope of Article 16,
d) the remunerations and expenditures which the management company is
empowered to charge to the fund and the method of calculation of such
remunerations,
e) the provisions as to publications,
f) the date of the closing of the accounts of the common fund,
g) the cases where, without prejudice to legal grounds, the common fund shall
be dissolved,
h) the procedures for amendment of the management regulations,
i) the procedure for the issue of units,
j) the procedure for the redemption of units and the conditions under which
the redemptions are carried out and may be suspended.
Art. 14 (1) The management company shall manage the common fund in accordance with
the management regulations and in the exclusive interest of the unitholders.
(2) It shall act in its own name, but shall indicate that it is acting on behalf of the
common fund.
(3) It shall exercise all the rights attached to the securities comprised in the portfolio
of the common fund.
Art. 15 The management company must fulfil its obligations with the diligence of a
salaried agent20; it shall be liable to the unitholders for any loss resulting from
the non-fulfilment or improper fulfilment of its obligations.
Art. 16 Unless otherwise provided for in the management regulations, the net assets
of the common fund may be distributed subject to the limits set out in Article 23
of this law.
Art. 17 (1) The custody of the assets of the common fund must be entrusted to a depositary.
(2) The depositary must either have its registered office in Luxembourg or be
established in Luxembourg if its registered office is in another Member State of
the European Union.
(3) The depositary must be a credit institution within the meaning of the law of
5 April 1993 concerning the financial sector, as amended.
(4) The depositary’s liability shall not be affected by the fact that it has entrusted
all or some of the assets in its custody to a third party.
(5) The directors of the depositary must be of sufficiently good repute and be sufficiently experienced, also in relation to the UCITS concerned. To that end, the
20
18
mandataire salarié
identity of the directors and of every person succeeding them in office must be
communicated forthwith to the CSSF.
“Directors” shall mean those persons, who under law or the constitutional
documents represent the depositary or effectively determine the conduct of its
activity.
Art. 18 (1) The depositary shall carry out all operations concerning the day-to-day administration of the assets of the common fund.
(2) The depositary must moreover:
a) ensure that the sale, issue, redemption and cancellation of units effected
on behalf of the fund or by the management company are carried out in
accordance with the law and the management regulations,
b) ensure that the value of units is calculated in accordance with the law and
the management regulations,
c) carry out the instructions of the management company, unless they conflict
with the law or the management regulations,
d) ensure that in transactions involving the assets of the fund, the consideration is remitted to it within the customary21 time limits,
e) ensure that the income of the fund is applied in accordance with the
management regulations.
Art. 19 (1) The depositary shall be liable in accordance with Luxembourg law to the
management company and the unitholders for any losses suffered by them as
a result of its wrongful failure to perform its obligations or its wrongful improper
performance thereof.
(2) The liability to unitholders shall be invoked indirectly through the management
company. Should the management company fail to act despite a written notice
to that effect from a unitholder within a period of three months following receipt
of such a notice, such unitholder may directly invoke the liability of the depositary.
Art. 20 In the context of their respective roles, the management company and the
depositary must act independently and solely in the interest of the unitholders.
Art. 21 The duties of the management company or of the depositary in respect of the
common fund shall respectively cease:
a) in the case of withdrawal of the management company, provided that it is
replaced by another management company authorised in accordance with
the present law;
b) in the case of voluntary withdrawal of the depositary or of its removal by the
management company; until it is replaced, which must happen within two
months, the depositary shall take all necessary steps for the good preservation of the interests of the unitholders;
c) where the management company or the depositary has been declared
bankrupt, has entered into a composition with creditors, has obtained a
suspension of payment, has been put under court-controlled management,
or has been the subject of a similar proceedings or has been put into liquidation;
21
The English text of amended Directive 85/611/EEC uses the term “usual time limits”. The term “customary” better
reflects the French term “d’usage”.
19
d) where the CSSF withdraws its authorisation of the management company
or the depositary;
e) in all other cases provided for in the management regulations.
Art. 22 (1) Liquidation of the common fund shall take place:
a) upon the expiry of any period as may be fixed by the management regulations;
b) in the event of cessation of their duties by the management company or by
the depositary in accordance with sub-paragraphs b), c), d) and e) of Article
21, if they have not been replaced within two months without prejudice to
the specific circumstance addressed in sub-paragraph c) below;
c) in the event of bankruptcy of the management company;
d) if the net assets of the common fund have fallen for more than 6 months
below one fourth of the legal minimum provided for in Article 23 hereafter;
(2) Notice of the event giving rise to liquidation shall be published without delay by
the management company or the depositary. If they fail to do so, such notice will
be published by the CSSF at the expense of the common fund. The notice shall
be published in the Mémorial and in at least two newspapers with adequate
circulation, one of which at least must be a Luxembourg newspaper.
(3) As soon as the event giving rise to liquidation of the common fund occurs, the
issue of units shall be prohibited, on penalty of nullity. The redemption of units
remains possible provided the equal treatment of unitholders can be ensured.
Art. 23 Art. 24 The net assets of a common fund may not be less than one million two hundred
and fifty thousand euro (1,250,000 euro).
This minimum must be reached within a period of six months following the
authorisation of the common fund.
A grand-ducal regulation may increase such minimum amount up to a maximum
of two million five hundred thousand euro (2,500,000 euro)22.
The management company must without delay inform the CSSF if the net
assets of the common fund have fallen below two thirds of the legal minimum.
In a case where the net assets of the common fund have fallen below two thirds
of the legal minimum, the CSSF may, having regard to the circumstances,
compel the management company to put the common fund into liquidation.
The order addressed to the management company by the CSSF to put a
common fund into liquidation shall be published without delay by the
management company or the depositary. If they fail to do so, such notice shall
be published by the CSSF at the expense of the common fund. The notice shall
be published in the Mémorial and in at least two newspapers with adequate
circulation, one of which at least must be a Luxembourg newspaper.
Chapter 3. – SICAVs in transferable securities
Art. 25 22
20
For the purposes of this Part, SICAVs shall be taken to mean those companies
which have adopted the form of a public limited company (société anonyme)
governed by Luxembourg law,
– whose exclusive object is to invest their funds in transferable securities
and/or other liquid financial assets referred to in Article 41, paragraph (1)
of this law in order to spread the investment risks and to ensure for their
shareholders23 the benefit of the result of the management of their assets,
and
– whose shares are intended to be placed with the public by means of a
public or private offer, and
– whose Articles of incorporation provide that the amount of the capital shall
at all times be equal to the net asset value of the company.
Art. 26 SICAVs shall be subject to the provisions applicable in general to public limited
companies, insofar as the present law does not derogate therefrom.
Art. 27 (1) The minimum capital of a SICAV which has not designated a management
company may not be less than three hundred thousand euro (300,000 euro)
at the time of authorisation. The capital of any SICAV including SICAVs
which have designated a management company must reach one million two
hundred and fifty thousand euro (1,250,000 euro) within a period of 6 months
following the authorisation of the SICAV. A grand-ducal regulation may raise
each such minimum amount up to a respective maximum of six hundred
thousand euro (600,000 euro) and two million five hundred thousand euro
(2,500,000 euro)24.
In addition, where a SICAV has not designated a management company
authorised pursuant to Directive 85/611/EEC:
– the application for authorisation must be accompanied by a program of
activity setting out, inter alia, the organisational structure of the SICAV;
– the directors25 of the SICAV shall be of sufficiently good repute and be
sufficiently experienced in relation to the type of business carried out by
such company. To that end the identity of the directors and of every person
succeeding them in office must be communicated forthwith to the CSSF.
The conduct of a SICAV’s business must be decided by at least two persons
meeting such conditions. “Directors” shall mean those persons who, under
law or the constitutional documents represent the SICAV or who effectively
determine the policy of the company;
– moreover, where close links exist between the SICAV and other natural or
legal persons, the CSSF shall grant authorisation only if such links do not
prevent the effective exercise of its supervisory functions.
The CSSF shall also refuse authorisation if the laws, regulations or administrative provisions of a non-member country governing one or more natural or
legal persons with which the SICAV has close links, or difficulties involved in
their enforcement, prevent the effective exercise of its supervisory functions.
SICAVs shall communicate to the CSSF the information it requires.
23
The French text of the law uses the correct term “actionnaires”, i.e. shareholders as opposed to unitholders, i.e.unit
holders of a common fund. The English text of amended Directive 85/611/EEC mostly uses “unitholders”. However,
throughout this translation a distinction is made between shareholder and unitholder.
24
25
The French text of amended Directive 85/611/EEC and the law use the term “dirigeants” and the German text of
amended Directive 85/611/EEC uses the term “Geschäftsleiter”.
21
The applicant shall be informed, within six months of the submission of a
complete application, whether or not authorisation has been granted. Reasons
shall be given whenever an authorisation is refused.
A SICAV may start business as soon as authorisation has been granted.
The CSSF may withdraw the authorisation issued to a SICAV subject to this
Part of the law only where that company:
a) does not make use of the authorisation within twelve months, expressly
renounces the authorisation or has ceased the activity covered by this law
for more than six months;
b) has obtained the authorisation by making false statements or by any other
irregular means;
c) no longer fulfils the conditions under which authorisation was granted;
d) has seriously and/or systematically infringed the provisions of this law or of
regulations adopted pursuant thereto; or
e) falls within any of the cases where this law provides for withdrawal.
(2) Articles 85 and 86 of chapter 13 shall apply to SICAVs that have not
designated a management company authorised pursuant to Directive
85/611/EEC, provided that the words “management company” shall be
construed as “SICAV”.
SICAVs may only manage assets of their own portfolio and may not, under
any circumstances, receive any mandate to manage assets on behalf of a third
party.
(3) SICAVs that have not designated a management company authorised pursuant
to Directive 85/611/EEC shall at all times observe applicable prudential rules.
In particular, the CSSF, having regard also to the nature of the SICAV, shall
require that the company has sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing
and adequate internal control mechanisms including, in particular, rules for
personal transactions by its employees or for the holding or management of
investments in financial instruments in order to invest its initial capital and
ensuring, inter alia, that each transaction involving the company may be reconstructed according to its origin, the parties concerned, its nature, and the time
when and the place at which it was effected and that the assets of the SICAV
are invested according to the constitutional documents and the legal provisions
in force.
Art. 28 (1) a) Subject to any contrary provisions of its Articles of incorporation, a SICAV
may issue its shares at any time;
b) A SICAV must redeem its shares at the request of the shareholder without
prejudice to paragraphs (5) and (6) of this Article.
(2) a) The shares shall be issued at a price arrived at by dividing the net asset
value of the SICAV by the number of shares outstanding; such price may
be increased by expenses and commissions, the maximum amounts and
procedures for collection of which may be determined by a grand-ducal
regulation for which an opinion from the CSSF shall be sought26;
26
22
b) The shares shall be redeemed at a price arrived at by dividing the net asset
value of the SICAV by the number of shares outstanding; such price may
be decreased by expenses and commissions, the maximum amounts and
procedures for collection of which may be determined by a grand-ducal
regulation for which an opinion from the CSSF shall be sought27.
(3) Shares of a SICAV may not be issued unless the equivalent of the net issue
price is paid into the assets of the SICAV within the customary28 time limits.
This provision shall not preclude the distribution of bonus shares.
(4) The Articles of incorporation shall determine the time limits for payments
in respect of issues and redemptions and shall specify the principles and
methods of valuation of the assets of the SICAV. Unless otherwise provided
for in the Articles of incorporation, the valuation of the assets of the SICAV
shall be based, in the case of officially listed securities, on the last known stock
exchange quotation, unless such quotation is not representative. For securities
not so listed and for securities which are so listed but for which the latest
quotation is not representative, the valuation shall be based on the probable
realisation value which must be estimated with care and in good faith.
(5) By way of derogation from paragraph (1), the Articles of incorporation shall
specify the conditions in which issues and redemptions may be suspended,
without prejudice to legal causes. In the event of suspension of issues or
redemptions, the SICAV must without delay inform the CSSF and, if it markets
its shares in other Member States of the European Union, the competent
authorities of such States.
Where the interest of the shareholders so requires, redemptions may be
suspended by the CSSF if the provisions of laws, regulations or the Articles
of incorporation concerning the activity and operation of the SICAV are not
observed.
(6) The Articles of incorporation shall determine the frequency of the calculation of
the issue and redemption price.
(7) The Articles of incorporation shall describe the nature of the expenses to be
borne by the SICAV.
(8) The shares must be fully paid. They shall have no par value.
(9) A share shall specify the minimum amount of capital and shall give no indication
regarding its par value or the portion of the capital which it represents.
(10) The purchase and sale of assets must be effected at prices conforming to the
valuation criteria of paragraph (4).
Art. 29 (1) Variations in the capital shall be effected ipso jure and without compliance with
measures regarding publication and entry in the commercial and company
register prescribed for increases and decreases of capital of public limited
companies.
(2) Repayments to shareholders following a reduction of capital shall not be subject
to any restriction other than the one provided for by Article 32, paragraph (1).
(3) In the case of issue of new shares, pre-emptive rights may not be claimed by
existing shareholders unless the Articles of incorporation provide for such a
right by an express provision.
27
28
23
Art. 30 (1) If the capital of the SICAV falls below two thirds of the minimum capital, the
directors or the management organ, as the case may be, must submit the
question of the dissolution of the SICAV to a general meeting for which no
quorum shall be prescribed and which shall decide by a simple majority of the
shares represented at the meeting.
(2) If the capital of the SICAV falls below one fourth of the minimum capital,
the directors or the management organ, as the case may be, must submit
the question of the dissolution of the SICAV to a general meeting for which
no quorum shall be prescribed; dissolution may be resolved by shareholders
holding one fourth of the shares at the meeting.
(3) The meeting must be convened so that it is held within a period of forty days as
from the ascertainment that the net assets have fallen below two thirds or one
fourth of the minimum capital, as the case may be.
Art. 31 The creation of participating shares or similar securities, regardless of the
name given to them, shall be permitted only in accordance with the conditions
and procedures to be laid down by grand-ducal regulation29.
Art. 32 (1) Unless otherwise provided for in the Articles of incorporation, the net assets of
the SICAV may be distributed subject to the limits set out in Article 27 of this
law.
(2) SICAVs shall not be obliged to create a legal reserve.
(3) SICAVs are not subject to the provisions in respect of payment of interim
dividends as set out in Article 72-230 of the law of 10 August 1915 concerning
commercial companies, as amended.
Art. 33 For companies to which this chapter applies, the words “public limited
company”31 or “European company (SE)” shall be replaced by the words
“investment company with variable capital”32 or the letters “SICAV”, or by
the words “European investment company with variable capital” (société
européenne d’investissement à capital variable) or “SICAV-SE”.
Art. 34 (1) The custody of the assets of a SICAV must be entrusted to a depositary.
(3) The depositary must moreover:
a) ensure that the sale, issue, redemption and cancellation of shares effected
by or on behalf of the SICAV are carried out in accordance with the law or
the Articles of incorporation of the SICAV;
b) ensure that in transactions involving the assets of the SICAV, the consideration is remitted to it within the customary33 time limits;
c) ensure that the income of the SICAV is applied in accordance with its
Articles of incorporation.
29
30
Article 72-2 sets out the conditions under which a company may pay out interim dividends.
31
société anonyme or S.A.
32
société d’investissement à capital variable
33
24
Art. 35 (1) The depositary must either have its registered office in Luxembourg or be
the European Union.
(2) The depositary must be a credit institution within the meaning of the law of
5 April 1993 concerning the financial sector, as amended.
(3) The directors of the depositary must be of sufficiently good repute and be sufficiently experienced, also in relation to the UCITS concerned. To that end, the
identity of the directors and of every person succeeding them in office must be
communicated forthwith to the CSSF.
“Directors” shall mean those persons, who under law or the constitutional
documents represent the depositary or effectively determine the conduct of its
activity.
Art. 36 The depositary shall be liable in accordance with Luxembourg law to the shareholders for any loss suffered by them as a result of its wrongful failure to
perform its obligations or its wrongful improper performance thereof.
Art. 37 The duties of the depositary regarding the SICAV shall respectively cease:
a) in the case of voluntary withdrawal of the depositary or of its removal by
the SICAV; until it is replaced, which must happen within two months, the
depositary must take all necessary steps for the good preservation of the
interests of the shareholders;
b) where the SICAV or the depositary has been declared bankrupt, has
entered into a composition with creditors, has obtained a suspension of
payment, has been put under court-controlled management or has been
the subject of a similar proceedings or has been put into liquidation;
c) where the CSSF withdraws its authorisation of the SICAV or the depositary;
d) in all other cases provided for in the Articles of incorporation.
Art. 38 In carrying out its role as depositary, the depositary must act solely in the
interest of the shareholders.
Chapter 4. – Other investment companies in transferable securities
Art. 39 34
For the purposes of this Part I, other investment companies shall be taken to
mean companies other than SICAVs and
– whose exclusive object is to invest their funds in transferable securities
and/or other liquid financial assets referred to in Article 41, paragraph (1)
of this law in order to spread the investment risks and to ensure for their
shareholders the benefit of the results of the management of their assets,
and
– whose shares or units are intended to be placed with the public by means
of a public or private offer provided that the words “investment company”34
appear on all their deeds, announcements, publications, letters and other
documents.
société d’investissement
25
Art. 40 Articles 26, 27, 28 with the exception of paragraphs (8) and (9), 30, 31, 34, 35,
36, 37 and 38 of this law are applicable to investment companies subject to this
chapter.
Chapter 5. – Investment policy of a UCITS
Art. 41 (1) The investments of a UCITS must consist solely of:
a) transferable securities and money market instruments admitted to or dealt
in on a regulated market;
b) transferable securities and money market instruments dealt in on another
market in a Member State of the European Union which is regulated,
operates regularly and is recognised and open to the public;
c) transferable securities and money market instruments admitted to official
listing on a stock exchange in a non-Member State of the European Union
or dealt in on another market in a non-Member State of the European Union
which is regulated, operates regularly and is recognised and open to the
public provided that the choice of the stock exchange or market has been
provided for in the constitutional documents of the UCITS35;
d) recently issued transferable securities and money market instruments,
provided that:
– the terms of issue include an undertaking that application will be made
for admission to official listing on a stock exchange or on another
regulated market which operates regularly and is recognised and open
to the public, provided that the choice of the stock exchange or the
market has been provided for in the constitutional documents of the
UCITS;
– such admission is secured within one year of issue;
e) units of UCITS authorised according to Directive 85/611/EEC and/or
other UCIs within the meaning of the first and second indent of Article 1,
paragraph (2) of Directive 85/611/EEC, whether situated in a Member State
of the European Union or not, provided that:
– such other UCIs are authorised under laws which provide that they are
subject to supervision considered by the CSSF to be equivalent to that
laid down in Community law, and that cooperation between authorities
is sufficiently ensured;
– the level of protection for unitholders in such other UCIs is equivalent
to that provided for unitholders in a UCITS, and in particular that the
rules on assets segregation, borrowing, lending, and uncovered sales
of transferable securities and money market instruments are equivalent
to the requirements of Directive 85/611/EEC;
– the business of such other UCIs is reported in half-yearly and annual
reports to enable an assessment of the assets and liabilities, income
and operations over the reporting period;
– no more than 10% of the assets of the UCITS or of the other UCIs,
whose acquisition is contemplated, can, according to their constitutional
documents, in aggregate be invested in units of other UCITS or other
UCIs;
35
26
This refers to the management regulations of a common fund or the Articles of incorporation of an investment
company with variable or fixed capital.
f) deposits with credit institutions which are repayable on demand or have the
right to be withdrawn, and maturing in no more than 12 months, provided
that the credit institution has its registered office in a Member State of the
European Union or, if the registered office of the credit institution is situated
in a non-Member State, provided that it is subject to prudential rules
considered by the CSSF as equivalent to those laid down in Community
law;
g) financial derivative instruments, including equivalent cash-settled instruments, dealt in on a regulated market referred to in subparagraphs a),
b) and c) above, and/or financial derivative instruments dealt in over-thecounter (“OTC derivatives”), provided that:
– the underlying consists of instruments covered by Article 41, paragraph
(1), financial indices, interest rates, foreign exchange rates or currencies,
in which the UCITS may invest according to its investment objectives as
stated in the UCITS’ constitutional documents,
– the counterparties to OTC derivative transactions are institutions subject
to prudential supervision, and belonging to the categories approved by
the CSSF, and
– the OTC derivatives are subject to reliable and verifiable valuation on a
daily basis and can be sold, liquidated or closed by an offsetting transaction at any time at their fair value at the UCITS’ initiative;
h) money market instruments other than those dealt in on a regulated market
and which fall under Article 1 of this law, if the issue or the issuer of
such instruments are themselves regulated for the purpose of protecting
investors and savings, and provided that such instruments are:
– issued or guaranteed by a central, regional or local authority or by
a central bank of a Member State, the European Central Bank, the
European Union or the European Investment Bank, a non-Member
State or, in case of a Federal State, by one of the members making up
the federation, or by a public international body to which one or more
Member States belong, or
– issued by an undertaking any securities of which are dealt in on
regulated markets referred to in subparagraphs (a), (b) or (c) above, or
– issued or guaranteed by an establishment subject to prudential supervision, in accordance with criteria defined by Community law, or by an
establishment which is subject to and complies with prudential rules
considered by the CSSF to be at least as stringent as those laid down
by Community law, or
– issued by other bodies belonging to the categories approved by the
CSSF provided that investments in such instruments are subject to
investor protection equivalent to that laid down in the first, the second or
the third indent and provided that the issuer is a company whose capital
and reserves amount to at least ten million euro (10,000,000 euro) and
which presents and publishes its annual accounts in accordance with
the fourth Directive 78/660/EEC, is an entity which, within a group of
companies which includes one or several listed companies, is dedicated
to the financing of the group or is an entity which is dedicated to the
financing of securitisation vehicles which benefit from a banking liquidity
line.
27
(2) However:
a) a UCITS may invest no more than 10% of its assets36 in transferable
securities and money market instruments other than those referred to in
paragraph (1);
b) an investment company may acquire movable and immovable property
which is essential for the direct pursuit of its business;
c) a UCITS may not acquire either precious metals or certificates representing
them.
(3) A UCITS may hold ancillary liquid assets.
(4) The modalities for the practical application of this Article are laid down by a
grand-ducal regulation.
Art. 42 (1) The UCITS must employ a risk-management process which enables it to
monitor and measure at any time the risk of the positions and their contribution
to the overall risk profile of the portfolio; it must employ a process for accurate
and independent assessment of the value of OTC derivative instruments. It
must communicate to the CSSF regularly and in accordance with the detailed
rules the latter shall define, the types of derivative instruments, the underlying
risks, the quantitative limits and the methods which are chosen in order to
estimate the risks associated with transactions in derivative instruments.
(2) A UCITS is also authorised to employ techniques and instruments relating to
transferable securities and money market instruments under the conditions
and within the limits laid down by the CSSF provided that such techniques and
instruments are used for the purpose of efficient portfolio management. When
these operations concern the use of derivative instruments, these conditions
and limits shall conform to the provisions laid down in this law.
Under no circumstances shall these operations cause the UCITS to diverge
from its investment objectives as laid down in the UCITS’ management regulations, its constitutional documents or prospectus.
(3) A UCITS shall ensure that its global exposure relating to derivative instruments
does not exceed the total net value of its portfolio.
The exposure is calculated taking into account the current value of the underlying assets, the counterparty risk, foreseeable37 market movements and the
time available to liquidate the positions. This shall also apply to the following
subparagraphs.
A UCITS may invest, as a part of its investment policy and within the limits laid
down in Article 43, paragraph (5) in financial derivative instruments provided
that the exposure to the underlying assets does not exceed in aggregate the
investment limits laid down in Article 43. When a UCITS invests in index-based
financial derivative instruments, these investments do not have to be combined
to the limits laid down in Article 43.
When a transferable security or money market instrument embeds a derivative,
the latter must be taken into account when complying with the requirements of
this Article.
36
In the French version of the law, the term “actifs” is used which the Luxembourg supervisory authorities consider
to mean net assets.
37
The French text of amended Directive 85/611/EEC and the law use the terms “évolution prévisible des marchés”
(foreseeable market movements) whereas the English text uses the terms “future market movements” like the
German text: “künftige Marktfluktuationen”.
28
Art. 43 (1) A UCITS may invest no more than 10% of its assets in transferable securities
or money market instruments issued by the same body. A UCITS may not
invest more than 20% of its assets in deposits made with the same body. The
risk exposure to a counterparty of the UCITS in an OTC derivative transaction
may not exceed 10% of its assets when the counterparty is a credit institution
referred to in Article 41, paragraph (1) (f) or 5% of its assets in other cases.
(2) The total value of the transferable securities and money market instruments
held by a UCITS in the issuing bodies in each of which it invests more than
5% of its assets must not exceed 40% of the value of its assets. This limitation
does not apply to deposits and OTC derivative transactions made with financial
institutions subject to prudential supervision.
Notwithstanding the individual limits laid down in paragraph (1), a UCITS may
not combine:
– investments in transferable securities or money market instruments issued
by a single body,
– deposits made with a single body, and/or
– exposures arising from OTC derivative transactions undertaken with a
single body,
in excess of 20% of its assets.
(3) The limit laid down in the first sentence of paragraph (1) may be of a maximum
of 35% if the transferable securities or money market instruments are issued
or guaranteed by a Member State of the European Union, by its public local
authorities, by a non-Member State or by public international bodies of which
one or more Member States are members.
(4) The limit laid down in the first sentence of paragraph (1) may be of a maximum
of 25% for certain bonds when they are issued by a credit institution which
has its registered office in a Member State of the European Union and is
subject by law, to special public supervision designed to protect bondholders.
In particular, sums deriving from the issue of these bonds must be invested in
conformity with the law in assets which, during the whole period of validity of
the bonds, are capable of covering claims attaching to the bonds and which,
in case of bankruptcy of the issuer38, would be used on a priority basis for the
repayment of principal and payment of the accrued interest.
If a UCITS invests more than 5% of its assets in the bonds referred to in the first
subparagraph and issued by one issuer, the total value of such investments
may not exceed 80% of the value of the assets of the UCITS.
(5) The transferable securities and money market instruments referred to in
paragraphs (3) and (4) are not included in the calculation of the limit of 40%
referred to in paragraph (2).
The limits set out in paragraphs (1), (2), (3) and (4) may not be combined; thus
investments in transferable securities or money market instruments issued
by the same body, in deposits or derivative instruments made with this body
carried out in accordance with paragraphs (1), (2), (3) and (4) may not exceed
a total of 35% of the assets of the UCITS.
38
The English version of amended Directive 85/611/EEC makes reference to the “failure of the issuer” as does the
German version: “Ausfall des Emittenten”.
29
Companies which are included in the same group for the purposes of consolidated accounts, as defined in accordance with Directive 83/349/EEC or in
accordance with recognised international accounting rules, are regarded as a
single body for the purpose of calculating the limits contained in this Article.
A UCITS may cumulatively invest up to 20% of its assets in transferable
securities and money market instruments within the same group.
Art. 44 (1) Without prejudice to the limits laid down in Article 48, the limits laid down in
Article 43 are raised to a maximum of 20% for investments in shares and/
or bonds39 issued by the same body when, according to the constitutional
documents of the UCITS, the aim of the UCITS’ investment policy is to replicate
the composition of a certain stock or bond40 index which is recognised by the
CSSF, on the following basis:
– the composition of the index is sufficiently diversified;
– the index represents an adequate benchmark for the market to which it
refers;
– it is published in an appropriate manner.
(2) The limit laid down in paragraph (1) is raised to 35% where that proves to be
justified by exceptional market conditions in particular in regulated markets
where certain transferable securities or money market instruments are highly
dominant. The investment up to this limit is only permitted for a single issuer.
Art. 45 (1) By way of derogation from Article 43, the CSSF may authorise a UCITS to
invest in accordance with the principle of risk-spreading up to 100% of its assets
in different transferable securities and money market instruments issued or
guaranteed by any Member State of the European Union, its local authorities,
a non-Member State of the European Union or public international bodies of
which one or more Member States of the European Union are members.
The CSSF shall grant such an authorisation only if it considers that unitholders
in the UCITS have protection equivalent to that of unitholders in UCITS
complying with the limits laid down in Articles 43 and 44.
These UCITS must hold securities from at least six different issues, but
securities from any one issue may not account for more than 30% of the total
amount.
(2) The UCITS referred to in paragraph (1) must make express mention, in their
constitutional documents, of the States, local authorities or public international
bodies issuing or guaranteeing securities in which they intend to invest more
than 35% of their assets.
(3) In addition, the UCITS referred to in paragraph (1) must include a prominent
statement in their prospectuses and in any promotional literature, drawing
attention to such authorisation and indicating the States, local authorities and
public international bodies in the securities of which they intend to invest or
have invested more than 35% of their assets.
39
See footnote 8.
40
See footnote 8.
30
Art. 46 (1) A UCITS may acquire the units of UCITS and/or other UCIs referred to in
Article 41, paragraph (1) (e), provided that no more than 20% of its assets are
invested in the units of a single UCITS or other UCI.
For the purpose of the application of this investment limit, each compartment
of a UCI with multiple compartments41 within the meaning of Article 133 of
this law is to be considered as a separate issuer provided that the principle
of segregation of the obligations of the various compartments vis-à-vis third
parties is ensured.
(2) Investments made in units of UCIs other than UCITS may not in aggregate
exceed 30% of the assets of the UCITS.
When a UCITS has acquired units of UCITS and/or other UCIs, the assets
of the respective UCITS or other UCIs do not have to be combined for the
purposes of the limits laid down in Article 43.
(3) When a UCITS invests in the units of other UCITS and/or other UCIs that
are managed, directly or by delegation, by the same management company
or by any other company with which the management company is linked by
common management or control, or by a substantial direct or indirect holding,
that management company or other company may not charge subscription or
redemption fees on account of the UCITS’ investment in the units of such other
UCITS and/or UCIs.
A UCITS that invests a substantial proportion of its assets in other UCITS
and/or other UCIs shall disclose in its prospectus the maximum level of the
management fees that may be charged both to the UCITS itself and to the
other UCITS and/or other UCIs in which it intends to invest. In its annual report
it shall indicate the maximum proportion of management fees charged both to
the UCITS itself and to the UCITS and/or other UCIs in which it invests.
Art. 47 (1) The prospectus shall indicate in which categories of assets a UCITS is
authorised to invest. It shall mention if transactions in financial derivative instruments are authorised; in this event, it must include a prominent statement
indicating if these operations may be carried out for the purpose of hedging or
with the aim of meeting investment goals, and the possible outcome of the use
of financial derivative instruments on the risk profile.
(2) When a UCITS invests principally in any category of assets defined in Article
41 other than transferable securities and money market instruments or replicates a stock or bond42 index in accordance with Article 44, its prospectus and,
where necessary, any other promotional literature must include a prominent
statement drawing attention to its investment policy.
(3) When the net asset value of a UCITS is likely to have a high volatility due to
its portfolio composition or the portfolio management techniques that may be
used, its prospectus and, where necessary, any other promotional literature
must include a prominent statement drawing attention to this characteristic of
the UCITS.
(4) Upon request of an investor, the management company must also provide
supplementary information relating to the quantitative limits that apply in the
risk management of the UCITS, to the methods chosen to this end and to the
recent evolution of the risks and yields of the main categories of instruments.
41
These are commonly referred to as umbrella funds.
42
See footnote 8.
31
Art. 48 (1) An investment company or a management company acting in connection with
all of the common funds which it manages and which fall within the scope of
Part I of this law, may not acquire any shares carrying voting rights which would
enable it to exercise significant influence over the management of an issuing
body.
(2) Moreover, a UCITS may acquire no more than:
– 10% of the non-voting shares of the same issuer;
– 10% of the debt securities of the same issuer;
– 25% of the units of the same UCITS and/or other UCI;
– 10% of the money market instruments of any single issuer.
The limits laid down in the second, third and fourth indents may be disregarded
at the time of acquisition if at that time the gross amount of bonds43 or of the
money market instruments or the net amount of the instruments in issue44
cannot be calculated.
(3) Paragraphs (1) and (2) are waived as regards:
a) transferable securities and money market instruments issued or guaranteed
by a Member State of the European Union or its local authorities;
b) transferable securities and money market instruments issued or guaranteed
by a non-Member State of the European Union;
c) transferable securities and money market instruments issued by public
international bodies of which one or more Member States of the European
Union are members;
d) shares held by UCITS in the capital of a company incorporated in a
non-Member State of the European Union which invests its assets mainly
in the securities of issuing bodies having their registered office in that State,
where under the legislation of that State, such a holding represents the only
way in which the UCITS can invest in the securities of issuing bodies of that
State. This derogation, however, shall apply only if in its investment policy
the company from the non-Member State of the European Union complies
with the limits laid down in Articles 43 and 46 and Article 48, paragraphs (1)
and (2). Where the limits set in Articles 43 and 46 are exceeded, Article 49
shall apply mutatis mutandis;
e) shares held by one or more investment companies in the capital of
subsidiary companies which, exclusively on its or their behalf carry on only
the business of management, advice or marketing in the country where the
subsidiary is located, in regard to the redemption of units at the request of
untiholders.
Art. 49 (1) UCITS need not comply with the limits laid down in this chapter when exercising
subscription rights attaching to transferable securities or money market instruments which form part of their assets.
While ensuring observance of the principle of risk-spreading, recently authorised
UCITS may derogate from Articles 43, 44, 45 and 46 for a period of six months
following the date of their authorisation.
43
See footnote 8.
44
The French text of amended Directive 85/611/EEC and the law use the term “titres émis” which comprises securities and instruments. The German text of amended Directive 85/611/EEC uses the term “ausgegebene Anteile”
whereas the English text of amended Directive 85/611/EEC uses the term “securities”.
32
(2) If the limits referred to in paragraph (1) are exceeded for reasons beyond the
control of the UCITS or as a result of the exercise of subscription rights, it must
adopt as a priority objective for its sales transactions the remedying of that
situation, taking due account of the interests of its unitholders.
(3) To the extent that an issuer is a legal entity with multiple compartments where
the assets of a compartment are exclusively reserved to the investors in such
compartment and to those creditors whose claim has arisen in connection with
the creation, operation or liquidation of that compartment, each compartment is
to be considered as a separate issuer for the purpose of the application of the
risk-spreading rules set out in Articles 43, 44 and 46.
Art. 50 (1) Neither:
– an investment company, nor
– a management company or depositary acting on behalf of common funds,
may borrow.
However, a UCITS may acquire foreign currency by means of a back-to-back
loan.
(2) By way of derogation from paragraph (1), UCITS may borrow the equivalent
of:
a) up to 10% of their assets provided that the borrowing is on a temporary
basis;
b) up to 10% of their assets in the case of an investment company provided
that the borrowing is to make possible the acquisition of immovable
property essential for the direct pursuit of their business; in this case, these
borrowings and those referred to in subparagraph a) may not in any case in
total exceed 15% of their assets.
Art. 51 (1) Without prejudice to the application of Articles 41 and 42, neither:
may grant loans to or act as guarantor for third parties.
(2) Paragraph (1) shall not prevent such undertakings from acquiring transferable
securities or money market instruments or other financial instruments referred to
in Article 41, paragraph (1), subparagraphs e), g) and h) which are not fully paid.
Art. 52 Neither:
may carry out uncovered sales of transferable securities, money market
instruments or other financial instruments referred to in Article 41, paragraph
(1), subparagraphs e), g) and h).
Chapter 6. – UCITS situated in Luxembourg which market their units
in other Member States of the European Union
Art. 53 (1) A UCITS which markets its units in another Member State of the European
Union must comply with the laws, regulations and administrative provisions in
force in that State which do not fall within the matters governed by this law.
(2) A UCITS may advertise its units in the Member State in which they are marketed.
It must comply with the provisions governing advertising in that State.
33
Art. 54 In the case referred to in Article 53, the UCITS must in accordance with the
laws, regulations and administrative provisions in force in the Member State of
marketing, inter alia take the measures necessary to ensure that facilities are
available in that State for making payments to unitholders, redeeming units and
making available the information which UCITS are obliged to provide.
Art. 55 A UCITS which proposes to market its units in another Member State of the
European Union, must first inform the CSSF and the competent authorities of
that other Member State. It must simultaneously send these authorities:
– an attestation by the CSSF to the effect that it fulfils the conditions imposed
in Part I of the law,
– its constitutional documents,
– its full and simplified prospectuses,
– where appropriate, its latest annual report and any subsequent semi-annual
report, and
– details of the arrangements made for the marketing of its units in that other
Member State.
The UCITS may begin to market its units in that other Member State of the
European Union two months after such communication unless the authorities of the Member States concerned establish, in a reasoned decision taken
before the expiry of that period of two months, that the arrangements made for
the marketing of units do not comply with the provisions referred to in Articles
53, paragraph (1) and 54.
Art. 56 Art. 57 If a UCITS markets its units in another Member State of the European Union, it
must distribute in that other Member State in accordance with the same procedures as those provided for in Luxembourg, its full and simplified prospectuses,
the annual and semi-annual reports and the other information provided for in
Articles 111 and 112.
These documents shall be provided in the official language or in one of the
official languages of the host Member State or in a language approved by the
competent authorities of the host Member State.
Where a UCITS situated in Luxembourg markets its units on the territory of a
country which is a party to the Agreement on the European Economic Area
other than a Member State of the European Union45, the provisions of Articles
53 to 56 of this law are also applicable within the limits provided by that
Agreement and the instruments relating thereto.
Chapter 7. – UCITS situated in other Member States of the European
Union which market their units in Luxembourg
Art. 58 UCITS situated in other Member States of the European Union which market
their units in Luxembourg must comply with the laws, regulations and administrative provisions in force in Luxembourg which do not fall within the matters
governed by this law.
Art. 59 The UCITS must appoint a credit institution to ensure that facilities are available
in Luxembourg for making payments to unitholders and redeeming units.
45
34
Currently: Iceland, Liechtenstein and Norway.
Art. 60 Art. 61 Art. 62 The UCITS must take the measures necessary to ensure that the information
which it is obliged to provide, is made available to unitholders in Luxembourg.
If a UCITS situated in another Member State of the European Union proposes
to market its units in Luxembourg, it must inform the CSSF. It must simultaneously send to the latter authority:
– an attestation by the competent authorities to the effect that it fulfils the
conditions imposed by Directive 85/611/EEC,
– its constitutional documents,
– its full and simplified prospectuses,
– where appropriate, its latest annual report and any subsequent semi-annual
report,
– details of the arrangements made for the marketing of its units in Luxembourg.
The UCITS may begin to market its units in Luxembourg two months after such
communication unless the CSSF establishes, in a reasoned decision taken
before the expiry of that period of two months, that the arrangements made for
the marketing of units do not comply with the provisions referred to in Article 58
and Article 59.
If a UCITS situated in another Member State of the European Union markets
its units in Luxembourg, it must distribute in Luxembourg in either the Luxembourg, French, German or English language the documents and information
which must be published in the Member State of the European Union in which
it is situated, in accordance with the same procedures as those provided for in
the latter State.
Where a UCITS situated in a country which is a party to the Agreement on the
European Economic Area other than a Member State of the European Union46
markets its units in Luxembourg, the provisions of Articles 58 to 61 of this law
are also applicable within the limits provided by that Agreement and the instruments relating thereto.
Part II. - Other ucis
Chapter 8. – Scope
Art. 63 This Part shall apply to all UCITS excluded by Article 3 of this law and to all
other UCIs situated in Luxembourg not covered by Part I.
Art. 64 A UCI shall be deemed to be situated in Luxembourg if the registered office
of the management company of the common fund or the registered office of
the investment company is situated in Luxembourg. The head office47 must be
Chapter 9. – Common funds
Art. 65 (1) There shall be regarded as a common fund for the application of this Part any
undivided collection of assets made up and managed according to the principle
of risk-spreading on behalf of joint owners who are liable only up to the amount
46
47
See footnote 13.
35
contributed by them and whose rights are represented by units intended for
placement with the public by means of a public or private offer.
(2) A common fund shall be managed by a management company which complies
with the conditions set out in chapter 13 or 14 of Part IV of this law.
(3) The depositary must either have its registered office in Luxembourg or be
the European Union or in a State which is a non-Member State.
Art. 66 Articles 6, 8, 9, 10, 11 (1), 12 (1) b), 12 (3), 13 (1), 13 (2) a) through i), 14,
15, 16, 17 (1), 17 (3), 17 (4), 18 (1), 18 (2) a) c) d) e), 19, 20, 21, 22, 23 and
24 of this law are applicable to common funds falling within the scope of this
chapter.
Art. 67 (1) A grand-ducal regulation for which an opinion from the CSSF shall be sought
may, inter alia, determine48:
a) the minimum frequency for the determination of the issue and redemption
prices for units of the common fund;
b) the minimum percentage of the assets of the common fund which must be
represented by liquid assets;
c) the maximum percentage of the assets of the common fund which may be
invested in transferable securities not quoted on a stock exchange or dealt
in on an organised market offering comparable safeguards;
d) the maximum percentage of securities of the same kind issued by the same
body which the common fund may hold;
e) the maximum percentage of the assets of the common fund which may be
invested in securities issued by the same body;
f) the conditions under which and possibly the maximum percentages the
common fund may invest in securities of other UCIs;
g) the maximum percentage, in relation to its total assets, of the amounts the
common fund is authorised to borrow and the terms and conditions for such
borrowings.
(2) The frequency and percentages determined in accordance with the foregoing
paragraph may be differentiated depending on whether or not the common
funds display certain characteristics or fulfil certain conditions.
(3) A recently formed common fund may, while ensuring observance of the principle
of risk-spreading, derogate from paragraph (1), subparagraph e) above for a
period of six months following the date of its authorisation.
(4) Where the maximum percentages fixed by reference to subparagraphs c), d),
e), f) and g) of paragraph (1) above are exceeded as a result of the exercise of
rights attached to securities in the portfolio or otherwise than by the purchase
of securities, the management company must adopt as its priority objective for
its sales transactions, the remedying of the situation of the fund, taking due
account of the interests of the unitholders.
Art. 68 (1) Neither the management company nor the depositary, acting on behalf of the
common fund, may grant loans to unitholders of the common fund.
(2) Paragraph (1) shall not prevent common funds from acquiring transferable
securities which are not fully paid.
48
36
Chapter 10. – SICAVs
Art. 69 For the purpose of this Part SICAVs shall be taken to mean those companies
which have adopted the form of a public limited company (société anonyme)
governed by Luxembourg law,
– whose exclusive object is to invest their funds in assets in order to spread
the investment risks and to ensure for their investors the benefit of the
results of the management of their assets, and
– whose shares are intended to be placed with the public by means of a
public or private offer, and
– whose Articles of incorporation provide that the amount of capital shall at all
times be equal to the value of the net assets of the company.
Art. 70 The minimum capital of a SICAV may not be less than one million two hundred
and fifty thousand euro (1,250,000 euro). This minimum must be reached
within a period of six months following the authorisation of the SICAV. A grandducal regulation may raise such minimum amount up to a maximum of two
million five hundred thousand euro (2,500,000 euro)49.
Art. 71 Articles 26, 28 (1) a), 28 (2) a), 28 (3) to (10), 29, 30, 31, 32, 33, 34, 35 (2), 36,
37 and 38 of this law are applicable to the SICAVs subject to the scope of this
chapter.
may, inter alia, determine:50
a) the minimum frequency for the determination of the issue and, where the
Articles of incorporation provide for the right of shareholders to have their
shares redeemed, the redemption prices for shares of the SICAV;
b) the minimum percentage of the assets of the SICAV which must be represented by liquid assets;
c) the maximum percentage of the assets of the SICAV which may be invested
in transferable securities not quoted on a stock exchange or dealt in on an
organised market offering comparable safeguards;
body which the SICAV may hold;
e) the maximum percentage of the assets which the SICAV may invest in
securities issued by the same body;
f) the conditions under which and possibly the maximum percentages the
SICAV may invest in securities of other UCIs;
g) the maximum percentage, in relation to its total assets, of the amounts
the SICAV is authorised to borrow and the terms and conditions for such
borrowings.
(2) The frequency and percentages determined in accordance with the foregoing
paragraph may be differentiated depending on whether or not the SICAVs
display certain characteristics or fulfil certain conditions.
(3) A recently formed SICAV may, while ensuring observance of the principle of
risk-spreading, derogate from paragraph (1), subparagraph e) above for a
period of six months following the date of its authorisation.
49
50
37
(4) Where the maximum percentages fixed by reference to subparagraphs c), d),
of securities, the SICAV must adopt as its priority objective for its sales transactions, the remedying of the situation, taking due account of the interests of
the shareholders.
Chapter 11. – UCIs which have not been constituted as common funds
or SICAVs
Art. 73 This chapter is applicable to all companies and all undertakings other than
common funds or SICAVs51
– whose exclusive object is the collective investment of their funds in assets
in order to spread the investment risks and to ensure for the investors the
benefit of the results of the management of their assets, and
– which solicit the public for the subscription of their units by means of a
public or private offer.
Art. 74 (1) The net assets of the UCIs falling within this chapter may not be less than one
million two hundred and fifty thousand euro (1,250,000 euro).
This minimum must be reached within a period of six months following their
authorisation. A grand-ducal regulation may raise that minimum figure up to a
maximum of two million five hundred thousand euro (2,500,000 euro)52.
(2) If the net assets have fallen below two thirds of the legal minimum, the directors
or the management organ, as the case may be, or managers must submit the
question of the dissolution of the undertaking to a general meeting for which
no quorum shall be prescribed and which shall decide by simple majority of the
units represented at the meeting.
(3) If the net assets have fallen below one fourth of the legal minimum, the directors
or the management organ, as the case may be, or managers must submit the
question of the dissolution to a general meeting for which no quorum shall be
prescribed. The dissolution may be resolved by investors holding one fourth of
the units represented at the meeting.
from the ascertainment that the net assets have fallen below two thirds or one
fourth of the legal minimum, as the case may be.
(5) If the constitutional documents of the undertaking do not provide for general
meetings, the directors or the management organ, as the case may be, or
managers must, if the net assets of the UCI have fallen below two thirds of
the legal minimum, inform the CSSF without delay. In such case, the CSSF
may, having regard to the circumstances, require the directors or managers to
liquidate the undertaking.
may, inter alia, determine53:
51
Investment companies that are not established in the form of a SICAV are generally investment companies with
fixed capital (“SICAF”).
52
53
38
(2)
(3)
(4)
(5)
(6)
a) the minimum frequency for the determination of the issue and, in case the
constitutional documents provide the right for the shareholders or members
to have their shares redeemed, the redemption price of the shares or units
of the UCI;
b) the minimum percentage of the assets of the UCI which must be represented by liquid assets;
c) the maximum percentage of the assets of the UCI which may be invested
in transferable securities not quoted on a stock exchange or dealt in on an
organised market offering comparable safeguards;
body which the UCI may hold;
e) the maximum percentage of the assets of the UCI which may be invested
in securities issued by the same body;
f) the conditions under which and possibly the maximum percentages the UCI
may invest in securities of other UCIs;
g) the maximum percentage, in relation to its total assets, of the amounts
the UCI is authorised to borrow and the terms and conditions for such
borrowings.
The frequency and percentages determined in accordance with paragraph (1)
above may be differentiated depending on whether or not the UCI displays
certain characteristics or fulfils certain conditions.
A recently formed UCI may, while ensuring observance of the principle of riskspreading, derogate from paragraph (1), subparagraph e) above, for a period
of six months following the date of its authorisation.
Where the maximum percentages fixed by reference to subparagraphs c), d),
of securities, the UCI must adopt as its priority objective for its sales trans
actions, the remedying of the situation, taking due account of the interests of
the shareholders or members.
The constitutional documents of the UCI shall specify the principles and
methods of valuation of the assets of the UCI. Unless otherwise provided in the
constitutional documents, the valuation of the assets of the UCI shall be based
in the case of officially listed securities, on the last known stock exchange
quotation, unless such quotation is not representative. For securities not so
listed and for securities which are so listed but for which the latest quotation
is not representative, the valuation shall be based on the probable realisation
value which must be estimated with care and in good faith.
Articles 28(5), 34, 35 (2), 36, 37 and 38 of this law are applicable to the UCIs
subject to this chapter.
Part III. - Foreign UCIS
Art. 76 UCIs other than the closed-end type formed according to or operating under
foreign laws, which are not subject to chapter 7 of this law and whose securities
are the subject of a public announcement, offer or sale in or from Luxembourg,
must be submitted in their State of origin to a permanent supervision performed
39
by a supervisory authority set up by law in order to ensure the protection of
investors. Article 59 of this law is applicable to such UCIs.
Part IV. - The authorisation of management companies
Chapter 13. – Management companies managing UCITS governed by
Directive 85/611/EEC
A. - Conditions for taking up business
Art. 77 (1) Access to the business of management companies within the meaning of this
chapter is subject to prior authorisation by the CSSF. Authorisation granted
under this law to a management company shall be valid for all Member States
of the European Union.
A management company shall be incorporated as a public limited company54,
a private limited company55, a cooperative company56, a cooperative company
set up as a public limited company57 or a corporate limited partnership58. The
capital of such company must be represented by registered shares.
(2) No management company may engage in activities other than the management
of UCITS authorised according to Directive 85/611/EEC except the additional
management of other UCIs which are not covered by such Directive and for
which the management company is subject to prudential supervision but the
units of which cannot be marketed in other Member States of the European
Union under Directive 85/611/EEC.
The activity of management of common funds and of investment companies
includes the functions listed in Annex II of this law which list is not exhaustive.
(3) By way of derogation from paragraph (2), management companies are also
authorised to provide the following services:
a) management of portfolios of investments, on a discretionary client-byclient basis, including those owned by pension funds, in accordance with
mandates given by investors where such portfolios include one or more of
the instruments listed in Section B of Annex II of the law of 5 April 1993 on
the financial sector, as amended;
b) as non-core services:
– investment advice concerning one or more of the instruments listed in
Section B of Annex II of the law of 5 April 1993 on the financial sector,
as amended;
– safekeeping and administration in relation to units of UCIs.
Management companies may in no case be authorised under this chapter to
provide only the services mentioned in this paragraph or to provide non-core
services without being authorised for the services referred to in subparagraph a).
For the purpose of this Article, investment advice consists of the provision of
personalised recommendations to a client, either upon the request of this client
54
société anonyme
55
société à responsabilité limitée
56
société coopérative
57
société coopérative organisée comme une société anonyme
58
société en commandite par actions
40
or at the management company’s initiative in regard to one or more transactions concerning financial instruments referred to in Section B of Annex II of the
law of 5 April 1993 on the financial sector, as amended.
For the purpose of this Article, a personalised recommendation is a recommendation which is addressed to a person by reason of its capacity as investor
or potential investor or its capacity as agent of an investor or of a potential
investor.
This recommendation has to be adapted to this person or has to be based on
the examination of the proper situation of this person and has to recommend
the realisation of an operation of the following categories:
a) the purchase, the sale, the subscription, the exchange, the repayment, the
holding or the firm commitment of a particular financial instrument;
b) the exercise or non-exercise of the right conferred by a particular financial
instrument to purchase, to sell, to subscribe, to exchange or to reimburse a
financial instrument.
A recommendation is not a personalised recommendation if it is exclusively
disseminated by distribution channels within the meaning of Article 1, point 18)
of the law of 9 May 2006 concerning market abuse or if it is intended for the
public.
(4) Article 13, paragraph (3), Article 37-1 and Article 37-3 of the law of 5 April
1993 on the financial sector, as amended, shall apply mutatis mutandis to the
provision by management companies of the services mentioned in paragraph
(3) of this Article.
Management companies which provide the services referred to in subparagraph a) of paragraph (3) of this Article must furthermore comply with the
Luxembourg regulations implementing Directive 2006/49/EC of the European
Parliament and of the Council of 14 June 2006 on the capital adequacy of
investment firms and credit institutions (recast). On the contrary if they only
provide the non-core services referred to in subparagraph b) of paragraph (3),
they are not subject to the capital adequacy requirements.
Art. 78 (1) The CSSF shall grant authorisation to a management company on the following
conditions:
a) the management company has an initial capital of at least one hundred and
twenty-five thousand euro (125,000 euro):
– When the value of the portfolios of the management company exceeds
two hundred and fifty million euro (250,000,000 euro) the management
company shall be required to provide an additional amount of own
funds. This additional amount of own funds shall be equal to 0.02%
of the amount by which the value of the portfolios of the management
company exceeds two hundred and fifty million euro (250,000,000
euro). The required total of the initial capital and the additional amount
shall not, however, exceed ten million euro (10,000,000 euro).
– For the purpose of this paragraph, the following portfolios shall be
deemed to be the portfolios of the management company:
i) common funds managed by the management company including
portfolios for which it has delegated the management function but
excluding portfolios that it is managing under delegation;
41
ii) investment companies for which the management company is the
designated management company;
iii) other UCIs managed by the management company including
portfolios for which it has delegated the management function but
excluding portfolios that it is managing under delegation.
– Irrespective of the amount of these requirements, the own funds of the
management company shall never be less than the amount prescribed
in Annex IV of Directive 93/6/EEC59.
Management companies are authorised not to provide up to 50% of the additional
amount of own funds referred to above if they benefit from a guarantee of the
same amount given by a credit institution or an insurance undertaking. The
credit institution or insurance undertaking must have its registered office in a
Member State of the European Union, or in a non-Member State provided that
it is subject to prudential rules considered by the CSSF as equivalent to those
laid down in Community law.
b) the persons who effectively conduct the business of a management
company must be of sufficiently good repute and be sufficiently experienced, also in relation to the type of UCITS managed by the management
company. To that end, the identities of these persons and of every person
succeeding them in office must be communicated forthwith to the CSSF.
The conduct of a management company’s business must be decided by at
least two persons meeting such conditions;
c) the application for authorisation must be accompanied by a program of
activity setting out, inter alia, the organisational structure of the management
company;
d) both its head office60 and its registered office are located in Luxembourg.
(2) Moreover where close links exist between the management company and
other natural or legal persons, the CSSF shall grant authorisation only if such
links do not prevent the effective exercise of its supervisory functions.
The CSSF shall also refuse authorisation if the laws, regulations or administrative provisions of a non-Member State governing one or more natural
or legal persons with which the management company has close links, or
difficulties involved in their enforcement, prevent the effective exercise of its
supervisory functions.
The CSSF shall require management companies to provide it with the information required to monitor compliance with the conditions referred to in this
paragraph on a continuous basis.
59
Annex IV
Other Risks
Investment firms shall be required to hold own funds equivalent to one quarter of their preceding year’s fixed
overheads. The competent authorities may adjust that requirement in the event of a material change in a firm’s
business since the preceding year. Where a firm has not completed a year’s business, including the day it starts
up, the requirement shall be a quarter of the fixed overheads figure projected in its business plan unless an adjustment to that plan is required by the authorities.
60
See footnote 13.
42
(3) An applicant shall be informed, within six months of the submission of a
(4) A management company may start business as soon as authorisation has
been granted.
(5) The CSSF may withdraw the authorisation issued to a management company
subject to this chapter only where that company:
renounces the authorisation or has ceased to exercise the activity covered
by this chapter for more than six months;
irregular means;
d) no longer complies with the law of 5 April 1993 on the financial sector, as
amended, resulting from the implementation of Directive 93/6/EEC if its
authorisation also covers the discretionary portfolio management service
referred to in Article 77, paragraph (3) a) above;
e) has seriously and/or systematically infringed the provisions of this law or of
regulations adopted pursuant to it; or
f) falls within any of the cases where this law provides for withdrawal.
Art. 79 (1) The CSSF shall not grant authorisation to take up the business of a management
company until it has been informed of the identities of the shareholders or
members, whether direct or indirect, natural or legal persons, that have qualifying holdings and of the amounts of such holdings.
The CSSF shall refuse authorisation if, taking into account the need to ensure
the sound and prudent management of the management company, it is not
satisfied as to the suitability of the aforementioned shareholders or members.
(2) The competent authorities of the other Member State involved shall be consulted
beforehand on the authorisation of any management company which is:
a) a subsidiary of another management company, investment firm, credit institution or insurance undertaking authorised in another Member State of the
European Union,
b) a subsidiary of the parent undertaking of another management company,
investment firm, credit institution or insurance undertaking authorised in
another Member State of the European Union, or
c) controlled by the same natural or legal persons as control another
management company, investment firm, credit institution or insurance
undertaking authorised in another Member State of the European Union.
Art. 80 (1) The authorisation of a management company is subject to the condition that
the audit of its annual accounting documents is entrusted to one or more
external auditors61 who can justify having adequate professional experience.
61
réviseur d’entreprises
43
(2) Any change of external auditors must be previously approved by the CSSF.
(3) The institution of statutory auditors62 provided for by the law of 10 August 1915
concerning commercial companies, as amended, and by Article 137 of such
law, shall not apply to management companies subject to this chapter.
B. Relations with third countries
Art. 81 Relations with third countries shall be regulated in accordance with the relevant
rules laid down in Article 15 of Directive 2004/39/CE.
For the purpose of this law, the expressions “firm/investment firm” and
“investment firms” contained in Article 15 of Directive 2004/39/CE shall be
construed respectively as “management company” and “management
companies”; the expression “providing investment services” in Article 15,
paragraph (2) of Directive 2004/39/CE shall be construed as “providing
services”.
C. Operating conditions
Art. 82 (1) The management company shall comply at all times with the conditions laid
down in Article 77 and Article 78, paragraphs (1) and (2) above. The own funds
of a management company may not fall below the level specified in Article 78,
paragraph (1) a). Nevertheless, if such is the case, the CSSF may, where the
circumstances justify it, allow such firms a limited period in which to rectify their
situation or cease their activities.
(2) The prudential supervision of a management company shall be the responsibility of the CSSF whether or not the management company establishes
a branch as defined in Article 1 of this law or provides services in another
Member State of the European Union, without prejudice to those provisions
of Directive 85/611/EEC which give responsibility to the authorities of the host
Member States.
Art. 83 (1) Qualifying holdings in management companies shall be subject to the same
rules as those laid down in Article 18 of the law of 5 April 1993 on the financial
sector, as amended.
(2) For the purpose of this law, the expressions “firm/investment firm” and
“investment firms” contained in Article 18 of the law of 5 April 1993 on the
financial sector, as amended, shall be construed respectively as “management
company” and “management companies”.
Art. 84 (1) With regard to the nature of the UCITS managed by it and in furtherance of the
prudential rules it is required to observe at all times with regard to the activity
of management of UCITS subject to Part I of this law, a management company
shall be required:
a) to have sound administrative and accounting procedures, control and
safeguard arrangements for electronic data processing and adequate
internal control mechanisms including, in particular, rules for personal transactions by its employees or for the holding or management of investments
in financial instruments in order to invest own funds and ensuring, inter alia,
that each transaction involving the UCITS may be reconstructed according
to its origin, the parties concerned, its nature, and the time when and the
place at which it was effected and that the assets of the common funds or
62
44
commissaires aux comptes
of the investment companies managed by the management company are
invested according to the constitutional documents and the legal provisions
in force;
b) to be structured and organised in such a way as to minimise the risk of
UCITS’ or clients’ interests being prejudiced by conflicts of interest between
the company and its clients, between one of its clients and another, between
one of its clients and a UCITS or between two UCITS. Nevertheless, where
a branch is set up, the organisational arrangements may not conflict with
the rules of conduct laid down by the host Member State to cover conflicts
of interest.
(2) The management companies, the authorisation of which also covers the
discretionary portfolio management service mentioned in Article 77, paragraph
(3) a):
– shall not be permitted to invest all or a part of the investor’s portfolio in units
of common funds or of investment companies it manages, unless it has
received the prior general approval from the client;
– shall be subject with regard to the services referred to in Article 77,
paragraph (3) to the provisions laid down by the law of 17 July 200063
implementing Directive 97/9/EC64 in the law of 5 April 1993 on the financial
sector, as amended65.
Art. 85 (1) Management companies are authorised to delegate to third parties for the
purpose of a more efficient conduct of their business, the power to carry out
on their own behalf one or more of their functions. In that case, the following
preconditions have to be complied with:
a) the CSSF must be informed thereof in an appropriate manner;
b) the mandate may not prevent the effectiveness of the supervision over the
management company; in particular, it must not prevent the management
company from acting, or the UCITS from being managed, in the best
interests of the investors;
c) when the delegation concerns the management of investments, the mandate
may only be given to undertakings which are authorised or registered for
the purpose of asset management and are subject to prudential supervision; the delegation must be in accordance with investment allocation
criteria periodically laid down by the management company;
d) where the mandate concerns the management of investments and is given
to a third-country undertaking, cooperation between the CSSF and the
supervisory authority of that country must be ensured;
e) a mandate with regard to the core function of investment management shall
not be given to the depositary or to any other undertaking whose interests
may conflict with those of the management company or the unitholders;
f) measures shall exist which enable the persons who conduct the business
of the management company to monitor effectively at any time the activity
of the undertaking to which the mandate is given;
63
The reference should be to the law of 27 July 2000.
64
Directive on investor compensation schemes.
65
This requires the management company concerned to be a member of a Luxembourg-based investor compensation scheme.
45
g) the mandate shall not prevent the persons who conduct the business of the
management company to give at any time further instructions to the undertaking to which functions are delegated and to withdraw the mandate with
immediate effect when this is in the interest of investors;
h) having regard to the nature of the functions to be delegated, the undertaking to which functions will be delegated must be qualified and capable of
undertaking the functions in question; and
i) the UCITS’ prospectuses list the functions which the management company
has been permitted to delegate.
(2) In no case shall the management company’s and the depositary’s liability be
affected by the fact that the management company delegated any functions to
third parties, nor shall the management company delegate its functions to the
extent that it becomes a letter box entity.
Art. 86 In the conduct of its business activities, a management company authorised
under this chapter shall, at all times, by virtue of rules of conduct:
a) act honestly and fairly in conducting its business activities in the best
interests of its clients and the integrity of the market;
b) act with due skill, care and diligence, in the best interests of its clients and
the integrity of the market;
c) have and efficiently employ the resources and procedures that are
necessary for the proper performance of its business activities;
d) endeavour to avoid conflicts of interests and, when they cannot be avoided,
ensure that its clients are treated fairly, and
e) comply with all regulatory requirements applicable to the conduct of its
business activities so as to promote the best interests of its clients and the
integrity of the market.
D. The right of establishment and the freedom to provide services
Art. 87 (1) A management company, authorised in accordance with Directive 85/611/EEC
by the competent authorities of another Member State, may carry on in Luxembourg the activity for which it has been authorised, either by the establishment
of a branch or under the freedom to provide services.
(2) The establishment of a branch or the provision of services as described above
is not subject to any authorisation requirement, to any requirement to provide
endowment capital or to any other measure having equivalent effect.
Art. 88 (1) In addition to meeting the conditions imposed in Articles 77 and 78, any
management company authorised under this chapter wishing to establish a
branch within the territory of another Member State of the European Union
shall notify the CSSF thereof.
(2) It shall provide the following information and documents with the notification
provided for in paragraph (1):
a) the Member State within the territory of which the management company
plans to establish a branch;
b) a program of operations setting out the envisaged activities and services
as referred to in Article 77, paragraphs (2) and (3) and the organisational
structure of the branch;
46
(3)
(4)
(5)
(6)
(7)
c) the address in the host Member State from which documents may be
obtained;
d) the name of those responsible for the management of the branch.
Unless the CSSF has reason to doubt the adequacy of the administrative
structure or the financial situation of a management company, taking into
account the activities envisaged, it shall, within three months of receiving all
the information referred to in paragraph (2), communicate that information
to the competent authorities of the host Member State and shall inform the
management company accordingly. It shall also communicate details of any
compensation scheme intended to protect investors.
Where the CSSF refuses to communicate the information referred to in
paragraph (2) to the competent authorities of the host Member State, it shall
give reasons for its refusal to the management company concerned within two
months of receiving all the information.
Before the branch of a management company starts business, the competent
authorities of the host Member State shall, within two months of receiving
the information referred to in paragraph (2) prepare for the supervision of the
management company and, if necessary, indicate the conditions, including the
rules mentioned in Articles 53 and 54 in force in the host Member State and
the rules of conduct to be respected in the case of provision of the portfolio
management service mentioned in Article 77, paragraph (3) and of investment
advisory and custody services, under which, in the interest of the general good,
that business must be carried on in the host Member State.
On receipt of a communication from the competent authorities of the host
Member State or on the expiry of the period provided for in paragraph (4)
without receipt of any communication from those authorities, the branch
may be established and start business. From that moment the management
company may also begin distributing the units of the common funds and of
the investment companies subject to Directive 85/611/EEC which it manages,
unless the competent authorities of the host Member State establish, in a
reasoned decision taken before the expiry of that period of two months – to be
communicated to the CSSF – that the arrangements made for the marketing of
the units do not comply with the provisions referred to in Article 53, paragraph
(1) and Article 54.
In the event of change of any particulars communicated in accordance with
paragraphs (2) b), c) or d), the management company shall give written notice
of that change to the CSSF and the competent authorities of the host Member
State at least one month before implementing the change so that the CSSF
may take a decision on the change under paragraph (3) and the competent
authorities of the host Member State may do so under paragraph (4).
In the event of a change in the particulars communicated in accordance with
the first subparagraph of paragraph (3), the CSSF shall inform the authorities
of the host Member State accordingly.
Art. 89 (1) Any management company wishing to carry on business within the territory
of another Member State of the European Union for the first time under the
freedom to provide services shall communicate the following information to the
CSSF:
a) the Member State of the European Union within the territory of which the
management company intends to operate;
47
(2)
(3)
(4)
(5)
b) a programme of operations stating the envisaged activities and services
referred to in Article 77, paragraphs (2) and (3).
The CSSF shall, within one month of receiving the information referred to
in paragraph (1) forward it to the competent authorities of the host Member
State.
It shall also communicate details of any applicable compensation scheme
intended to protect investors.
The management company may then start business in the host Member State
notwithstanding the provisions of Article 55 of the law.
When appropriate, the competent authorities of the host Member State
shall, on receipt of the information referred to in paragraph (1) indicate to
the management company the conditions, including the rules of conduct to
be respected in the case of provision of the portfolio management service
mentioned in Article 77, paragraph (3) and of the investment advisory services
and custody services, with which, in the interest of the general good, the
management company must comply in the host Member State.
Should the content of the information communicated in accordance with
paragraph (1) b) be amended, the management company shall give notice of
the amendment in writing to the CSSF and the competent authorities of the
host Member State before implementing the change, so that the CSSF may, if
necessary, inform the management company of any change or addition to be
made to the information communicated under paragraph (3).
A management company shall also be subject to the notification procedure laid
down in this Article in cases where it entrusts a third party with the marketing of
the units in a host Member State.
Art. 90 (1) For statistical purposes, all management companies authorised in a Member
State of the European Union under Directive 85/611/EEC with a branch as
defined in that Directive within Luxembourg shall report periodically on their
activities in Luxembourg to the CSSF.
(2) Branches of such management companies must provide the CSSF with the
same information as required from management companies authorised under
this chapter.
(3) Where a management company that has a branch or provides services within
Luxembourg is in breach of the provisions of this law, the CSSF shall require
the management company concerned to put an end to its irregular situation.
(4) If the management company concerned fails to take the necessary steps,
the CSSF shall inform the competent authorities of the home Member State
accordingly.
(5) If the management company persists in breaching the legal or regulatory provisions referred to in paragraph (2) in force in Luxembourg, the Luxembourg
authorities may, after informing the competent authorities of the home Member
State, take appropriate measures to prevent or sanction further irregularities
and, insofar as necessary, to prevent that management company from initiating
any further transactions within Luxembourg. The legal documents necessary
for those measures shall be served on the management company.
48
(6) The foregoing provisions shall not affect the powers of Luxembourg to take
appropriate measures to prevent or to sanction irregularities committed within
its territory which are contrary to legal or regulatory provisions adopted in the
interest of the general good. This shall include the possibility of preventing an
offending management company from initiating any further transactions within
Luxembourg.
(7) Any measure adopted pursuant to paragraphs (4), (5) or (6) involving sanctions
or restrictions on the activities of a management company must be properly
justified and communicated to the management company concerned. Every
such measure shall be subject to the right to apply to the courts in Luxembourg.
(8) Before following the procedure laid down in paragraphs (3), (4) or (5) the
CSSF may, in emergencies, take any precautionary measures necessary to
protect the interests of investors and others to whom services are provided.
The European Commission and the competent authorities of the other Member
States concerned will be informed of such measures at the earliest opportunity.
(9) In the event of the withdrawal of authorisation, the CSSF shall be informed
thereof and shall take appropriate measures to prevent the management
company concerned from initiating any further transactions within Luxembourg,
and to safeguard investors’ interests.
Chapter 14. – Other management companies of Luxembourg UCIs
Art. 91 (1) Access to the business of a management company within the meaning of this
chapter is subject to prior authorisation by the CSSF.
The management company shall be incorporated as a public limited company66,
a private limited company67, a cooperative company68, a cooperative company
set up as a public limited company69 or a corporate limited partnership70. The
capital of such company must be represented by registered shares.
It may not engage in activities other than the management of UCIs, the administration of its own assets being only an ancillary activity provided that it must
manage at least one UCI subject to Luxembourg law.
Both its head office71 and its registered office must be situated in Luxembourg.
66
société anonyme
67
société à responsabilité limitée
68
société coopérative
69
société coopérative organisée comme une société anonyme
70
société en commandite par actions
71
See footnote 13.
49
(2) The CSSF will grant authorisation to the company only on the following conditions:
a) it must have sufficient financial resources at its disposal to enable it to
conduct its business effectively and meet its liabilities; in particular it must
have a minimum paid-up capital of one hundred and twenty-five thousand
euro (125,000 euro); a grand-ducal regulation may raise that minimum
amount to a maximum of six hundred and twenty-five thousand euro
(625,000 euro)72;
b) the directors of the management company within the meaning of Article 93
(3) must be of sufficiently good repute and have the professional experience
required for the performance of their duties;
c) the identity of reference shareholders or members of the management
company must be provided to the CSSF;
d) the application must describe the organisational structure of the management
company.
(3) An applicant shall be informed, within six months of the submission of a
(4) A management company may start business as soon as authorisation has
been granted.
(5) The CSSF may withdraw the authorisation issued to a management company
subject to this chapter only where that company:
renounces the authorisation or has ceased the activity covered by this
chapter for more than six months;
irregular means;
d) has seriously and/or systematically infringed the provisions adopted
pursuant to this law; or
e) falls within any of the cases where this law provides for withdrawal.
(6) The management company may not use the assets of the UCIs it manages for
its own needs.
Art. 92 Article 80 of this law is applicable to the management companies falling within
the scope of this chapter.
Part V. - General provisions applicable to ucits and other ucis
Chapter 15. – Authorisation
Art. 93 (1) UCIs subject to Articles 2, 63 and 76 must, in order to carry out their activities,
be previously authorised by the CSSF.
A UCITS subject to Article 2 which is legally prevented from marketing its units
or shares in Luxembourg, notably by a provision included in the management
regulations of the fund or the constitutional documents, will not be authorised
by the CSSF.
72
50
(2) A UCI shall be authorised only if the CSSF has approved the constitutional
documents and the choice of the depositary.
(3) The directors73 of the UCI and of the depositary must be of sufficiently good
repute and have sufficient experience, also in relation to the type of UCI
concerned. To that end, the names of the directors, and of every person
succeeding them in office, must be communicated forthwith to the CSSF.
“Directors” shall mean those persons who under law or the constitutional
documents represent the UCI or the depositary or who effectively determine
the conduct of the activities of the UCI.
(4) The replacement of the management company or of the depositary and the
amendment of the constitutional documents of the UCI are subject to approval
by the CSSF.
Art. 94 (1) Authorised UCIs shall be entered by the CSSF on a list. Such entry shall be
tantamount to authorisation and shall be notified by the CSSF to the UCI
concerned. For the UCIs referred to in Articles 2 and 63, applications for entry
on the list must be filed with the CSSF within the month following their constitution or formation. The said list and any amendments made thereto shall be
published in the Mémorial74 by the CSSF.
(2) The entering and the maintaining on the list referred to in paragraph (1) shall be
subject to observance of all the provisions of laws, regulations or agreements
relating to the organisation and operation of UCIs and the distribution, placing
or sale of their units.
Art. 95 Luxembourg UCIs other than the closed-end type, UCITs governed by harmonised Community law and foreign UCIs in case of a public offer in Luxembourg
shall be exempt from publishing a prospectus as provided for in Part III of the
law on prospectuses for securities. The prospectus which such UCIs draw up
in accordance with the regulatory requirements applicable to UCIs shall be
valid for the purposes of an offer to the public of securities or the admission of
securities to trading on a regulated market.
Art. 96 The fact that a UCI is entered on the list referred to in Article 94, paragraph
(1) shall not under any circumstance be described in any way whatsoever as
a positive assessment made by the CSSF of the quality of the units offered for
sale.
Chapter 16. – Organisation of supervision
Art. 97 (1) The authority which is to carry out the duties provided for in this law is the
CSSF.
(2) The CSSF carries out its duties exclusively in the interest of the public.
(3) The CSSF is authorised to receive complaints from holders of units in UCIs and
to mediate with such UCIs in order to resolve such complaints amicably.
Art. 98 (1) Any person who works or who has worked for the CSSF, as well as the
auditors75 or experts instructed by the CSSF, shall be bound by the obligation
73
See footnote 25.
74
Mémorial B, Recueil Administratif et Economique. This is the part of the official gazette in which certain administrative publications are made.
75
réviseurs d’entreprises
51
of professional secrecy provided for by Article 16 of the law of 23 December
1998 creating the Commission de Surveillance du Secteur Financier, as
amended. Such secrecy implies that no confidential information which they
may receive in the course of their duties may be divulged to any person or
authority whatsoever, save in summary or aggregate form such that UCIs,
management companies and depositaries cannot be individually identified,
without prejudice to cases covered by criminal law.
(2) Paragraph (1) shall not prevent the CSSF from exchanging information with
the supervisory authorities of the other Member States of the European Union
within the limits provided by this law.
The CSSF shall closely cooperate with the supervisory authorities of other
Member States of the European Union for the purpose of the fulfilment of their
duty of supervision of UCIs and shall communicate for that sole purpose all
required information.
The supervisory authorities of countries other than Member States of the
European Union which are party to the Agreement on the European Economic
Area76 are assimilated to the supervisory authorities of the Member States
of the European Union within the limits provided by that Agreement and the
instruments relating thereto.
(3) Paragraph (1) shall not prevent the CSSF from exchanging information with:
– authorities of third countries with public responsibilities for the supervision
of UCIs,
– the other authorities, bodies and persons referred to in paragraph (5), with
the exception of central credit registers, when they are established in third
countries,
– the authorities of third countries referred to in paragraph (6).
The communication of information by the CSSF authorised by this paragraph
is subject to the following conditions:
– the transmitted information must be required for the purpose of performing
the supervisory duty of the recipient authorities, bodies and persons,
– information received shall be subject to the professional secrecy of the
recipient authorities, bodies or persons and the professional secrecy of
such authorities, bodies or persons must offer guarantees at least equivalent to the professional secrecy of the CSSF,
– the authorities, bodies or persons which receive information from the CSSF
may only use such information for the purposes for which it has been
communicated to them and must be able to ensure that no other use can
be made thereof,
– the authorities, bodies or persons who receive information from the CSSF
grant the same right of information to the CSSF,
-– the CSSF may only disclose information received from EU authorities
responsible for the supervision of UCIs with the express agreement of such
authorities and, where appropriate, solely for the purposes for which those
authorities gave their agreement.
For the purpose of this paragraph third countries are countries other than those
referred to in paragraph (2).
76
52
77
(4) Where the CSSF receives confidential information under paragraphs (2) and
(3), the CSSF may use it only in the course of its duties:
– to check that the conditions governing the taking-up of the business of
UCIs, of management companies and of depositaries are met and to facilitate the monitoring of the conduct of that business, of administrative and
accounting procedures and of internal control mechanisms; or
– to impose sanctions; or
– in administrative appeals against decisions by the CSSF; or
– in court proceedings initiated against decisions refusing or withdrawing an
authorisation.
(5) Paragraphs (1) to (4) shall not preclude:
a) the exchange of information within the European Union between the CSSF
and
– authorities with public responsibility for the supervision of credit institutions,
investment firms, insurance undertakings and other financial organisations
and the authorities responsible for the supervision of financial markets,
– bodies involved in the liquidation, bankruptcy or other similar proceedings
concerning UCIs, management companies and depositaries,
– persons responsible for carrying out statutory audits of the accounts of
credit institutions, investment firms, other financial institutions or insurance
undertakings in the performance of their supervisory functions,
b) the disclosure by the CSSF within the European Union to bodies which
administer compensation schemes of investors or to central credit registers
of information necessary for the performance of their functions.
is subject to the condition that such information is covered by the professional secrecy of the authorities, bodies and persons receiving the information and is only authorised to the extent that the professional secrecy of
such authorities, bodies and persons offers guarantees at least equivalent
to the professional secrecy of the CSSF. In particular, authorities which
receive information from the CSSF may only use such information for the
purposes for which it has been communicated and must be able to ensure
that no other use can be made thereof.
Countries other than Member States of the European Union which are
party to the Agreement on the European Economic Area77 are assimilated
to the Member States of the European Union within the limits provided by
that Agreement and the instruments relating thereto.
(6) Paragraphs (1) and (4) do not prevent exchanges of information within the
European Union between the CSSF and:
– the authorities responsible for overseeing the bodies involved in the liquidation, bankruptcy or other similar proceedings concerning credit institutions, investment firms, insurance undertakings, UCIs, management
companies and depositaries,
– the authorities responsible for overseeing persons entrusted with the
carrying out of statutory audits of the accounts of credit institutions,
investment firms, insurance undertakings and other financial institutions.
53
– the transmitted information is intended to be used for the purpose of
performing the supervisory duty of the recipient authorities,
recipient authorities and the professional secrecy of such authorities must
offer guarantees at least equivalent to the professional secrecy of the
CSSF,
– the authorities which receive information from the CSSF may only use such
information for the purposes for which it has been communicated to them
and must be able to ensure that no other use can be made thereof,
– the CSSF may only disclose information received from supervisory authorities referred to in paragraphs (2) and (3) with the express agreement of
such authorities and, where appropriate, solely for the purposes for which
those authorities gave their agreement.
Countries other than Member States of the European Union which are party
to the Agreement on the European Economic Area78 are assimilated to the
Member States of the European Union within the limits provided by that
(7) This Article shall not prevent the CSSF from transmitting to central banks and
other bodies with a similar function in their capacity as monetary authorities
information intended for the performance of their duties.
is subject to the condition that such information is covered by the professional
secrecy of the recipient authorities and is only authorised to the extent that the
professional secrecy of such authorities offers guarantees at least equivalent
to the professional secrecy of the CSSF. In particular, authorities which receive
information from the CSSF may only use such information for the purposes for
which it has been communicated and must be able to ensure that no other use
can be made thereof.
This Article shall furthermore not prevent the authorities or bodies referred to
in this paragraph from communicating to the CSSF such information as it may
need for the purposes of paragraph (4). Information received in this context by
the CSSF shall be subject to its professional secrecy.
(8) This Article shall not prevent the CSSF from communicating the information
referred to in paragraphs (1) to (4) to a clearing house or other similar body
recognised under national law for the provision of clearing or settlement
services for a market in Luxembourg if the CSSF considers it is necessary to
communicate the information in order to ensure the proper functioning of those
bodies in relation to defaults or potential defaults by market participants.
is subject to the condition that such information is covered by the professional secrecy of the recipient bodies and is only authorised to the extent that
the professional secrecy of such bodies offers guarantees at least equivalent
to the professional secrecy of the CSSF. In particular, bodies which receive
can be made thereof.
78
54
The information received by the CSSF pursuant to paragraphs (2) and (3) may
not be disclosed in the circumstances referred to in this paragraph without the
express agreement of the supervisory authorities which have disclosed such
information to the CSSF.
Art. 99 (1) The decisions to be adopted by the CSSF in implementation of this law shall
state the reasons on which they are based and, unless the delay entails risks,
they shall be adopted after preparatory proceedings at which all parties are
able to state their case79. They shall be notified by registered letter or delivered
by bailiff80.
(2) The decisions by the CSSF concerning the granting, refusal or withdrawal of
the authorisations provided for in this law may be referred to the administrative
court81 which will deal with the substance of the case. The case must be filed
within one month from the date of notification of the contested decision, or else
shall be foreclosed.
(3) The decision of the CSSF withdrawing the name of a UCI referred to in Articles
2 and 63 of this law from the list provided for in Article 94, paragraph (1), shall,
as from the notification thereof to such undertaking and until the decision
has become final, ipso jure entail for such undertaking suspension of any
payment by said undertaking and prohibition for such undertaking, on pain
of nullity, to take any measures other than protective measures, except with
the authorisation of the supervisory commissioner82. The CSSF shall ipso
jure hold the office of supervisory commissioner, unless at its request, the
District Court dealing with commercial matters appoints one or more supervisory commissioners. The application, stating the reasons on which it is based
and accompanied by supporting documents, shall be lodged for that purpose
at the Registry of the District Court in the district within which the undertaking
has its registered office.
The Court shall give its ruling within a short period.
If it considers that it has sufficient information, it shall immediately make an
order in public session, without hearing the parties. If it deems it necessary, it
shall convene the parties by notification from the Registrar83 within three days
from the lodging of the application. It shall hear the parties in chambers and
give its decision in public session.
The written authorisation of the supervisory commissioners is required for all
measures and decisions of the undertaking and, failing such authorisation,
they shall be void.
The Court may, however, limit the scope of operations subject to authorisation.
The commissioners may submit for consideration to the relevant bodies of the
undertaking any proposals which they consider appropriate. They may attend
proceedings of the administrative, management, executive or supervisory
bodies of the undertaking.
79
instruction contradictoire
80
huissier (court process server)
81
tribunal administratif
82
commissaire de surveillance
83
greffier
55
The Court shall decide as to the expenses and fees of the supervisory commissioners; it may grant them advances.
The judgment provided for in paragraph (1) of Article 104 of this law shall
terminate the functions of the supervisory commissioner who must, within
one month after his replacement, submit to the liquidators appointed in such
judgment a report on the use of the undertaking’s assets together with the
accounts and supporting documents.
If the withdrawal decision is amended on appeal in accordance with paragraphs
(2) and (3) above, the supervisory commissioner shall be deemed to have
resigned.
Art. 100 (1) The CSSF may prohibit the marketing in Luxembourg of units of a UCITS
situated in another Member State of the European Union if it infringes the provisions of chapter 7.
(2) The decision taken under paragraph (1) above is notified by the CSSF to
the UCI concerned and to the competent supervisory authorities of the home
Member State.
Art. 101 (1) Where, through the provision of services or by the establishment of branches,
a management company operates in one or more host Member States of
the European Union, the CSSF shall collaborate closely with the competent
authorities of the Member States concerned.
It shall supply on request all the information concerning the management
and the ownership of such management companies that is likely to facilitate their supervision and all information likely to facilitate the monitoring of
such companies. In particular, the CSSF shall cooperate to ensure that the
competent authorities of the host Member State can collect the information
referred to in Article 90, paragraph (2).
(2) Insofar as it is necessary for the purpose of exercising its powers of supervision, the CSSF shall be informed by the competent authorities of the host
Member State of any measures taken by the host Member State pursuant to
Article 90, paragraph (6) which involve sanctions imposed on a management
company or restrictions on a management company’s activities.
Art. 102 (1) Where a management company authorised in another Member State of the
European Union carries on business within Luxembourg through a branch,
the competent authorities of the management company’s home Member State
may, after informing the CSSF, carry out themselves or through the intermediary of persons they instruct for the purpose, on-the-spot verification of the
information referred to in Article 101.
(2) The competent authorities of the management company’s home Member State
may also ask the CSSF to have such verification carried out. Within the scope
of its powers, the CSSF shall act upon such requests either by carrying out
the verifications itself, by allowing the authorities who have requested them to
carry them out or by allowing external auditors84 or experts to do so.
(3) This Article shall not affect the right of the CSSF to carry out, within the exercise
of its duties under this law, on-the-spot verifications of branches established
within Luxembourg.
84
56
The French text of amended Directive 85/611/EEC refers to “commissaires aux comptes” which in France describes the professionals referred to as réviseurs d’entreprises (external auditors) in Luxembourg.
Art. 103 Any decision to withdraw the authorisation of, or any other serious measure
taken against, a Luxembourg UCITS subject to Part I of this law or any
suspension of redemptions imposed upon it, shall be communicated without
delay by the CSSF to the supervisory authorities of the other Member States of
the European Union where the units of the UCITS are marketed.
Art. 104 (1) The District Court dealing with commercial matters85 shall, at the request of the
Public Prosecutor86, acting on its own initiative or at the request of the CSSF,
pronounce the dissolution and order the liquidation of the UCIs referred to in
Articles 2 and 63 of this law, whose entry on the list provided for in Article 94,
paragraph (1) has finally been refused or withdrawn.
When ordering the liquidation, the Court shall appoint a reporting judge87 and
one or more liquidators. It shall determine the method of liquidation. It may
render applicable to such extent as it may determine the rules governing liquidation in bankruptcy. The method of liquidation may be changed by subsequent
decision, either of the Court’s own motion or at the request of the liquidator(s).
The Court shall decide as to the expenses and fees of the liquidators; it may
grant advances to them. The judgment pronouncing dissolution and ordering
liquidation shall be enforceable on a provisional basis.
(2) The liquidator(s) may bring and defend all actions on behalf of the undertaking,
receive all payments, grant releases with or without discharge, realise all the
transferable securities of the undertaking and reemploy the proceeds therefrom,
issue or endorse any negotiable instruments, compound or compromise on all
claims. They may alienate immovable property of the undertaking by auction.
They may also but only with the authorisation of the Court, mortgage and
pledge its assets and alienate its immovable property by private treaty.
(3) As from the day of the judgment, no legal actions relating to movable or
immovable property nor any enforcement procedures relating to movable or
immovable property may be pursued, commenced or exercised otherwise than
against the liquidators.
The judgment ordering liquidation shall terminate all seizures effected at the
instance of general creditors who are not secured by charges88 on movable
and immovable property.
(4) After payment or deposit of the sums necessary for the discharge of the debts,
the liquidators shall distribute to unitholders the sums or amounts due to
them.
(5) The liquidators may convene at their own initiative, and must convene at the
request of holders of units representing at least one fourth of the assets of
the undertaking, a general meeting of unitholders for the purpose of deciding
whether instead of an outright liquidation it is appropriate to contribute the
assets of the undertaking in liquidation to another UCI. That decision shall
be taken, provided that the general meeting is composed of a number of
unitholders representing at least one half of the outstanding units or capital
of the undertaking, by a majority of two thirds of the votes of the unitholders
present or represented.
85
tribunal d’arrondissement siégeant en matière commerciale
86
procureur d’Etat
87
juge-commissaire
88
créanciers chirographaires et non privilégiés
57
(6) The Court’s decisions pronouncing the dissolution and ordering the liquidation
of a UCI shall be published in the Mémorial89 and in two newspapers with
adequate circulation specified by the Court, one of which at least must be a
Luxembourg newspaper. The liquidator(s) shall arrange for such publications.
(7) If there are no or insufficient assets, as ascertained by the reporting judge, the
documents relating to the proceedings shall be exempt from any registry and
registration duties and the expenses and fees of the liquidators shall be borne
by the Treasury and paid as judicial costs.
(8) The liquidators shall be responsible both to third parties and to the UCI for the
discharge of their duties and for any faults committed in the conduct of their
activities.
(9) When the liquidation is completed, the liquidators shall report to the Court on
the use made of the funds of the undertaking and shall submit the accounts
and supporting documents thereof. The Court shall appoint commissaires
(auditors) to examine the documents.
After receipt of the auditors’ report, a ruling shall be given on the management
of the liquidators and the closure of the liquidation.
The closure of the liquidation shall be published in accordance with paragraph
(6) above.
Such publication shall also indicate:
– the place designated by the Court where the books and records must be
kept for at least five years;
– the measures taken in accordance with Article 107 with a view to the
deposit of the sums and funds due to creditors, unitholders or members to
whom it has not been possible to deliver the same.
(10) Any legal actions against the liquidators of UCIs, in their capacity as such,
shall be prescribed five years after publication of the closure of the liquidation
provided for in paragraph (9).
Legal actions against the liquidators in connection with the performance of their
duties, shall be prescribed five years after the date of the facts or, in the event
of concealment thereof by wilful misconduct, five years after the discovery
thereof.
(11) The provisions of this Article shall equally apply to the UCIs which have not
applied to be entered on the list provided for in Article 94 within the time limit
laid down therein.
Art. 105 (1) UCIs shall, after dissolution, be deemed to exist for the purpose of liquidation.
In the case of a non-judicial liquidation, they shall remain subject to supervision
by the CSSF.
(2) All documents issued by a UCI in liquidation shall indicate that it is in liquidation.
Art. 106 (1) In the event of a non-judicial liquidation of a UCI, the liquidator(s) must be
approved by the CSSF. The liquidator(s) must provide all guarantees of honourability and professional skill.
89
58
The Mémorial C, Recueil des Sociétés et Associations is the part of the official gazette in which certain required
(2) Where a liquidator does not accept office or is not approved, the District Court
dealing with commercial matters shall, at the request of any interested party or
of the CSSF, appoint the liquidator(s). The judgment appointing the liquidator(s)
shall be provisionally enforceable, on the production of the original thereof and
before registration, notwithstanding any appeal or objection.
Art. 107 In the event of a voluntary or compulsory liquidation of a UCI within the meaning
of this law, the sums and assets payable in respect of units whose holders
failed to present themselves at the time of the closure of the liquidation, shall
be paid to the public trust office90 to be held for the benefit of the persons
entitled thereto.
Art. 108 (1) The directors or members of the management organ91, as the case may be,
managers and officers of UCIs subject to supervision by the CSSF as well as
the liquidators in the case of voluntary liquidation of a UCI may have a fine of
fifteen to five hundred euro imposed upon them by the said authority in the
event of their refusing to provide the financial reports and the requested information or where such documents prove to be incomplete, inaccurate or false,
and in the event of any infringement of Article 109 of this law or in the event of
any other serious irregularity being recorded.
(2) The same fine may be imposed upon any person who infringes the provisions
of Article 96.
Chapter 17. – Obligations concerning information to be supplied
to unitholders
A. – Publication of a prospectus and periodical reports
Art. 109 (1) The investment company and, for each of the common funds it manages, the
management company must publish:
– a simplified prospectus,
– a full prospectus,
– an annual report for each financial year, and
– a semi-annual report covering the first six months of the financial year.
(2) The annual and semi-annual reports must be published within the following
time limits, with effect from the end of the periods to which they relate:
– four months in the case of the annual report,
– two months in the case of the semi-annual report.
(3) The obligation to publish a simplified prospectus set out in paragraph (1) is not
applicable to UCIs subject to Part II and Part III of this law.
(4) The obligation to publish a full prospectus within the meaning of this law shall
not apply to undertakings for collective investment of the closed-end type.
Art. 110 (1) Both the simplified and the full prospectus must include the information
necessary for investors to be able to make an informed judgment of the
investment proposed to them, and, in particular, of the risks attached thereto.
The full prospectus shall include a clear easily understandable description of
the fund’s risk profile, irrespective of the instruments in which it invests.
90
Caisse de Consignation
91
le directoire
59
(2) The full prospectus shall contain at least the information provided for in Schedule
A of Annex I to this law insofar as such information does not already appear in
the constitutional documents annexed to the full prospectus in accordance with
Article 111, paragraph (1).
(3) The simplified prospectus shall contain in summary form the key information
provided for in Schedule C of Annex I to this law. It shall be structured and
written in such way that it can be easily understood by the average investor. The
simplified prospectus may be attached to the full prospectus as a removable
part of it. The simplified prospectus can be used as a marketing tool designed
to be used in all Member States of the European Union without any alterations
except for its translation.
(4) Both the full and the simplified prospectus may be incorporated in a written
document or in any durable medium having an equivalent legal status and
being approved by the CSSF.
(5) The annual report must include a balance sheet or a statement of assets and
liabilities, a detailed income and expenditure account for the financial year,
a report on the activities of the past financial year and the other information
provided for in Schedule B of Annex I to this law, as well as any significant
information which will enable investors to make an informed judgment on the
development of the activities and the results of the UCI.
(6) The semi-annual report must include at least the information provided for in
chapters I to IV of Schedule B of Annex I to this law; where a UCI has paid or
proposes to pay an interim dividend, the figures must indicate the results after
tax for the half-year concerned and the interim dividend paid or proposed.
(7) The Schedules as provided for by paragraphs (1), (2), (3), (4), (5) and (6) may
be differentiated by the CSSF for UCIs subject to Articles 63 and 76 of this law,
depending on whether or not these UCIs display certain characteristics or fulfil
certain conditions.
Art. 111 (1) The management regulations of the fund or the constitutional documents of the
investment company shall form an integral part of the full prospectus and must
be annexed thereto.
(2) The documents referred to in paragraph (1) need not, however, be annexed to
the full prospectus provided that the unitholder is informed that on his request
he will either be sent those documents or be apprised of the place where, in
each Member State where the units are placed on the market, he may consult
them.
Art. 112 The essential elements of the simplified and the full prospectus must be kept
up-to-date.
Art. 113 (1) Luxembourg UCIs must have the accounting information given in their annual
report audited by an authorised external auditor92.
The auditor’s report and its qualifications (if any) are set out in full in each
annual report.
The auditor must justify having appropriate professional experience.
(2) The auditor shall be appointed and remunerated by the UCI.
92
60
réviseur d’entreprises agréé
(3) The auditor must report promptly to the CSSF any fact or decision of which he
has become aware while carrying out the audit of the accounting information
contained in the annual report of a UCI or any other legal task concerning a
UCI, where such fact or decision is likely to:
– constitute a material breach of this law or the regulations adopted for its
execution, or
– affect the continuous functioning of the UCI, or
– lead to a refusal to certify the accounts or to the expression of qualifications
thereon.
The auditor likewise has a duty to promptly report to the CSSF, in the accomplishment of its duties referred to in the preceding sub-paragraph in respect
of a UCI, any fact or decisions concerning the UCI and meeting the criteria
referred to in the preceding subparagraph of which he has become aware
while carrying out the audit of the accounting information contained in the
annual report of another undertaking having close links resulting from a control
relationship with the UCI or while carrying out any other legal task concerning
such other undertaking.
For the purpose of this Article, a close link resulting from a control relationship
shall mean the link which exists between a parent undertaking and a subsidiary
in the cases referred to in Article 77 of the law of 17 June 1992 concerning the
annual accounts and consolidated accounts of credit institutions, as amended93,
or as a result of a relationship of the same type between any individual or legal
entity and an undertaking; any subsidiary undertaking of a subsidiary undertaking is also considered as a subsidiary of the parent undertaking which is at
the head of those undertakings. A situation in which two or more individuals or
legal persons are permanently linked to one and the same person by a control
relationship shall also be regarded as constituting a close link between such
persons.
If, in the discharge of his duties, the auditor ascertains that the information
provided to investors or to the CSSF in the reports or other documents of the
UCI does not truly describe the financial situation and the assets and liabilities
of the UCI, he shall be obliged to inform the CSSF forthwith.
The auditor shall moreover be obliged to provide the CSSF with all information
or certificates required by the latter on any matters of which the auditor has or
ought to have knowledge in connection with the discharge of his duties. The
same applies if the auditor ascertains that the assets of the UCI are not or
have not been invested according to the regulations set out by the law or the
prospectus.
The disclosure in good faith to the CSSF by the auditor of any fact or decision
referred to in this paragraph shall not constitute a breach of professional
secrecy or of any restriction on disclosure of information imposed by contract
and shall not result in liability of any kind of the auditor.
The CSSF may regulate the scope of the auditor’s mandate and the contents
of the audit report on the annual accounts.
93
loi modifiée du 17 juin 1992 relative aux comptes annuels et les comptes consolidés des établissements de
crédit
61
The CSSF may request an auditor to perform a control on one or several
particular aspects of the activities and operations of a UCI. This control is
performed at the expense of the UCI concerned.
(4) The CSSF shall refuse or withdraw the entry on the list of UCIs whose auditor
does not satisfy the conditions or does not discharge the obligations prescribed
in this Article.
(5) The institution of commissaires aux comptes (statutory auditors) provided for
by Articles 61, 109, 114 and 200 of the law of 10 August 1915 on commercial
companies, as amended, is repealed with respect to Luxembourg investment
companies. The directors or the management organ, as the case may be, are
solely competent in all cases where the law of 10 August 1915 on commercial
companies, as amended, provides for the joint action of the statutory auditors
and the directors or the management organ, as the case may be.
The institution of statutory auditors94 provided for by Article 151 of the law of
10 August 1915 on commercial companies, as amended95, is not applicable
to Luxembourg investment companies. Upon completion of the liquidation, a
report on the liquidation shall be drawn up by the auditor. This report shall be
tabled at the general meeting at which the liquidators report on the application
of the corporate assets and submit the accounts and supporting documents.
The same meeting shall resolve on the approval of the accounts of the liquidation, the discharge and the closure of the liquidation.
(6) The accounting information included in the annual reports of foreign UCIs as
referred to in Article 76 must be audited by an independent expert providing all
guarantees of honourability and professional skill.
Paragraphs (2), (3) and (4) are applicable to the case referred to in this
paragraph.
Art. 114 (1) UCIs must send their simplified and full prospectuses and any amendments
thereto, as well as their annual and semi-annual reports, to the CSSF.
(2) The CSSF may publish or cause the publication of the aforesaid documents by
such means as it shall consider adequate.
Art. 115 (1) The simplified prospectus must be offered to subscribers free of charge before
the conclusion of the contract.
In addition, the full prospectus and the latest published annual and semi-annual
reports must be remitted to subscribers free of charge upon their request.
(2) The annual and semi-annual reports shall on request be supplied to unitholders
free of charge.
(3) The annual and semi-annual reports must be available to the public at the
places or through other means approved by the CSSF specified in the full and
simplified prospectuses.
94
commissaires aux comptes - A statutory auditor under company law is an organ of the Company with a certain
control and surveillance function.
95
loi du 10 août 1915 concernant les sociétés commerciales, telle que modifiée
62
B. – Publication of other information
Art. 116 (1) The UCITS referred to in Article 2 of this law must make public the issue, sale
and redemption price of their units each time they issue, sell and redeem their
units, and at least twice a month. The CSSF may, however, permit a UCITS
to reduce this frequency to once a month, on condition that such a derogation
does not prejudice the interests of unitholders.
(2) The UCIs referred to in Article 63 of this law must make public the issue, sale
and redemption price of their units each time they issue, sell and redeem their
units, and at least once a month. The CSSF may however grant derogations
therefrom upon a duly justified application.
Art. 117 All publicity comprising an invitation to purchase the units of a UCI must indicate
that a prospectus or prospectuses exist and the places where it or they may be
obtained by the public or how the public may have access thereto.
C. – Transmission of other information to the CSSF
Art. 118 The CSSF may request the UCIs to provide any information relevant to the
fulfilment of its duties and may for that purpose itself or through appointees
examine the books, accounts, registers or other records and documents of
UCIs.
D. – Protection of Name
Art. 119 (1) No UCI shall make use of designations or of a description giving the impression
that its activities are subject to this law if it has not obtained the authorisation
provided for in Article 94. The UCIs referred to in Articles 58 and 76 may use
the designation they bear according to their national law. However, should this
be misleading, these undertakings shall accompany the designation they use
with adequate particulars.
(2) The District Court dealing with commercial matters of the place where the UCI
is situated or of the place where the designation has been used, may at the
request of the Public Prosecutor issue an injunction, prohibiting anyone from
using the designation as defined in paragraph (1), if the conditions provided for
by this law are not or no longer met.
(3) The final judgment of the District Court, of the Court of Appeals or of the
Supreme Court which delivers this injunction, is published by the Public Prosecutor and at the expense of the person sentenced in two Luxembourg or
foreign newspapers with adequate circulation.
Chapter 18. – Criminal law provisions
Art. 120 A penalty of imprisonment from one month to one year and a fine of five
hundred to twenty-five thousand euro or either such penalty shall be imposed
upon:
(1) any person who has issued or redeemed or caused to be issued or redeemed
units of a common fund in the cases referred to in Articles 12 (3), 22 (3) of this
law and in Article 66 of this law to the extent that such Article provides that
chapter 9 is subject to Articles 12 (3) and 22 (3) of this law;
63
(2) any person who has issued or redeemed units of a common fund at a price
other than that obtained by application of the criteria provided for in Articles
9 (1), 9 (3), 11 (3) and in Article 66 of this law to the extent that such Article
provides that chapter 9 is subject to Articles 9 (1) and 9 (3) of this law;
(3) any person who, as director or member of the management organ, as the
case may be, manager or commissaire (auditor) of the management company
or the depositary has made loans or advances on units of the common fund
using assets of the said fund, or who has by any means at the expense of
the common fund, made payments in order to pay up units or acknowledged
payments to have been made which have not actually been so made.
Art. 121 (1) A penalty of imprisonment from one to six months and a fine of five hundred to
twenty-five thousand euro or either of such penalties shall be imposed upon:
1) any director or member of the management organ, as the case may be, or
manager of the management company who has failed to inform the CSSF
without delay that the net assets of the common fund have fallen below two
thirds and one fourth respectively of the legal minimum for the net assets of
the common fund;
2) any director or member of the management organ, as the case may be, or
manager of the management company who has infringed Article 10 and
Articles 41 to 52 of this law, Article 66 of this law to the extent that such
Article provides that chapter 9 is subject to Article 10 of this law and the
regulations taken pursuant to Article 67 of this law.
(2) A fine of five hundred to twenty-five thousand euro shall be imposed upon
any persons who in infringement of Article 119 purport to use a designation or
description giving the impression that they relate to the activities subject to this
law if they have not obtained the authorisation provided for in Article 94.
Art. 122 A fine of five hundred to ten thousand euro shall be imposed on the directors
or members of the management organ, as the case may be, or managers of
the management company or the investment company who have not caused
the issue and redemption price of the units of the UCI to be determined at
the specified intervals or who have not made such prices public according to
Article 116 of this law.
Art. 123 A penalty of imprisonment from one month to one year and a fine of five hundred
to twenty-five thousand euro or either of such penalties shall be imposed upon
the founders, directors or members of the management organ, as the case
may be, or managers of an investment company who have infringed the provisions of Articles 28 (2), 28 (4), 28 (10) and 31 of this law; of Article 40 to the
extent that it provides that chapter 4 is subject to Articles 28 (2), 28 (4), 28 (10)
and 31 of this law; of Articles 41 to 52 of this law; of Article 71 of this law to the
extent that it provides that chapter 10 is subject to Articles 28 (2) a), 28 (4), 28
(10) and 31 of this law; of the regulations implementing Article 72 of this law
and of the regulations implementing Article 75 of this law.
Art. 124 A penalty of imprisonment of one month to one year and a fine of five hundred
to twenty-five thousand euro or either of such penalties shall be imposed upon
the directors or members of the management organ, as the case may be, or
managers of an investment company who have not convened the extraordinary general meeting in accordance with Article 30 of this law; Article 40 of
this law to the extent that it provides that chapter 4 is subject to Article 30 of this
64
law; Article 71 to the extent that it provides that chapter 10 is subject to Article
30 of this law and Article 74 (2) to (4) of this law.
Art. 125 A penalty of imprisonment of three months to two years and a fine of five
hundred to fifty thousand euro or either of such penalties shall be imposed on
anyone who has carried out or caused to be carried out operations involving
the receipt of savings from the public with a view to investment if the UCI for
which they acted was not entered on the list.
Art. 126 (1) A penalty of imprisonment from one month to one year and a fine of five hundred
to twenty-five thousand euro or either of such penalties shall be imposed on
the directors96 of UCIs of the kind referred to in Articles 73 and 76 who failed to
observe the conditions imposed upon them by this law.
(2) The same penalties or either of them only shall be imposed upon the directors97
of UCIs referred to in Articles 2 and 63 of this law who, notwithstanding the
provisions of Article 99, paragraph (4), have taken measures other than
protective measures without being authorised for that purpose by the supervisory commissioner.
Chapter 19. – Tax provisions
Art. 127 (1) Apart from the capital duty98 levied on the contribution of capital to civil and
commercial companies and the subscription tax99 mentioned in Article 129
below, no other tax shall be payable by the UCIs referred to in this law.
(2) The amounts distributed by such undertakings shall not be subject to a
deduction at source and are not taxable if received by non-residents.
Art. 128 (...)100
Art. 129 (1) The rate of the annual subscription tax payable by the undertakings referred to
in this law shall be of 0.05 per cent.
(2) This rate is of 0.01 per cent for:
a) undertakings the exclusive object of which is the collective investment in
money market instruments and the placing of deposits with credit institutions;
b) undertakings the exclusive object of which is the collective investment in
deposits with credit institutions;
c) undertakings which are subject to the law of 13 February 2007 concerning
specialised investment funds;
d) individual compartments of UCIs with multiple compartments referred to in
the present law as well as for individual classes of securities issued within a
UCI or within a compartment of a UCI with multiple compartments, provided
that the securities of such compartments or classes are reserved to one or
more institutional investors.
96
See footnote 25.
97
See footnote 25.
98
droit d’apport
99
taxe d’abonnement
100 Repealed by the law of 19 December 2008.
65
(3) Are exempt from the subscription tax
a) the value of the assets represented by units held in other UCIs, provided
such units have already been subject to the subscription tax provided for
by this Article or by Article 68 of the law of 13 February 2007 on specialised
investment funds;
b) UCIs as well as individual compartments of umbrella funds:
i) whose securities are reserved for institutional investors and
ii) whose exclusive object is the collective investment in money market
instruments and in deposits with credit institutions, and
iii) whose weighted residual portfolio maturity does not exceed 90 days,
and
iv) that have obtained the highest possible rating from a recognised rating
agency.
Where several classes of securities exist within the UCI or the compartment,
the exemption only applies to classes whose securities are reserved for
institutional investors.
c) UCIs whose securities are reserved for i) institutions for occupational
retirement provision, or similar investment vehicles, created at the initiative
of a same group for the benefit of its employees and ii) undertakings of this
same group investing funds they hold, to provide retirement benefits to their
employees.
(4) A grand-ducal regulation shall determine the conditions necessary for the application of the rate of 0.01 per cent and the exemption, and the criteria which the
money market instruments referred to above must comply with101.
(5) The taxable basis of the subscription tax shall be the aggregate net assets of
the UCI as valued on the last day of each quarter.
(6) The preceding provisions apply mutatis mutandis to the individual compartments of a UCI with multiple compartments.
Art. 130 Article 44 (1) d) of the amended law of 12 February 1979 concerning value
added tax is amended to read as follows: “d) the management of UCIs and
pension funds subject to the supervision of the CSSF or the Commissariat aux
Assurances.”102
Art. 131 The duties of the registration administration103 include the fiscal control of
UCIs.
If, at any date after the constitution of the undertakings referred to in this
law, the said administration ascertains that such undertakings are engaging in
operations which fall outside the framework of the activities authorised by this
law, the fiscal provisions provided for in Articles 127 to 129 shall cease to be
applicable.
Moreover, the registration administration may levy a fiscal fine of 0.2% on the
aggregate amount of the assets of the undertakings.
101 Grand-ducal regulation of 14 April 2003 determining the conditions and criteria for the application of the subscription tax referred to in Article 129 of the law of 20 December 2002 relating to undertakings for collective investment.
102 The effect of this provision is to exonerate these services from Luxembourg VAT.
103 Administration de l’Enregistrement
66
Chapter 20. – Special provisions in relation to the legal form
Art. 132 (1) The investment companies entered in the list provided for by Article 94 (1) may
be converted into SICAVs and their Articles of incorporation may be brought
into harmony with the provisions of chapter 3, or as the case may be, chapter
10 of this law by resolution of a general meeting passed at a majority of two
thirds of the votes of the shareholders present or represented regardless of the
portion of the capital represented.
(2) The common funds referred to in chapter 2 or, as the case may be, in chapter
9 of this law may on the same conditions as those laid down in paragraph (1)
above, convert themselves into a SICAV governed by chapter 3 or, as the case
may be, chapter 10 of this law.
Art. 133 (1) UCIs may be constituted with multiple compartments, each compartment corresponding to a distinct part of the assets and liabilities of the UCI.
(2) The constitutional documents of the UCI must expressly provide for that possibility and the applicable operational rules. The issue prospectus must describe
the specific investment policy of each compartment.
(3) The shares and units of UCIs with multiple compartments may be of different
value with or without indication of a par value depending on the legal form
which has been chosen.
(4) Common funds with multiple compartments may, by separate management
regulations, determine the characteristics of and rules applicable to each
compartment.
(5) The rights of investors and of creditors concerning a compartment or which
have arisen in connection with the creation, operation or liquidation of a
compartment are limited to the assets of that compartment, unless a clause
included in the constitutional documents provides otherwise.
The assets of a compartment are exclusively available to satisfy the rights
of investors in relation to that compartment and the rights of creditors whose
claims have arisen in connection with the creation, the operation or the liquidation of that compartment, unless a clause included in the constitutional
documents provides otherwise.
For the purpose of the relations as between investors, each compartment will
be deemed to be a separate entity, unless a clause included in the constitutional documents provides differently.
(6) Each compartment of an undertaking may be separately liquidated without
such separate liquidation resulting in the liquidation of another compartment.
Only the liquidation of the last remaining compartment of the UCI will result in
the liquidation of the UCI as referred to in Article 106 (1) of this law.
Art. 133bis All the provisions of this law referring to the “public limited company” shall be
understood as referring also to the “European company (SE)”.
67
Chapter 21. – Transitional and repealing provisions
Art. 134 (1) UCITS subject to Part I of the law of 30 March 1988 on undertakings for
collective investment, as amended, established before 13 February 2002 may,
until 13 February 2007, elect to remain subject to the prementioned amended
law of 30 March 1988 or to be governed by this law. From and including
13 February 2007, they shall ipso jure be governed by this law.
The establishment of a new compartment does not affect the option that may be
exercised pursuant to the preceding paragraph. Such option must be exercised
in respect of the UCITS in its entirety, and such exercise will cover all compartments.
(2) UCITS subject to Part I of the law of 30 March 1988 on undertakings for
collective investment, as amended, established between 13 February 2002
and the date of entry into force of this law104 may until 13 February 2004 elect
to remain subject to the prementioned amended law of 30 March 1988 or to
be governed by this law. As from 13 February 2004 they shall be ipso jure
governed by this law.
(3) UCITS within the meaning of Article 1 of the law of 30 March 1988 concerning
undertakings for collective investment as amended, but excluding those
described in Article 2 of such law, established between the date of entry into
force of this law105 and 13 February 2004 may elect to be governed by the
prementioned amended law of 30 March 1988 or by the present law. As from
13 February 2004 they shall be ipso jure governed by this law.
(4) To the extent that the UCITS referred to in paragraphs (1) to (3) above are
investment companies which have been authorised prior to 13 February 2004,
the references in such paragraphs to the present law do not include Article
27, provided these investment companies may until 13 February 2007 elect to
subject such provision.
(5) UCIs other than the UCITS referred to in paragraphs (1) to (3) established
before the entry into force of the present law106 will remain subject to the provisions of the law of 30 March 1988 on undertakings for collective investment,
as amended, until 13 February 2004. They may however elect to be governed
by the present law as from its entry into force. From and including 13 February
2004 they shall be ipso jure governed by the present law.
(6) UCIs established between the entry into force of the present law107 and
13 February 2004, have the option to be governed by the provisions of this
law or the provisions of the law of 30 March 1988 concerning undertakings for
collective investment, as amended. From and including 13 February 2004 they
shall be ipso jure governed by the present law.
(7) All UCIs established as from 13 February 2004 will ipso jure be governed by
the present law unless they are subject to a specific separate law108.
104 This law entered into force on 1 January 2003.
108 This is the case for the UCIs governed by the law of 13 February 2007 concerning specialised investment funds.
68
Art. 135 (1) The present law is applicable to all management companies incorporated
under Luxembourg law. For those management companies incorporated under
Luxembourg law which exist at the date of its entry into force109, all references
in their Articles of incorporation to the law of 30 March 1988 will be deemed to
be replaced by references to the present law. These companies are granted a
period of twelve months to comply with the provisions of Article 80 of this law.
(2) Management companies existing at the date of entry into force of the present
law110 are ipso jure subject to the provisions of chapter 14 and are deemed
authorised pursuant to Article 91 (1) of this law. To the extent that they manage
UCITS governed by Directive 85/611/EEC, they must comply with the provisions of chapter 13 of the present law no later than 13 February 2007.
(3) Management companies authorised between the date of entry into force
of this law111 and 13 February 2004 have the option to submit themselves
to chapter 13 or to chapter 14 of this law. To the extent that they are
subject to chapter 14 and that they manage UCITS governed by Directive
85/611/EEC, they must comply with the provisions of chapter 13 no later than
13 February 2007.
(4) Only management companies authorised pursuant to the provisions of chapter
13 of this law may benefit from the provisions of Directive 85/611/EEC in
respect of the freedom of establishment and free provision of services.
(5) Investment firms within the meaning of Article 13 (1) of the law of 5 April 1993
on the financial sector, as amended, which are only authorised to provide
the services described in Section A item 3 and in Section C items 1 and 6
of Annex II of such law112, may be authorised pursuant to the present law to
manage common funds and investment companies and to call themselves
“management companies”. In such case, these investment firms must waive
the authorisation obtained pursuant to Directive 2004/39/EC. They then
become subject, depending on the date when they obtain their authorisation,
to paragraph (1) or paragraph (2) above.
Art. 136 References to the present law may be made by using the following abridged
title: “law of 20 December 2002 on undertakings for collective investment”.
Art. 137 The law of 30 March 1988 on undertakings for collective investment, as
amended, is repealed effective on 13 February 2007.
Art. 138 The present law shall enter into force the first day of the month following its
publication in the Mémorial113.
112 Article 13 (1) and Annex II of the law of 5 April 1993 on the financial sector, as amended, were amended by the law
of 13 July 2007 on markets in financial instruments.
113 The law was published in the Mémorial A on 31 December 2002. It therefore entered into force on
1 January 2003.
69
Appendix I
Schedule A
1. Information concerning the
common fund
management company
investment company
1.1.
Name
1.1.
Name or style, legal form,
registered office and head
office, if different from the
registered office
1.1.
Name or style, legal form,
registered office and head
office if different from the
registered office
1.2. Date of establishment of the
fund. Indication of duration, if
limited
1.2.
Date of incorporation of the
company. Indication of duration, if limited
1.2.
Date of incorporation of the
company. Indication of duration, if limited
1.3.
In the case of common funds
having different investment
compartments, indication of
the compartments
1.3.
If the company manages
other common funds, indication of those other funds
1.3.
In the case of investment
companies having different
investment compartments,
indication of the compartments
1.4.
Statement of the place where
the management regulations,
if they are not annexed, and
periodical reports may be
obtained
1.4.
Statement of the place where
the instruments of incorporation, if they are not annexed,
and periodical reports may
be obtained
1.5.
Brief indications relevant to
unitholders of the tax system
applicable to the fund. Details of whether deductions
are made at source from the
income and capital gains
paid by the fund to unitholders
1.5.
Brief indications relevant to
unitholders of the tax system
applicable to the company.
Details of whether deductions are made at source
from the income and capital
gains paid by the company to
unitholders
1.6.
Accounting and distribution
dates
1.6.
Accounting and distribution
dates
1.7.
Names of the persons
responsible for auditing
the accounting information
referred to in Article 113
1.7.
Names of the persons
responsible for auditing
the accounting information
referred to in Article 113
70
common fund
1.10. Details of the types and main
characteristics of the units
and in particular:
–
the nature of the right
(real, personal or other)
represented by the unit,
–
original securities or
certificates providing evidence of title; entry in a
register or in an account,
–
characteristics of the
units: registered or
bearer. Indication of any
denominations which
may be provided for,
–
indication of unitholders’
voting rights if these
exist,
–
circumstances in which
winding-up of the fund
can be decided on and winding-up procedure, in
particular as regards the
rights of unitholders
management company
investment company
1.8.
Names and positions in the
company of the members of
the administrative, management and supervisory bodies.
Details of their main activities
outside the company where
these are of significance with
respect to the company
1.8.
Names and positions in the
company of the members of
the administrative, management and supervisory bodies.
Details of their main activities
outside the company where
these are of significance with
respect to the company
1.9.
Amount of the subscribed
capital with an indication of
the paid-up capital
1.9.
Capital
1.10. Details of the types and main
characteristics of the shares
and in particular:
–
original securities or
certificates providing evidence of title; entry in a
register or in an account,
–
characteristics of the
shares: registered or
bearer. Indication of any
denominations which
may be provided for,
–
indication of shareholders’ voting rights,
–
winding-up of the
investment company
can be decided on and
winding-up procedure, in
particular as regards the
rights of shareholders
1.11. Where applicable, indication of stock exchanges or
markets where the units are
listed or dealt in
1.11. Where applicable, indication
of stock exchanges or markets where the shares are
listed or dealt in
1.12. Procedures and conditions of
issue and/or sale of units
1.12. Procedures and conditions of
issue and/or sale of shares
71
common fund
management company
investment company
1.13. Procedures and conditions for the repurchase or
redemption of units, and
the repurchase or redemption may be suspended. In
the case of common funds
compartments, information
on how a unitholder may
pass from one compartment
into another and the charges
applicable in such case.
1.13. Procedures and conditions for the repurchase or
redemption of shares, and
circumstances in which repurchase or redemption may
be suspended. In the case
of investment companies
compartments, information
on how a shareholder may
pass from one compartment
into another and the charges
applicable in such case.
1.14. Description of rules for determining and applying income
1.14. Description of rules for determining and applying income
1.15. Description of the common
fund’s investment objectives
including its financial objectives (e.g. capital growth
or income), investment
policy (e.g. specialisation in
geographical or industrial
sectors), any limitations on
that investment policy and an
indication of any borrowing
techniques and instruments
or powers which may be
used in the management of
the fund
1.15. Description of the company’s
investment objectives, including financial objectives (e.g.
capital growth or income),
investment policy (e.g.
specialisation in geographical or industrial sectors), any
limitations on that investment
policy and an indication of
any borrowing techniques
and instruments or powers
which may be used in the
management of the company
1.16. Rules for the valuation of
assets
1.16. Rules for the valuation of
assets
72
common fund
1.17. Determination of the sale or
issue price and the redemption or repurchase price of
units, in particular:
management company
investment company
1.17. Determination of the sale or
issue price and the redemption or repurchase price of
shares, in particular:
–
the method and frequency of the calculation
of those prices
–
the method and frequency of the calculation
of those prices
–
information concerning
the charges relating to
the sale, issue, repurchase, redemption of
units
–
information concerning
the charges relating to
the sale, issue, repurchase, redemption of
shares
–
the means, places and
frequency of the publication of those prices
–
the means, places and
frequency of the publication of those prices
1.18. Information concerning
the manner, amount and
calculation of remuneration
payable by the fund to the
management company, the
depositary or third parties,
and reimbursement of any
costs by the fund to the management company, to the
depositary or to third parties
1.18. Information concerning the
manner, amount and calculation of remuneration paid by
the company to its directors,
and members of the administrative, management and supervisory bodies, to the
depositary, or to third parties,
and reimbursement of any
costs by the company to its
directors, to the depositary or
to third parties
2. Information concerning the depositary:
2.1. Name or style, legal form, registered office and head office if different from the registered office;
2.2. Main activity.
3. Information concerning the advisory firms or external investment advisers who give advice under
contract which is paid for out of the assets of the UCITS:
3.1. Name or style of the firm or name of the adviser;
3.2. Material provisions of the contract with the management company or the investment company
which may be relevant to the unitholders, excluding those relating to remuneration;
3.3. Other significant activities.
4. Information concerning the arrangements for making payments to unitholders, repurchasing or redeeming units and making available information concerning the UCITS. Such information must in any
case be given in Luxembourg. In addition, where units are marketed in another Member State, such
information shall be given in respect of that Member State in the prospectus circulated therein.
73
5. Other investment information:
5.1. Historical performance of the common fund or of the investment company (where applicable) –
such information may be either included in or attached to the prospectus.
5.2. Profile of the typical investor for whom the common fund or the investment company is designed.
5.3. In case an investment company or a common fund have different investment compartments,
the information referred to in items 5.1. and 5.2. must be given for each compartment.
6. Economic information
6.1. Possible expenses or fees, other than the charges mentioned in item 1.17., distinguishing between those to be paid by the unitholder and those to be paid out of the common fund’s or of
the investment company’s assets.
74
Schedule B
Information to be included in the periodical reports
I. Statement of assets and liabilities:
– transferable securities and money market instruments,
– bank balances,
– other assets,
– total assets,
– liabilities,
– net asset value.
II. Number of units in circulation
III. Net asset value per unit
IV.Portfolio, distinguishing between:
a) transferable securities and money market instruments admitted to official stock
exchange listing;
b) transferable securities and money market instruments dealt in on another regulated
market;
c) recently issued transferable securities and money market instruments of the type
referred to in Article 41 (1) d);
d) other transferable securities and money market instruments of the type referred to in
Article 41 (2) a);
and analysed in accordance with the most appropriate criteria in the light of the investment
policy of the UCITS (e.g. in accordance with economic, geographical or currency criteria)
as a percentage of net assets; for each of the above investments the proportion it represents of the total assets of the UCITS should be stated.
Statement of changes in the composition of the portfolio during the reference period.
V. Statement of the developments concerning the assets of the UCITS during the reference
period including the following:
– income from investments,
– other income,
– management charges,
– depositary’s charges,
– other charges and taxes,
– net income,
75
– distributions and income reinvested,
– changes in capital account,
– appreciation or depreciation of investments,
– any other changes affecting the assets and liabilities of the UCITS.
VI.A comparative table covering the last three financial years and including, for each financial
year, at the end of the financial year:
– the total net asset value,
– the net asset value per unit.
VII. Details, by category of transactions within the meaning of Article 42 carried out by the
UCITS during the reference period, of the resulting amount of commitments.
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Schedule C
Contents of the simplified prospectus
Brief presentation of the UCITS
– when the common fund or the investment company was created and indication of the
Member State where the common fund or the investment company has been registered/incorporated,
– in the case of UCITS having different investment compartments, the indication of this
circumstance,
– management company (when applicable),
– expected period of existence (when applicable),
– depositary,
– auditors114,
– financial group (e.g. bank) promoting the UCITS.
Investment Information
– short definition of the UCITS’ objectives,
– the common fund’s or the investment company’s investment policy and a brief
assessment of the fund’s risk profile (including, if applicable, information according to
Article 47 and by investment compartment),
– historical performance of the common fund or investment company (where applicable)
and a warning that this is not an indicator of future performance (such information may
be either included in or attached to the prospectus),
– profile of the typical investor the common fund or the investment company is designed
for.
Economic information
– tax regime,
– entry and exit commissions,
– other possible expenses or fees, distinguishing between those to be paid by the
unitholder and those to be paid out of the common fund’s or the investment company’s
assets.
Commercial information
– how to buy the units,
– how to sell the units,
– in the case of UCITS having different investment compartments, how to pass from one
investment compartment into another and the charges applicable in such case,
114 The law erroneously refers to “commissaires aux comptes” which is the term used in the French version of amended Directive 85/611/EEC. It should be understood as a reference to the “réviseur d’entreprises” as provided for in
Article 113 of the law.
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– when and how dividends on units or shares of the UCITS (if applicable) are
distributed,
– frequency and where/how prices are published or made available.
Additional information
– statement that, on request, the full prospectus and the annual and semi-annual reports
may be obtained free of charge before the conclusion of the contract and afterwards,
– competent authority,
– indication of a contact point (person/department, timing etc.) where additional explanations may be obtained if needed,
– publication date of the prospectus.
For UCITS with multiple compartments, the investment information and the economic and
commercial information must be given for each compartment.
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Appendix II
Functions included in the activity of collective portfolio management:
– Investment management
– Administration:
(a)
legal and fund management accounting services;
(b)
customer inquiries;
(c)
valuation of the portfolio and pricing of the units (including tax returns);
(d)
regulatory compliance monitoring;
(e)
maintenance of unitholder register;
(f)
distribution of income;
(g)
unit issues and redemptions;
(h)
contract settlements (including certificate dispatch);
(i)
record keeping.
– Marketing
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This coordinated text was drawn up by the CSSF for information purposes only; the
texts published in the Journal Officiel du Grand-Duché de Luxembourg shall prevail.
In case of discrepancies between the French and the English text, the French text shall
prevail.
LAW OF 13 FEBRUARY 2007 RELATING TO SPECIALISED
INVESTMENT FUNDS
as amended by:
the law of 19 December 2008
– revising the regime applicable to certain company acts as regards registration taxes
– implementing Council Directive 2008/7/EC of 12 February 2008 concerning indirect taxes
on the raising of capital
– amending:
• the law of 7 August 1920 increasing registration taxes, stamp duties, inheritance
taxes, etc., as amended
• the law of 20 December 2002 concerning undertakings for collective investment, as
amended
• the law of 22 March 2004 on securitisation
• the law of 15 June 2004 relating to the investment company in risk capital (SICAR), as
amended
• the law of 13 July 2005 on institutions for occupational retirement provision in the form
of pension savings companies with variable capital (SEPCAVs) and pension savings
associations (ASSEPs), as amended
• the law of 13 February relating to specialised investment funds
– and repealing the law of 29 December 1971 concerning the tax on the raising of capital in
companies governed by civil law or commercial law and revising certain legal provisions
on the collection of registration taxes, as amended.
Art. 1. (1) For the purpose of this Law, specialised investment funds shall be any undertakings for collective investment situated in Luxembourg:
– the exclusive object of which is the collective investment of their funds
in assets in order to spread the investment risks and to ensure for the
investors the benefit of the results of the management of their assets, and
– the securities of which are reserved to one or several well-informed
investors, and
– the constitutive documents or offering documents of which provide that
they are subject to the provisions of this Law.
(2) Specialised investment funds may be constituted under the legal forms laid
down in Chapters 2, 3 and 4 of this Law.
Art. 2. (1) Within the meaning of this Law, a well-informed investor shall be an institutional investor, a professional investor or any other investor who meets the
following conditions:
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a) he has confirmed in writing that he adheres to the status of well-informed
investor, and
b) i) he invests a minimum of 125,000 Euro in the specialised investment
fund, or
ii) he has been the subject of an assessment made by a credit institution within the meaning of Directive 2006/48/EC, by an investment
firm within the meaning of Directive 2004/39/EC or by a management
company within the meaning of Directive 2001/107/EC certifying his
expertise, his experience and his knowledge in adequately apprising an
investment in the specialised investment fund.
(2) The conditions set forth in this Article are not applicable to the directors and
other persons who intervene in the management of the specialised investment
funds.
Art. 3. Specialised investment funds subject to this Law shall be deemed to be
situated in Luxembourg if the registered office of the management company of
the common fund or the registered office of the investment company is situated
in Luxembourg. The head office must be situated in Luxembourg.
Chapter 2. – Common funds
Art. 4. There shall be regarded as a common fund for the application of this Law any
undivided collection of assets made up and managed according to the principle
of risk-spreading on behalf of joint owners who are liable only up the amount
contributed by them and whose rights are represented by units reserved to one
or several well-informed investors.
Art. 5. The common fund shall not be liable for the obligations of the management
company or of the unitholders; it shall be answerable only for the obligations
and expenses expressly imposed upon it by its management regulations.
Art. 6. A common fund shall be managed by a Luxembourg management company
which complies with the conditions set out in Chapter 13 or 14 of Part IV of
the amended law of 20 December 2002 relating to undertakings for collective
investment.
Art. 7. (1) The management company shall issue registered certificates or bearer
securities representing one or more portions of the common fund which it
manages or, in accordance with the conditions laid down in the management
regulations, written confirmations of entry in the register of units or fractions of
units without limitation as to the splitting-up of units.
Rights attached to fractions of units are exercised in proportion to the fraction
of a unit held except for possible voting rights which can only be exercised for
whole units. The certificates and securities shall be signed by the management
company and the depository referred to in Article 16.
Such signatures may be reproduced mechanically.
(2) Ownership of units shall be determined and transfer thereof shall be effected in
accordance with the rules laid down in Articles 40 and 42 of the amended law
of 10 August 1915 concerning commercial companies.
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Art. 8. Units shall be issued and, as the case may be, redeemed in accordance with
the conditions and procedures set forth in the management regulations.
Art. 9. Unless otherwise provided for in the management regulations of the fund, the
valuation of the assets of the common fund shall be based on the fair value.
This value must be determined in accordance with the rules set forth in the
management regulations.
Art. 10. Neither the holders of units nor their creditors may require the distribution or
the dissolution of the common fund.
Art. 11. (1) The Commission de Surveillance du Secteur Financier (the Commission for
the Supervision of the Financial Sector) (the “CSSF”) may, in the interest of the
unitholders or in the public interest, require the suspension of the redemption
of units, in particular where the provisions of laws, regulations or agreements
concerning the activity and operation of the common fund are not observed.
(2) The issue and redemption of the units shall be prohibited:
a) during any period where there is no management company or depositary;
b) where the management company or the depositary is put into liquidation
or declared bankrupt or seeks a composition with creditors, a suspension
of payment or a court controlled management or is the subject of similar
proceedings.
Art. 12. (1) The management company shall draw up the management regulations for the
common fund.
Such regulations must be lodged with the register of commerce and companies
and its publication in the Mémorial115 will be made through a notice advising of
the deposit of such document with the register of commerce and companies,
all in accordance with the provisions of the amended law of 10 August 1915
concerning commercial companies. The provisions of such regulations shall be
deemed accepted by the unitholders by the mere fact of the acquisition of such
units.
(2) The management regulations of the common fund shall at least contain the
following provisions:
a) the name and duration of the common fund, the name of the management
company and of the depositary,
b) the investment policy according to its proposed specific objectives and the
criteria therefore,
c) the distribution policy within the scope of Article 15,
d) the remuneration and expenditure which the management company is
empowered to charge to the fund and the method of calculation of such
remuneration,
e) the provisions as to publications,
f) the date of the closing of the accounts of the common fund,
g) the cases where, without prejudice to legal grounds, the common fund shall
be dissolved,
h) the procedure for amendment of the management regulations,
115 The Mémorial, C; Recueil des Sociétés et Associations is the part of the official gazette in which certain required
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i) the procedure for the issue of units and, as the case may be, for the
redemption of units.
Art. 13. (1) The management company shall manage the common fund in accordance with
the management regulations and in the exclusive interests of the unitholders.
(2) It shall act in its own name, but shall indicate that it is acting on behalf of the
common fund.
(3) It shall exercise all the rights attached to the assets comprised in the portfolio
of the common fund.
Art. 14. The management company must fulfil its obligations with the diligence of a
salaried agent116; it shall be answerable to the unitholders for any loss resulting
from the non-fulfilment or improper fulfilment of its obligations.
Art. 15. Unless otherwise provided for in the management regulations, the net assets
of the common fund may be distributed subject to the limits set out in Article 21
of this Law.
Art. 16. (1) The custody of the assets of the common fund must be entrusted to a depositary.
(2) The depository must either have its registered office in Luxembourg or be
the European Union.
(3) The depository must be a credit institution within the meaning of the amended
law of 5 April 1993 concerning the financial sector.
(4) The depository’s liability shall not be affected by the fact that it has entrusted
(5) The depository shall carry out all operations concerning the day-to-day administration of the assets of the common fund.
Art. 17. (1) The depository shall be liable in accordance with Luxembourg law to the
management company and the unitholders for any losses suffered by them as
a result of its wrongful failure to perform its obligations or its wrongful improper
performance thereof.
(2) The liability to unitholders shall be invoked indirectly through the management
company. Should the management company fail to act despite a written notice
to that effect from a unitholder within a period of three months following receipt
of such a notice, such unitholder may directly invoke the liability of the depository.
Art. 18. In the context of their respective roles, the management company and the
depository must act independently and solely in the interest of the unitholders.
Art. 19. The duties of the management company or of the depository in respect of the
common fund shall respectively cease:
a) in the case of withdrawal of the management company, provided that it is
replaced by another authorised management company within the meaning
of Article 6 of this Law;
116 Mandataire salarié
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b) in the case of voluntary withdrawal of the depository or of its removal by the
management company; until it is replaced, which must happen within two
months, the depository shall take all necessary steps for the good preservation of the interest of the unitholders;
c) where the management company or the depository has been declared
bankrupt, has entered into a composition with creditors, has obtained a
suspension of payment, has been put under court controlled management,
or has been the subject of similar proceedings or has been put into liquidation;
d) where the CSSF withdraws its authorisation of the management company
or the depository;
Art. 20. (1) Liquidation of the common fund shall take place:
a) upon the expiry of any period as may be fixed by the management regulations;
b) in the event of cessation of their duties by the management company or
by the depository in accordance with the sub-paragraphs b), c), d) and
e) of Article 19, if they have not been replaced within two months without
prejudice to the specific circumstance addressed in sub-paragraph c)
below;
c) in the event of bankruptcy of the management company;
d) if the net assets of the common fund have fallen for more than 6 months
below one fourth of the legal minimum provided for in Article 21 hereafter;
(2) Notice of the event giving rise to liquidation shall be given to the knowledge
of the unitholders as well as eventual creditors of the common fund without
delay, by the management company or the depository. If they fail to do so, such
notice will be published by the CSSF at the expense of the common fund. The
notice shall be published in the Mémorial and in at least two newspapers with
adequate circulation one of which at least must be a Luxembourg newspaper.
(3) As soon as the event giving rise to liquidation of the common fund occurs, the
issue of units shall be prohibited, on penalty of nullity. The redemption of units
remains possible provided the equal treatment of unitholders can be ensured.
Art. 21. The net assets of a common fund may not be less than one million two hundred
fifty thousand Euro (1,250,000 Euro).
This minimum must be reached within a period of twelve months following the
authorisation of the common fund.
A grand-ducal regulation may increase such minimum amount up to a maximum
of two million five hundred thousand Euro (2,500,000 Euro).
Art. 22. The management company must without delay inform the CSSF if the net
assets of the common fund have fallen below two thirds of the legal minimum.
In a case where the net assets of the common fund have fallen below two thirds
of the legal minimum, the CSSF may, having regard to the circumstances,
compel the management company to put the common fund into liquidation.
Unitholders as well as any creditors of the common fund shall be informed
without delay by the management company or the depository about the order
84
addressed by the CSSF to the management company to put the common
fund into liquidation. If they fail to do so, such notice shall be published by the
CSSF at the expense of the common fund. The notice shall be published in
the Mémorial and in at least two newspapers with adequate circulation, one of
which at least must be a Luxembourg newspaper.
Art. 23. Neither the management company, nor the depository, acting on behalf of the
common fund may grant loans to unitholders of the common fund.
Art. 24. For funds to which this Law applies, the words “common fund” or “FCP” are
completed by the words “specialised investment fund” or “FIS117”.
Chapter 3. – Investment companies with variable capital
Art. 25. For the purposes of this Law, investment companies with variable capital
(“SICAV”) shall be taken to mean those companies:
– which have adopted the form of a public limited company, a partnership
limited by shares, a limited company or a cooperative in the form of a public
limited company,
– the exclusive object of which is to invest their funds in assets in order to
spread the investment risks and to ensure for their investors the benefit of
the results of the management of their assets, and
– the securities of which are reserved to one or several well-informed
investors, and
– the articles of incorporation of which provide that the amount of capital shall
at all times be equal to the net asset value of the company.
Art. 26. SICAVs shall be subject to the general provisions applicable to commercial
companies, insofar as this Law does not derogate therefrom.
Art. 27. The subscribed capital of the SICAV, increased by the share premium, may
not be less than one million two hundred fifty thousand Euro (1,250,000 Euro).
This minimum must be reached within a period of twelve months following the
authorisation of the SICAV.
A grand ducal regulation may increase such minimum amount up to a maximum
of two million five hundred thousand Euro (2,500,000 Euro).
Art. 28. (1) Subject to any contrary provisions of its articles of incorporation, a SICAV may
issue its securities at any time.
(2) Securities shall be issued and, as the case may be, redeemed in accordance
with the conditions and procedures set forth in the articles of incorporation.
(3) The capital of a SICAV must be entirely subscribed, and at least 5% of the
subscription amount for shares or units must be paid-up in cash or by means
of a contribution other than cash.
(4) Unless otherwise provided for in the articles of incorporation, the valuation of
the assets of the SICAV shall be based on the fair value. This value must be
determined in accordance with the rules set forth in the articles of incorporation.
117 “FIS” stands for the French abbreviation of “Fonds d’Investissement Spécialisé”.
85
(5) The articles of incorporation shall specify the conditions in which issues and
redemptions may be suspended, without prejudice to legal causes. In the event
of suspension of issues or redemptions, the SICAV must without delay inform
the CSSF.
(6) The articles of incorporation shall describe the nature of the expenses to be
borne by the SICAV.
(7) The shares or units of a SICAV shall have no par value.
(8) A share or a unit shall specify the minimum amount of capital and shall give
no indication regarding its par value or the portion of the capital which it represents.
Where the interest of the shareholders or unitholders so requires, redemptions
may be suspended by the CSSF if the provisions of laws, regulations, or the
articles of incorporation concerning the activity and operation of the SICAV are
not observed.
Art. 29. (1) Variations in the capital shall be effected ipso jure and without compliance with
measures regarding publication and entry in the register of commerce and
companies.
(2) Repayments to investors following a reduction of capital shall not be subject to
any restriction other than the one provided for by Article 31(1).
(3) In the case of issue of new shares or units, pre-emptive rights may not be
claimed by existing shareholders or unitholders unless the articles of incorporation provide for such a right by express provision.
Art. 30. (1) If the capital of the SICAV falls below two thirds of the minimum capital, as
defined in Article 27, the directors or managers must submit the question of the
dissolution of the SICAV to a general meeting for which no quorum shall be
prescribed and which shall decide by a simple majority of the shares or units
represented at the meeting.
(2) If the capital of the SICAV falls below one fourth of the minimum capital, as
defined in Article 27, the directors or managers must submit the question of the
dissolution of the SICAV to a general meeting for which no quorum shall be
prescribed; dissolution may be resolved by shareholders or unitholders holding
one fourth of the shares or units at the meeting.
from the ascertainment that the capital has fallen below two thirds or one fourth
of the minimum capital, as defined in Article 27, as the case may be.
(4) If the constitutive documents of the SICAV do not provide for general meetings,
the managers must, if the capital of the SICAV has fallen below two thirds of
the minimum capital, as defined in Article 27, inform without delay the CSSF.
In such case, the CSSF may, having regard to the circumstances, require the
managers to put the SICAV into liquidation.
Art. 31. (1) Unless otherwise provided for in the articles of incorporation, the net assets of
the SICAV may be distributed subject to the limits set out in Article 27 of this
Law.
86
(2) SICAVs shall not be obliged to create a legal reserve.
(3) SICAVs are not subject to any rules in respect of payment of interim dividends
other than those set forth in their articles of incorporation.
Art. 32. For companies to which this Law applies, the words “partnership limited by
shares”, “limited company”, “public limited company”, or “cooperative in the
form of a public limited company” are completed by the words “investment
company with variable capital - specialised investment fund” or “SICAV-FIS”.
Art. 33. The custody of the assets of a SICAV must be entrusted to a depository.
Art. 34. (1) The depository must either have its registered office in Luxembourg or be
the European Union.
(2) The depository must be a credit institution within the meaning of the amended
law of 5 April 1993 concerning the financial sector.
(3) The depository’s liability shall not be affected by the fact it has entrusted all or
some of the assets in its custody to a third party.
Art. 35. The depositary shall be liable in accordance with Luxembourg Law to the
investors for any loss suffered by them as a result of its wrongful failure to
perform its obligations or its wrongful improper performance thereof.
Art. 36. The duties of the depository regarding the SICAV shall respectively cease:
a) in the case of voluntary withdrawal of the depository or of its removal by
the SICAV; until it is replaced, which must happen within two months, the
depository must take all necessary steps for the good preservation of the
b) where the SICAV or the depository has been declared bankrupt, has
payment, has been put under court controlled management or has been
the subject of a similar proceeding or has been put into liquidation;
c) where the CSSF withdraws its authorisation of the SICAV or the depository;
d) in all other cases provided for in the articles of incorporation.
Art. 37. In carrying out its role as depository, the depository must act solely in the
interest of the investors.
Chapter 4. – Specialised investment funds which have not been constituted as common funds or SICAVs
Art. 38. This Chapter is applicable to all specialised investment funds subject to this
Law which have not been constituted as common funds or SICAVs.
Art. 39. (1) The subscribed capital, increased by the share premium, of specialised
investment funds falling within this Chapter, may not be less than one million
two hundred and fifty thousand Euro (1,250,000 Euro).
This minimum must be reached within a period of twelve months following their
authorisation. A grand-ducal regulation may increase such minimum amount
up to a maximum of two million five hundred thousand Euro (2,500,000 Euro).
87
(2) If the capital has fallen below two thirds of the legal minimum, as defined in
paragraph (1), the directors or managers must submit the question of the
dissolution of the specialised investment fund to a general meeting for which
no quorum shall be prescribed and which shall decide by simple majority of the
securities represented at the meeting.
(3) If the capital has fallen below one fourth of the legal minimum, as defined
in paragraph (1), the directors or managers must submit the question of the
dissolution to a general meeting for which no quorum shall be prescribed; the
dissolution may be resolved by investors holding one fourth of the securities
represented at the meeting.
from the ascertainment that the capital has fallen below two thirds or one fourth
of the minimum, as defined in paragraph (1), as the case may be.
(5) If the constitutive documents of the specialised investment fund do not provide
for general meetings, directors or managers must, if the subscribed capital
of the specialised investment fund has fallen below two thirds of the legal
minimum as defined in paragraph (1), inform without delay the CSSF. In such
case, the CSSF may, having regard to the circumstances, require the directors
or managers to put the specialised investment fund into liquidation.
(6) If the specialised investment fund is constituted under a statutory form, its
capital must be entirely subscribed and at least 5% of each share or unit must
be paid-up in cash or by means of a contribution other than cash.
Art. 40. (1) Unless otherwise provided for in the constitutive documents, the valuation of
the assets of the specialised investment fund shall be based on the fair value.
This value must be determined in accordance with the rules set forth in the
constitutive documents.
(2) Articles 28 (5), 33, 34, 35, 36 and 37 of this Law are applicable to specialised
investment funds subject to this Chapter.
(3) The denomination of the specialised investment funds to which this Chapter 4
applies is completed by the words “specialised investment fund” or “FIS”.
Chapter 5. – Authorisation and supervision
Art. 41. (1) The authority which is to carry out the duties provided for in this Law is the
CSSF.
(2) The CSSF carries out its duties exclusively in the public interest.
(3) The CSSF ensures that the specialised investment funds subject to this Law
and their directors, comply with the applicable legal and contractual rules.
Art. 42. (1) Specialised investment funds subject to this Law must, in order to carry out
their activities, be authorised by the CSSF.
(2) A specialised investment fund shall be authorised only if the CSSF has
approved its constitutive documents and the choice of the depository.
(3) The directors of the specialised investment fund and of the depository must be
of sufficiently good repute and have sufficient experience, also in relation to the
88
type of the specialised investment fund concerned. To that end, the identity of
the directors and of every person succeeding them in office, must be communicated forthwith to the CSSF.
“Directors” shall mean, in the case of public limited companies and in the case
of cooperatives in the form of a public limited company, the members of the
board of directors, in the case of partnerships limited by shares, the general
partners, in the case of limited companies, the manager(s) and in the case of
common funds, the members of the board of directors or the managers of the
management company.
(4) The replacement of the management company or of the depository and any
amendment of the constitutive documents of the specialised investment fund
are subject to approval by the CSSF.
Art. 43. (1) Authorised specialised investment funds shall be entered by the CSSF on a
list.
(2) The entering and the maintaining of the list referred to in paragraph (1) shall
be subject to observance of all legislative, regulatory or contractual provisions
relating to the organisation and operation of the specialised investment funds
subject to this Law and the distribution, placing or sale of their securities.
Art. 44. Such entry shall be tantamount to authorisation and shall be notified by the
CSSF to the specialised investment fund concerned. Applications for entry
on the list must be filed with the CSSF within the month following their constitution or formation. The said list and any amendments made thereto shall be
published in the Mémorial118 by the CSSF.
The fact that a specialised investment fund is entered on the list referred to
in Article 43(1) shall not, under any circumstances, be described in any way
whatsoever as a positive assessment made by the CSSF of the quality of the
securities offered for sale.
Art. 45. (1) The decisions to be adopted by the CSSF in implementation of this Law shall
state the reasons on which they are based and, unless any delay entails
risks, they shall be adopted after preparatory proceedings at which all parties
are able to state their case119. They shall be notified by registered letter or
delivered by bailiff120.
(2) The decisions by the CSSF concerning the grant, refusal or withdrawal of the
authorisations provided for in this Law may be referred to the administrative
court121 which will be dealing with the substance of the case. The case must
be filed within one month from the date of notification of the contested decision,
and otherwise shall be time barred.
118 The Mémorial B, Recueil Administratif et Economique is the part of the official gazette in which certain administrative publications are made.
119 Instruction contradictoire
120 Huissier (court process server)
121 Tribunal administratif
89
Chapter 6. – Dissolution and liquidation
Art. 46. The decision of the CSSF withdrawing a specialised investment fund subject
to this Law from the list provided for in Article 43(1) shall, as from the notification thereof to such specialised investment fund and at its expense, until
the decision has become final, ipso jure entail for such specialised investment
fund suspension of any payment by said specialised investment fund, prohibition for such specialised investment fund, on pain of nullity, to take any
measures other than protective measures, except with the authorisation of
the supervisory commissioner122. The CSSF shall, ipso jure, hold the office of
supervisory commissioner, unless at its request, the District Court123 dealing
with commercial matters appoints one or more supervisory commissioners.
The application, stating the reasons on which it is based and accompanied by
supporting documents, shall be lodged for that purpose at the Registry of the
District Court124 in the district within which the specialised investment fund has
its registered office.
order in public session, without hearing the parties. If it deems necessary, it
shall convene the parties by notification from the registrar125 at the latest within
three days from the lodgement of the application. It shall hear the parties in
chambers126 and give the decision in public session.
measures and decisions of the specialised investment fund and, failing such
authorisation, they shall be void.
The commissioners may submit for consideration to the relevant bodies of the
specialised investment fund any proposals which they consider appropriate.
They may attend proceedings of the administrative, management, executive
and supervisory bodies of the specialised investment fund.
The judgment provided for in paragraph (1) of Article 47 of this Law shall
judgment a report on the use of the specialised investment fund’s assets
together with the accounts and supporting documents.
If the withdrawal decision is amended on appeal in accordance with paragraph
(2) of Article 45 above, the supervisory commissioner shall be deemed to have
resigned.
122 Commissaire de surveillance
123 Tribunal d’Arrondissement
124 Greffe du tribunal
125 Greffier
126 Chambre du conseil
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Art. 47. (1) The District Court dealing with commercial matters shall, at the request of
the State Prosecutor127, acting on its own motion or at the request of the
CSSF, pronounce the dissolution and order the liquidation of the specialised
investment funds subject to this Law, whose entry on the list provided for in
Article 43(1) has finally been refused or withdrawn.
When ordering the liquidation, the Court shall appoint a reporting judge128
and one or more liquidators. It shall determine the method of liquidation. It
may render applicable to such extent as it may determine the rules governing
the liquidation in bankruptcy. The method of liquidation may be changed by
subsequent decision, either of the Court’s own motion or at the request of the
liquidator(s).
(2) The liquidator(s) may bring and defend all actions on behalf of the specialised
investment fund, receive all payments, grant releases with or without discharge,
realise all the securities of the specialised investment fund and reemploy the
proceeds therefrom, issue or endorse any assets, compound or compromise
all claims. They may alienate immovable property of the specialised investment
fund by auction.
(3) As from the day of the judgment, no legal actions relating to the movable or
immovable property or any enforcement procedures relating to movable or
(4) After payment or payment into court of the sums necessary for the discharge
of the debts, the liquidators shall distribute to unitholders the sums or amounts
due to them.
(5) The liquidators may convene at their own initiative, and must convene at
the request of holders of units representing at least one fourth of the assets
of the specialised investment fund, a general meeting of unitholders for the
purpose of deciding whether instead of an outright liquidation it is appropriate
to contribute the assets of the specialised investment fund in liquidation to
another specialised investment fund. That decision shall be taken, provided
that the general meeting is composed of a number of unitholders representing
at least one half of the outstanding units or corporate capital of the specialised
investment fund, by a majority of two thirds of the votes of the unitholders
present or represented.
127 Procureur d’Etat
128 Juge-commissaire
129 Créanciers chirographaires et non-privilégiés
91
(6) The court decisions pronouncing the dissolution and ordering the liquidation of
the specialised investment fund shall be published in the Mémorial130 and in
two newspapers with adequate circulation specified by the Court, one of which
at least must be a Luxembourg newspaper. The liquidator(s) shall arrange for
such publications.
(8) The liquidators shall be responsible both to third parties and to the specialised
investment fund for the discharge of their duties and for any faults committed
in the conduct of their activities.
the use made of the funds of the specialised investment fund and shall submit
the accounts and supporting documents thereof. The Court shall appoint
auditors131 to examine the documents. After receipt of the auditors’ report, a
ruling shall be given on the management of the liquidators and the closure of
the liquidation.
(10) Any legal actions against the liquidators of specialised investment funds, in
their capacity as such, shall be prescribed five years after publication of the
closure of the liquidation provided for in paragraph (9).
(11) The provisions of this Article shall equally apply to the specialised investment
funds which have not applied to be entered on the list provided for in Article 43
within the time limit laid down therein.
(6) above. Such publication shall also indicate:
– the place designed by the Court where the books and records must be kept
for at least five years;
– the measures taken in accordance with Article 50 with a view to the
payment into court132 of the sums and funds due to creditors, unitholders or
members to whom it has not been possible to deliver the same.
duties shall be prescribed five years after the date of the facts or, in the event
thereof.
Art. 48. (1) Specialised investment funds shall, after the dissolution, be deemed to exist
for the purpose of liquidation. In the case of a non-judicial liquidation, they shall
remain subject to the supervision of the CSSF.
(2) All documents issued by a specialised investment fund in liquidation shall
indicate that it is in liquidation.
130 Mémorial C, Recueil des Sociétés et Associations is the part of the official gazette in which certain required corporate publications and notifications are made.
131 Commissaires
132 Consignation
92
Art. 49. (1) In the event of a non-judicial liquidation of a specialised investment fund, the
liquidator(s) must be approved by the CSSF. The liquidator(s) must provide all
guarantees of honourability and professional skill.
Art. 50. In the event of a voluntary or compulsory liquidation of a specialised investment
fund within the meaning of this Law, the sums and assets payable in respect of
securities whose holders failed to present themselves at the time of the closure
of the liquidation, shall be paid to the public trust office133 to be held for the
benefit of the persons entitled thereto.
Art. 51. (1) The directors, managers and officers of the specialised investment funds
subject to supervision by the CSSF as well as the liquidators in the case of
voluntary liquidation of a specialised investment fund may have imposed upon
them by the said authority a fine of fifteen to five hundred Euro in the event of
their refusing to provide the financial reports and the requested information or
where such documents prove to be incomplete, inaccurate or false, and in the
event of any infringement of Article 52 of this Law or in the event of any other
serious irregularity being recorded.
of Article 44.
Chapter 7. – Establishment of an offering document and
an annual report
Art. 52. (1) The investment company and the management company, for each of the
common funds it manages, must establish:
– an offering document, and
– an annual report for each financial year.
(2) The annual report must be available to investors within six months from the end
of the period to which it relates.
(3) If a prospectus under the Law of 10 July 2005 concerning the prospectus for
transferable securities has been published, there is no obligation to establish
an offering document within the meaning of this Law.
(4) Notwithstanding paragraphs (1) and (2) of Articles 29 and 30 of the Law of
19 December 2002 relating to the register of commerce and companies and
the accounting and annual accounts of undertakings, specialised investment
funds subject to this Law prepare their annual report according to the annexed
schedule. The annual report must include a balance sheet or a statement of
assets and liabilities, an income and expenditure account for the financial year,
a report on the activities of the past financial year as well as any significant
information enabling investors to make an informed judgment on the development of the activities and of the results of the specialised investment fund.
133 Caisse de Consignation
93
However, Articles 56 and 57 of the Law of 19 December 2002 relating to the
register of commerce and companies and the accounting and annual accounts
of undertakings apply to specialised investment funds subject to Chapter 3 and
Chapter 4 of this Law.
(5) Notwithstanding Article 309 of the amended law of 10 August 1915 concerning
commercial companies, specialised investment funds subject to this Law and
their subsidiaries shall be exempt from the obligation of consolidating the
companies owned for investment purposes.
Art. 53. The offering document must include the information necessary for investors
to be able to make an informed judgment of the investment proposed to them
and, in particular, of the risks attached thereto.
Art. 54. The essential elements of the offering document must be up to date when new
securities are issued to new investors.
Art. 55. (1) Luxembourg specialised investment funds must have the accounting information
given in their annual report audited by an authorised external auditor134.
The auditor’s report and its qualifications, if any, are set out in full in each
annual report.
The auditor must justify of an appropriate professional experience.
(2) The auditor shall be appointed and remunerated by the specialised investment
fund.
(3) The auditor must report promptly to the CSSF any fact or decision of which
he has become aware while carrying out the audit of the accounting information contained in the annual report of a specialised investment fund or any
other legal task concerning a specialised investment fund, where such fact or
decision is likely to constitute a material breach of this Law or the regulations
adopted for its execution, or
– affect the continuous functioning of the specialised investment fund, or
– lead to a refusal to certify the accounts or to the expression of qualifications
thereon.
The auditor shall likewise have a duty to promptly report to the CSSF, in the
accomplishment of its duties referred to in the preceding sub-paragraph in
respect of a specialised investment fund, any fact or decisions concerning
the specialised investment fund and meeting the criteria referred to in the
preceding sub-paragraph of which he has become aware while carrying out the
audit of the accounting information contained in the annual report of another
undertaking having close links resulting from a control relationship with the
specialised investment fund or while carrying any other legal tasks concerning
such other undertaking.
For the purpose of this Article, a close link resulting from a control relationship
in the cases referred to in Article 77 of the amended law of 17 June 1992
concerning the annual accounts and consolidated accounts of credit institutions, or as a result of a relationship of the same type between any individual
134 Réviseur d’entreprises agréé
94
or legal entity and an undertaking. Any subsidiary undertaking of a subsidiary
undertaking is also considered as a subsidiary of the parent undertaking which
is at the head of those undertakings. A situation in which two or more individuals
or legal persons are permanently linked to one and the same person by a
control relationship shall also be regarded as constituting a close link between
such persons.
provided to investors or to the CSSF in the reports or other documents of the
specialised investment fund does not truly describe the financial situation and
the assets and liabilities of the specialised investment fund, he shall be obliged
to inform the CSSF forthwith.
or certificates required by the latter on any matters of which the auditor has
or ought to have knowledge in connexion with the discharge of his duties.
The same applies if the auditor ascertains that the assets of the specialised
investment fund are not or have not been invested according to the regulations
set out by the Law or the offering document.
and shall not result in liability of any kind of the auditor.
of the audit report on the annual accounts.
particular aspects of the activities and operations of a specialised investment
fund. This control is performed at the expense of the specialised investment
fund concerned.
(4) The CSSF shall refuse or withdraw the entry on the list of specialised investment
fund whose auditor does not satisfy the conditions or does not discharge the
obligations prescribed in this Article.
(5) The institution of statutory auditors135 provided for by Articles 61, 109, 114 and
200 of the amended law of 10 August 1915 concerning commercial companies
is repealed with respect to Luxembourg investment companies. The directors
or managers are solely competent in all cases the amended law of 10 August
1915 concerning commercial companies, provides for the joint action of the
statutory auditors and the directors or managers.
The institution of statutory auditors provided for by Article 151 of the amended
law of 10 August 1915 concerning commercial companies is not applicable
to Luxembourg investment companies. Upon completion of the liquidation, a
report on the liquidation shall be drawn up by the auditor. This report shall be
tabled at the general meeting at which the liquidators report on the application
of the corporate assets and submit the accounts and supporting documents.
135 Commissaire aux comptes – A statutory auditor under company law is an organ of the company with a certain
control and surveillance function.
95
The same meeting shall resolve on the approval of the accounts of the liquidation, the discharge and the closure of the liquidation.
Art. 56. Specialised investment funds must send their offering document and any
amendments thereto, as well as their annual report, to the CSSF.
Art. 57. (1) The offering document and the last published annual report shall on request be
supplied to subscribers free of charge.
(2) The annual report shall on request be supplied to investors free of charge.
Chapter 8. – Transmission of other information to the CSSF
Art. 58. The CSSF may request specialised investment funds to provide any information relevant to the fulfilment of its duties and may, for that purpose, itself or
through appointees, examine the books, accounts, registers or other records
and documents of specialised investment funds.
Chapter 9. – Protection of name
Art. 59. (1) No undertaking shall make use of designations or of a description giving
the impression that its activities are subject to the legislation on specialised
investment funds if it has not obtained the authorisation provided for in Article
43 of this Law.
(2) The District Court dealing with commercial matters of the place where the
specialised investment fund is situated or of the place where the designation
has been used, may at the request of the State Prosecutor issue an injunction,
prohibiting anyone from using the designation as defined in paragraph (1), if
the conditions provided for by this Law are not or no longer met.
(3) The final judgement of the District Court, of the Court of Appeals or of the
Supreme Court which delivers this injunction, is published by the State Prosecutor and at the expense of the person sentenced in two Luxembourg or
foreign newspapers with adequate circulation.
Chapter 10. – Criminal law provisions
Art. 60. 96
A penalty of imprisonment from one month to one year and a fine of five hundred
to twenty-five thousand Euro or either of such penalty shall be imposed upon:
a) any person who has issued or redeemed or caused to be issued or
redeemed units of a common fund in the cases referred to in Articles 11 (2)
and 20 (3) of this Law;
b) any person who has issued or redeemed units of a common fund at a price
other than that obtained by application of the criteria provided for in Article
8 of this Law;
c) any person who, as director, manager or commissaire (auditor) of the
management company or the depositary has made loans or advances on
units of the common fund using assets of the said fund, or who has by any
means at the expense of the common fund, made payments in order to pay
up units or acknowledged payments to have been made which have not
actually been so made.
Art. 61. (1) A penalty of imprisonment from one to six months and a fine of five hundred to
twenty-five thousand Euro or either of such penalties shall be imposed upon:
a) any director or manager of the management company who has failed to
inform the CSSF without delay that the net assets of the common fund have
fallen below two thirds and one fourth respectively of the legal minimum for
the net assets of the common fund;
b) any director or manager of the management company who has infringed
Article 9 of this Law.
(2) A fine of five hundred to twenty-five thousand Euro shall be imposed upon
any persons who in infringement of Article 59 purport to use a designation or
description giving the impression that they relate to the activities subject to
the legislation on specialised investment funds if they have not obtained the
authorisation provided for in Article 43 of this Law.
Art. 62. A penalty of imprisonment from one month to one year and a fine of five
hundred to twenty-five thousand Euro or either of such penalties shall be
imposed upon the founders, directors or managers of an investment company
who have infringed the provisions of Articles 28 (2) and 28 (4).
Art. 63. A penalty of imprisonment of one month to one year and a fine of five hundred
to twenty-five thousand Euro or either of such penalties shall be imposed upon
the directors or managers of an investment company who have not convened
the extraordinary general meeting in accordance with Article 30 of this Law
and with Article 39 (2) to (4) of this Law or who have infringed the provisions of
Article 39(5) of this Law.
Art. 64. A penalty of imprisonment of three months to two years and a fine of five
hundred to fifty thousand Euro or either of such penalties shall be imposed on
the receipt of funds from investors if, for the specialised investment fund for
which they acted, no application for entry on the list has been filed with the
CSSF within the month following the constitution or formation of the specialised
investment fund.
Art. 65. (1) A penalty of imprisonment from one month to one year and a fine of five
hundred to twenty-five thousand Euro or either such penalties shall be imposed
on the directors of the specialised investment funds referred to in Article 38
who failed to observe the conditions imposed upon them by this Law.
(2) The same penalties or either of them only shall be imposed upon the directors of
specialised investment funds who, notwithstanding the provisions of Article 46,
have taken measures other than protective measures without being authorised
for that purpose by the supervisory commissioner.
97
Chapter 11. – Fiscal provisions
Art. 66. (1) Apart from the capital duty136 levied on the contribution of capital to civil and
commercial companies and the subscription tax137 mentioned in Article 68
below, no other tax shall be payable by the specialised investment funds
referred to in this Law.
(2) Without prejudice to the provisions of the Law of 21 June 2005 implementing
in Luxembourg law Directive 2003/48/EC on taxation of saving incomes in
the form of interest payments, the amounts distributed by such specialised
investment funds shall not be subject to a deduction at source. They are not
taxable if received by non residents.
Art. 67. (…)138
Art. 68. (1) The rate of the annual subscription tax payable by the specialised investment
funds referred to in this Law shall be of 0.01%.
(2) Are exempt from the subscription tax:
a) the value of the assets represented by units held in other undertakings for
collective investment, provided that such units have already been subject
to the subscription tax provided for by this Article or by Article 129 of the
amended law of 20 December 2002 relating to undertakings for collective
investment;
b) specialised investment funds as well as individual compartments of
specialised investment funds with multiple compartments:
i) the exclusive object of which is the collective investment in money
market instruments and the placing of deposits with credit institutions,
and,
ii) the weighted residual portfolio maturity of which does not exceed 90
days, and,
iii) that have obtained the highest possible rating from a recognised rating
agency;
c) specialised investment funds the securities of which are reserved for (i)
institutions for occupational retirement provision, or similar investment
vehicles, set up on one or several employers’ initiative for the benefit of
their employees and (ii) companies of one or several employers investing
the funds they own, in order to provide their employees with retirement
benefits.
(3) A grand-ducal regulation shall determine the conditions necessary for the
application of the exemption, and fix the criteria with which the money market
instruments referred to above must comply.
(4) The taxable basis of the subscription tax shall be the entire net assets of the
specialised investment funds valued on the last day of each quarter.
136 Droit d’apport
137 Taxe d’abonnement
138 Repealed by the law of 19 December 2008
98
(5) The provisions of paragraph (2) (c) apply mutatis mutandis to:
– individual compartments of a specialised investment fund with multiple
compartments the securities of which compartments are reserved for (i)
institutions for occupational retirement provision, or similar investment
vehicles, set up on one or several employers’ initiative for the benefit of
their employees and (ii) companies of one or several employers investing
the funds they own, in order to provide their employees with retirement
benefits, and,
– individual classes created within a specialised investment fund or within a
compartment of a specialised investment fund with multiple compartments
the securities of which classes are reserved for (i) institutions for occupational retirement provision, or similar investment vehicles, set up on one
or several employers’ initiative for the benefit of their employees and (ii)
companies of one or several employers investing the funds they own, in
order to supply their employees with retirement benefits.
Art. 69. The administration for registration139 is responsible for the fiscal control of
specialised investment funds.
If, at any date after the constitution of the specialised investment funds
referred to in this Law, the said administration ascertains that such specialised
investment funds are engaging in operations which fall outside the framework
of the activities authorised by this Law, the fiscal provisions provided for in
Articles 66 to 68 shall cease to be applicable.
Moreover, the registration administration may levy a fiscal fine of 0.2% on the
aggregate amount of the assets of the specialised investment funds.
Chapter 12. – Special provisions in relation to the legal form
Art. 70. (1) Investment companies entered on the list provided for by Article 43(1) may be
converted into SICAVs and their articles of incorporation may be brought into
harmony with the provisions of Chapter 3 of this Law by resolution of a general
meeting passed at a majority of two thirds of the votes of the shareholders or
holders of units present or represented regardless of the portion of the capital
represented.
(2) Common funds referred to in this Law may on the same conditions as those
laid down in paragraph (1) above, convert themselves into a SICAV governed
by this Law.
Art. 71. (1) Specialised investment funds may be constituted with multiple compartments,
each compartment corresponding to a distinct part of the assets and liabilities
of the specialised investment fund.
(2) The constitutive documents of the specialised investment fund must expressly
provide for that possibility and the applicable operational rules. The offering
document must describe the specific investment policy of each compartment.
139 Administration de l’Enregistrement
99
(3) The shares and units of the specialised investment fund with multiple compartments may be of different value with or without indication of a par value
depending on the legal form which has been chosen.
(4) Common funds with multiple compartments may, by separate management
regulations, determine the characteristics of and rules applicable to each
compartment.
compartment are limited to the assets of that compartment, unless a clause
included in the constitutive documents provides otherwise.
claims have arisen in connection with the creation, the operation or the
liquidation of that compartment, unless a clause included in the constitutive
For the purpose of the relations between investors, each compartment will be
deemed to be a separate entity, unless a clause included in the constitutive
documents provides differently.
(6) Each compartment of a specialised investment fund may be separately liquidated without such separate liquidation resulting in the liquidation of another
compartment. Only the liquidation of the last remaining compartment of the
specialised investment fund will result in the liquidation of the specialised
investment fund, as referred to in Article 49(1) of this Law.
Chapter 13. – Amending provisions
Art. 72. Paragraph (3) of Article 129 of the amended law of 20 December 2002 relating
to undertakings for collective investment, is amended by the insertion, at the
end of item (a), of the words: “or by Article 68 of the Law of 13 February 2007
relating to specialised investment funds”.
Art. 73. Article 44 paragraph 1, item (d) of the amended law of 12 February 1979
concerning value added tax, is amended by adding the words “and specialised
investment funds” after the words “, including the SICAR”.
Chapter 14. –Transitional and repealing provisions
Art. 74. The Law of 19 July 1991 concerning undertakings for collective investment the
securities of which are not intended to be placed with the public is repealed.
Art. 75. All references in legal and regulatory texts to “undertakings governed by the
Law of 19 July 1991 concerning undertakings for collective investment the
securities of which are not intended to be placed with the public” shall be
replaced by “undertakings governed by the law of 13 February 2007 relating to
specialised investment funds”.
100
Art. 76. Undertakings governed by the Law of 19 July 1991 concerning undertakings
for collective investment the securities of which are not intended to be placed
with the public are governed ipso jure by this Law.
For these undertakings, all references in the articles of incorporation and the
sales documents to the Law of 19 July 1991 concerning undertakings for
collective investment the securities of which are not intended to be placed with
the public shall be read as references to this Law.
Chapter 15. – Final provisions
Art. 77. This Law may, in abbreviation, be referred to as the “Law of 13 February 2007
relating to specialised investment funds”.
Art. 78. This Law enters into force on 13 February 2007.
101
Appendix
Information to be included in the annual report
I. Statement of assets and liabilities
– investments,
– bank balances,
– other assets,
– total assets,
– liabilities,
– net asset value
II. Number of units in circulation
III. Net asset value per unit
IV.Qualitative and/or quantitative information on the investment portfolio enabling investors
to make an informed judgment on the development of the activities and the results of the
specialised investment fund
V. Statement of the developments concerning the assets of the specialised investment fund
during the reference period including the following:
– income from investments,
– other income,
– management charges,
– depository’s charges,
– other charges and taxes,
– net income,
– distributions and income reinvested,
– changes in capital accounts,
– appreciation or depreciation of investments,
– any other changes affecting the assets and liabilities of the specialised investment
fund.
VI.A comparative table covering the last three financial years and including, for each financial
year, at the end of the financial year:
– the total net asset value,
– the net asset value per unit.
102
prevail.
LAW OF 15 JUNE 2004
RELATING TO THE INVESTMENT COMPANY IN RISK CAPITAL
(“SICAR”)
as amended by:
– the law of 10 July 2005 on prospectuses for securities and
– implementing Directive 2003/71/EC of the European Parliament and of the Council of
4 November 2003 on the prospectus to be published when securities are offered to the
public or admitted to trading and amending Directive 2001/34/EC;
– amending the law of 23 December 1998 creating a commission for supervision of the
financial sector;
– amending the law of 23 December 1998 on the supervision of securities markets;
– amending the law of 30 March 1988 concerning undertakings for collective
investment;
– amending the law of 20 December 2002 concerning undertakings for collective
investment;
– amending the law of 15 June 2004 relating to the investment company in risk capital
(SICAR);
– amending the law of 10 August 1915 on commercial companies.
– the law of 24 October 2008 improving the legislative framework of the Luxembourg
financial centre and amending
– the provisions concerning mortgage bonds in the law of 5 April 1993 on the financial
sector, as amended
– the law of 15 June 2004 relating to the investment company in risk capital (SICAR), as
amended;
– the law of 23 December 1998 creating a commission for supervision of the financial
sector, as amended;
– the law of 23 December 1998 relating to the monetary status and to the Banque
centrale du Luxembourg (Luxembourg Central Bank), as amended;
– the law of 6 December 1991 on the insurance sector, as amended.
– the law of 19 December 2008
– revising the regime applicable to certain company acts as regards registration taxes
– implementing Council Directive 2008/7/EC of 12 February 2008 concerning indirect
taxes on the raising of capital
– amending:
• the law of 7 August 1920 increasing registration taxes, stamp duties, inheritance
taxes, etc., as amended
103
• the law of 20 December 2002 concerning undertakings for collective investment,
as amended
• the law of 22 March 2004 on securitisation
• the law of 15 June 2004 relating to the investment company in risk capital (SICAR),
as amended
• the law of 13 July 2005 on institutions for occupational retirement provision in the
form of pension savings companies with variable capital (SEPCAVs) and pension
savings associations (ASSEPs), as amended
• the law of 13 February relating to specialised investment funds
– and repealing the law of 29 December 1971 concerning the tax on the raising of
capital in companies governed by civil law or commercial law and revising certain legal
provisions on the collection of registration taxes, as amended.
Chapter I: General provisions
Art. 1. (1) For the purpose of this law, an investment company in risk capital140, in abbreviation “SICAR”, shall be any company:
– that has adopted the legal form of a limited partnership141, a partnership
limited by shares142, a cooperative in the form of a public limited company143,
a limited company144 or a public limited company145 governed by Luxembourg law, and
– whose object is to invest its assets in securities representing risk capital in
order to ensure for their investors the benefit of the result of the management
of their assets in consideration for the risk which they incur, and
– the securities of which are reserved to well-informed investors as defined in
Article 2 of this law, and
– the articles of incorporation of which provide that it is subject to the provisions of this law.
(2) Investment in risk capital means the direct or indirect contribution of assets to
entities in view of their launch, development or listing on a stock exchange.
(3) The registered office and the head office of a Luxembourg SICAR must be
Art. 2. (law of 24 October 2008) “Within the meaning of this law, a well-informed
investor shall be an institutional investor, a professional investor or any other
investor who meets the following conditions:
(1) he has confirmed in writing that he adheres to the status of well-informed
investor and
140 société d’investissement en capital à risque
141 société en commandite simple
142 société en commandite par actions
143 société coopérative organisée sous forme de société anonyme
144 société à responsabilité limitée
145 société anonyme
104
(2) he invests a minimum of 125,000 Euro in the company, or
(3) he has been subject to an assessment made by a credit institution within the
meaning of Directive 2006/48/EC, by an investment firm within the meaning
of Directive 2004/39/EC or by a management company within the meaning
of Directive 2001/107/EC certifying his expertise, his experience and his
knowledge in adequately appraising an investment in risk capital.
Art. 3. The conditions set forth in this Article do not apply to directors146 and other
persons taking part in the management of the SICAR.”
(law of 24 October 2008)
“(1) SICARs are subject to the general provisions applicable to commercial
companies, as far as it is not waived by this law.
(2) SICARs may include multiple compartments, each compartment corresponding
to a distinct part of the SICAR’s assets and liabilities.
(3) The constitutional documents of the SICAR must expressly provide for that
possibility and the applicable operational rules. The prospectus must describe
the investment policy of each compartment.
(4) The securities of SICARs with multiple compartments may be of different value
with or without indication of a par value.
compartment are limited to the assets of that compartment unless a clause
included in the constitutional documents provides otherwise.
claims have arisen in connection with the creation, the operation or the liquidation of that compartment unless a clause included in the constitutional
For the purpose of the relations between investors, each compartment will be
deemed to be a separate entity, unless a clause included in the constitutional
documents provides differently.
(6) Each compartment of a SICAR may be separately liquidated without such
separate liquidation resulting in the liquidation of another compartment. Only
the liquidation of the last remaining compartment of a SICAR will result in the
liquidation of the company as referred to in Article 21(1) of this law.”
Art. 4. (1) “The subscribed capital of the SICAR, increased by the share premium, shall
not be less than 1 million Euro.”147 This minimum must be reached within a
period of twelve months following the authorisation of the company. A grandducal regulation may increase such minimum amount up to a maximum of 2
million Euro.
(2) “Limited partnerships, partnerships limited by shares, limited companies, public
limited companies and cooperatives in the form of a public limited company
146 dirigeants
147 law of 24 October 2008
105
covered by this law may foresee in their articles of incorporation that the share
capital amount is always equal to the total net assets.”148 In such case, variations in the capital shall be effected ipso jure and without compliance with
measures regarding publication and entry in the register of commerce and
companies.
(3) (law of 24 October 2008) “Article 17 of the law of 10 August 1915 on commercial
companies as amended does not apply to the SICAR in the form of a limited
partnership with variable capital. By way of derogation from Article 6 of the law
of 10 August 1915 on commercial companies as amended and Article 6 of the
law of 19 December 2002 concerning the trade and companies register, as well
as the accounting and annual accounts of companies as amended, the SICAR
in the form of a limited partnership with variable capital is exempted from the
obligation to register with the trade and companies register or to publish the
identity of the limited partners or indications on their participation in the SICAR
or their obligations towards the latter.”
Art. 5. (1) The SICAR can issue new shares in accordance with the conditions and procedures set forth in the articles of incorporation.
(2) The share capital of a partnership limited by shares, a public limited company,
a limited company and a cooperative in the form of a public limited company,
subject to this law, must be entirely subscribed, and at least 5% of each share
must be paid-up in cash or by means of a contribution other than cash.
(3) “The valuation of the assets of the company is based on the fair value.”149 Such
value must be determined in accordance with the rules set forth in the articles
of incorporation.
Art. 6. (1) SICARs shall not be obliged to create a legal reserve.
(2) Repayments and distribution of dividends to investors are not subject to any
restrictions other than those set forth in the articles of incorporation.
(3) SICARs are not subject to any rules in respect of payment of interim dividends
other than those set forth in their articles of incorporation.
Art. 7. (law of 24 October 2008) “For companies falling within the scope of this
law, the denomination of the company followed or not by the words “limited
partnership”, “partnership limited by shares”, “limited company”, “public limited
company” or “cooperative in the form of a public limited company” shall be
supplemented by the words “investment company in risk capital”, in abbreviated form: “SICAR”.”
Chapter II: The depositary
Art. 8. (1) The custody of the assets of a SICAR must be entrusted to a depositary. The
depositary must either have its registered office in Luxembourg or be established in Luxembourg if its registered office is in another State. It must be a
credit institution within the meaning of the law of 5 April 1993 on the financial
sector, as amended.
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(3) (…)150
Art. 9. (1) In carrying out its duties, the depositary must act independently and solely in
the interest of the investors.
(2) The depositary shall be liable in accordance with Luxembourg law to the
company and to investors for any loss suffered by them as a result of its
wrongful failure to perform its obligations or its wrongful improper performance
thereof.
(3) The liability to investors shall be invoked through the SICAR. Should the
company fail to act despite a written notice to that effect from an investor within
a period of three months following receipt of such a notice, the investor may
directly invoke the liability of the depositary.
Art. 10. The duties of the depositary regarding the SICAR shall cease, respectively:
a) in the case of voluntary withdrawal of the depositary or of its removal by
the company; until it is replaced, which must happen within two months, the
depositary shall take all necessary steps for the good preservation of the
b) where the SICAR or the depositary has been declared bankrupt, has
payment, has been put under court-controlled management or has been
the subject of similar proceedings or has been put into liquidation;
c) where the supervisory authority withdraws its authorisation of the SICAR or
the depositary;
d) in all other cases provided for in the articles of incorporation.
Chapter III: Authorisation and supervision
Art. 11. (1) The authority which is to carry out the supervision of SICARs is the Commission
de Surveillance du Secteur Financier, hereafter the “CSSF”.
(2) The CSSF carries out its duties exclusively in the public interest.
(3) The CSSF ensures that SICARs and their directors151 comply with the applicable legal and contractual rules.
Art. 12. (1) SICARs subject to this law must, in order to carry out their activities, be
authorised by the CSSF.
(2) A SICAR shall be authorised only if the CSSF has approved its constitutional
documents and the choice of the depositary.
(3) The directors of the SICAR and of the depositary must be of sufficiently good
repute and have sufficient experience for performing their functions. To that end,
their identity must be notified to the CSSF. “Directors” shall mean, in the case
of limited partnerships, the general partners and in the case of public limited
150 Repealed by the law of 24 October 2008
151 dirigeants
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companies and limited companies, the members of the board of directors and
the manager(s), respectively.
(4) The replacement of the depositary or of a director and the amendment of
the constitutional documents of the SICAR are subject to the approval by the
CSSF.
(5) The authorisation is subject to justifying that the central administration of the
SICAR is situated in Luxembourg.
Art. 13. (1) Authorised SICARs shall be entered by the CSSF on a list. Such entry shall be
tantamount to authorisation and shall be notified by the CSSF to the SICAR
concerned. Applications for entry must be filed with the CSSF within the month
following the constitution or formation of the SICAR. The said list and any
amendments made thereto shall be published in the Mémorial by the CSSF.
(2) The entering and the maintaining on the list referred to in paragraph (1) shall
be subject to observance of all legislative, regulatory or contractual provisions
relating to the organisation and operation of the SICARs.
(3) (…)152
Art. 14. The fact that a SICAR is entered on the list referred to in Article 13 (1) shall
not, under any circumstance, be described in any way whatsoever as a positive
assessment made by the CSSF of the quality of the securities offered.
Art. 15. (1) Any person who works or who has worked for the CSSF, as well as the auditors
or experts instructed by the CSSF, shall be bound by the obligation of professional secrecy provided for by Article 16 of the amended law of 23 December
1998 creating a commission for the supervision of the financial sector. Such
secrecy implies that no confidential information which they may receive in the
course of their professional duties may be divulged to any person or authority
whatsoever, save in summary or aggregate form such that SICARs and depositaries cannot be individually identified, without prejudice to cases covered by
criminal law.
(2) Paragraph (1) shall not prevent the CSSF from exchanging information with
the supervisory authorities of the other Member States of the European Union
within the limits provided by this law.
The CSSF shall closely cooperate with the supervisory authorities of other
Member States of the European Union for the purpose of the fulfilment of their
duty of supervision of SICARs and other investment companies in risk capital
and shall communicate for that sole purpose all required information.
The supervisory authorities of countries other than Member States of the
European Union which are party to the Agreement on the European Economic
Area are assimilated to the supervisory authorities of the Member States of the
European Union within the limits provided by that Agreement and the instruments relating thereto.
152 Repealed by the law of 10 July 2005
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(3) Paragraph (1) shall not prevent the CSSF from exchanging information with:
– authorities of third countries with public responsibilities for the supervision
of investment companies in risk capital;
– the other authorities, bodies and persons referred to in paragraph (5), with
the exception of central credit registers, when they are established in third
countries;
– the authorities of third countries referred to in paragraph (6).
– the transmitted information must be required for the purpose of performing
the supervisory duty of the recipient authorities, bodies and persons;
recipient authorities, bodies or persons and the professional secrecy of
such authorities, bodies or persons must offer guarantees at least equivalent to the professional secrecy of the CSSF;
may only use such information for the purposes for which it has been
communicated to them and must be able to ensure that no other use can
be made therewith;
grant the same right of information to the CSSF;
– the CSSF may only disclose information received from EU authorities
responsible for the prudential supervision of investment companies in
risk capital with the express agreement of such authorities and, where
appropriate, solely for the purposes for which those authorities gave their
agreement.
For the purpose of this paragraph third countries are countries other than
those referred to in paragraph (2).
(4) Where the CSSF receives confidential information under paragraphs (2) and
(3), the CSSF may use it only in the course of its duties:
– to check that the conditions governing the taking-up of the business of
SICARs and depositaries are met and to facilitate the monitoring of the
conduct of that business, of administrative and accounting procedures and
of internal control mechanisms; or
– to impose sanctions; or
– in an administrative appeal against decisions taken by the CSSF; or
– in court proceedings initiated against decisions refusing or withdrawing an
authorisation.
(5) Paragraphs (1) to (4) shall not preclude:
a) the exchange of information within the European Union between the CSSF
and:
– authorities with public responsibility for the supervision of credit institutions, investment firms, insurance undertakings and other financial
organisations and the authorities responsible for the supervision of
financial markets;
– bodies involved in the liquidation, bankruptcy or other similar proceedings
concerning investment companies in risk capital and depositaries;
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– persons responsible for carrying out statutory audits of the accounts
of credit institutions, investment firms, other financial institutions or
insurance undertakings, in the performance of their functions.
b) the disclosure by the CSSF within the European Union to bodies, which
administer investor compensation schemes or central credit registers, of
information necessary for the performance of their functions.
The communication of information by the CSSF authorised by this
paragraph is subject to the condition that such information is covered by
the professional secrecy of the authorities, bodies or persons receiving the
information and is only authorised to the extent the professional secrecy of
such authorities, bodies or persons offers guarantees at least equivalent
to the professional secrecy of the CSSF. In particular, authorities which
receive information from the CSSF may only use such information for the
purposes for which it has been communicated and must be able to ensure
that no other use can be made therewith.
Countries other than Member States of the European Union which are
party to the Agreement on the European Economic Area are assimilated to
the Member States of the European Union within the limits provided by that
(6) Paragraphs (1) and (4) do not prevent exchanges of information within the
European Union between the CSSF and:
– the authorities responsible for overseeing the bodies involved in the liquidation, bankruptcy or other similar proceedings concerning credit institutions, investment firms, insurance undertakings, investment companies in
risk capital and depositaries;
– the authorities responsible for overseeing persons entrusted with the
carrying out of statutory audits of the accounts of credit institutions,
investment firms, insurance undertakings and other financial institutions.
– the transmitted information is intended to be used for the purpose of
performing the supervisory duty of the authorities which receive the information;
authorities which receive the information and the professional secrecy of
such authorities must offer guarantees at least equivalent to the professional secrecy of the CSSF;
– the authorities which receive information from the CSSF may only use such
information for the purposes for which it has been communicated to them
and must be able to ensure that no other use can be made therewith;
– the CSSF may only disclose information received from supervisory authorities referred to in paragraphs (2) and (3) with the express agreement of
such authorities and, where appropriate, solely for the purposes for which
those authorities gave their agreement.
Countries other than Member States of the European Union which are party to
the Agreement on the European Economic Area are assimilated to the Member
States of the European Union within the limits provided by that Agreement and
the instruments relating thereto.
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(7) This Article shall not prevent the CSSF from transmitting to central banks and
other bodies with a similar function in their capacity as monetary authorities
information intended for the performance of their duties.
is subject to the condition that such information is covered by the professional
secrecy of the authorities which receive the information and is only authorised
to the extent the professional secrecy of such authorities offers guarantees at
least equivalent to the professional secrecy of the CSSF. In particular, authorities which receive information from the CSSF may only use such information
for the purposes for which it has been communicated and must be able to
ensure that no other use can be made therewith.
This Article shall furthermore not prevent the authorities or bodies referred to
in this paragraph from communicating to the CSSF such information as it may
need for the purposes of paragraph (4). Information received by the CSSF shall
be subject to its professional secrecy.
(8) This Article shall not prevent the CSSF from communicating the information
referred to in paragraphs (1) to (4) to a clearing house or other similar body
recognised under the law for the provision of clearing or contractual settlement
services on one of the Luxembourg markets, if the CSSF considers it is
necessary to communicate such information in order to ensure the proper
functioning of those bodies in relation to defaults or potential defaults by a
market participant.
is subject to the condition that such information is covered by the professional secrecy of the recipient bodies, and is only authorised to the extent
the professional secrecy of such bodies offers guarantees at least equivalent
to the professional secrecy of the CSSF. In particular, bodies which receive
can be made therewith.
The information received by the CSSF pursuant to paragraphs (2) and (3) may
not be disclosed in the circumstances referred to in this paragraph without the
express agreement of the supervisory authorities which have disclosed such
information to the CSSF.
Art. 16. (1) The decisions to be adopted by the CSSF in implementation of this law shall
state the reasons on which they are based and, unless the delay entails risks,
they shall be adopted after preparatory proceedings at which all parties are able
to state their case153. They shall be notified by registered letter or delivered by
a bailiff154.
(2) The decisions by the CSSF concerning the granting, refusal or withdrawal
of the authorisations provided for in this law may be referred to the Tribunal
administratif [administrative court] which will be dealing with the substance of
the case. The case must be filed within one month from the date of notification
of the contested decision, or else shall be time barred.
153 instruction contradictoire
154 huissier
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Art. 17. (1) The directors of SICARs, as well as the liquidators in the case of voluntary liquidation of a SICAR, may have imposed upon them by the said authority a fine of
fifteen to five hundred Euro in the event of their refusing to provide the financial
reports and the requested information or where such documents prove to
be incomplete, inaccurate or false, and in the event of any infringement of
Article 23 of this law or in the event of any other serious irregularity being
discovered.
of Article 14.
Chapter IV: Dissolution and liquidation
Art. 18. The decision of the CSSF withdrawing a SICAR from the list provided for in
Article 13 shall, as from the notification thereof to such company and at its
expense, until the decision has become final, ipso jure entail for such company
suspension of any payment by said company and prohibition for such company
to take any measures other than protective measures, such other measures
being null and void except when taken with the authorisation of the supervisory commissioner155. The CSSF shall ipso jure hold the office of supervisory
commissioner, unless at its request, the District Court dealing with commercial
matters appoints one or more supervisory commissioners. The application,
stating the reasons on which it is based and accompanied by supporting
documents, shall be lodged for that purpose at the greffe du tribunal [Registry
of the District Court] in the district within which the undertaking has its registered office.
order in public session, without hearing the parties. If it deems necessary, it
shall convene the parties by notification from the registrar at the latest within
three days from the lodgement of the application. It shall hear the parties in
chambers and give its decision in public session.
measures and decisions of the SICAR and, failing such authorisation, they
shall be void.
The commissioners may submit for consideration to the relevant bodies of
the SICAR any proposals which they consider appropriate. They may attend
proceedings of the administrative, management, executive and supervisory
bodies of the SICAR.
The judgement provided for in paragraph (1) of Article 19 of this law shall
155 commissaire de surveillance
112
judgement a report on the use of the SICAR’s assets together with the accounts
and supporting documents.
If the withdrawal decision is amended on appeal in accordance with paragraphs
(2) and (3) above, the supervisory commissioner shall be deemed to have
resigned.
Art. 19. (1) The Tribunal d’arrondissement [District Court] dealing with commercial matters
shall, at the request of the State Prosecutor, acting on its own motion or at the
request of the CSSF, pronounce the dissolution and order the liquidation of the
SICARs, whose entry on the list provided for in Article 13, paragraph (1) has
definitively been refused or withdrawn.
When ordering the liquidation, the Court shall appoint a reporting judge156
and one or more liquidators. It shall determine the method of liquidation. It
may render applicable to such extent as it may determine the rules governing
liquidation in bankruptcy. The method of liquidation may be changed by
subsequent decision, either of the Court’s own motion or at the request of the
liquidator(s).
(2) The liquidator(s) may bring and defend all actions on behalf of the SICAR,
receive all payments, grant releases with or without discharge, realise all the
transferable securities of the SICAR and reemploy the proceeds therefrom,
issue or endorse any negotiable instruments, compound or compromise any
dispute. They may alienate immovable property of the SICAR by auction.
(3) As from the day of the judgment, no legal actions relating to movable or
immovable property or any enforcement procedures relating to movable or
(4) After payment or payment into court of the sums necessary for the discharge
of the debts, the liquidators shall distribute to security holders the sums or
amounts due to them.
(5) The liquidators may convene at their own initiative, and must convene at the
request of security holders representing at least one fourth of the assets of the
SICAR, a general meeting of shareholders for the purpose of deciding whether
instead of an outright liquidation it is appropriate to contribute the assets of the
SICAR in liquidation to another SICAR. That decision shall be taken, provided
that the general meeting is composed of a number of shareholders representing at least one half of the securities issued or corporate capital of the
156 juge-commissaire
157 créanciers chirographaires et non privilégiés
113
SICAR, by a majority of two thirds of the votes of the security holders present
or represented.
(6) The court decisions pronouncing the dissolution and ordering the liquidation
of a SICAR shall be published in the Mémorial and in two newspapers with
adequate circulation specified by the Court, one of which at least must be a
Luxembourg newspaper. The liquidator(s) shall arrange for such publications.
(8) The liquidators shall be responsible both to third parties and to the SICAR for
the discharge of their duties and for any faults committed in the conduct of their
activities.
the use made of the funds of the SICAR and shall submit the accounts and
supporting documents thereof. The Court shall appoint auditors158 to examine
the documents.
After receipt of the auditors’ report, a ruling shall be given on the management
of the liquidators and the closure of the liquidation.
(6) above.
Such publication shall also indicate:
– the place designated by the Court where the books and records must be
kept for at least five years;
– the measures taken in accordance with Article 22 with a view to the payment
into court159 of the sums and funds due to creditors, security holders or
partners to whom it has not been possible to deliver the same.
(10) Any legal actions against the liquidators of SICARs, in their capacity as such,
shall be prescribed five years after publication of the closure of the liquidation
provided for in paragraph (9).
(11) The provisions of this Article shall equally apply to the SICARs which have not
applied to be entered on the list provided for in Article 13 within the time limit
laid down therein.
duties shall be prescribed five years after the date of the facts or, in the event
thereof.
Art. 20. (1) After their dissolution, SICARs shall be deemed to exist for the purpose of
liquidation. In the case of a non-judicial liquidation, they shall remain subject to
the supervision of the CSSF.
158 commissaires
159 consignation
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(2) All documents issued by a SICAR in liquidation shall indicate that it is in liquidation.
Art. 21. (1) In the event of a non-judicial liquidation of a SICAR, the liquidator(s) must be
approved by the CSSF. The liquidator(s) must provide all guarantees of good
repute and professional skill.
Art. 22. In the event of a voluntary or compulsory liquidation of a SICAR within the
meaning of this law, the sums and assets payable in respect of securities
whose holders failed to present themselves at the time of the closure of the
liquidation, shall be paid to the Caisse de Consignation [public trust office] to
be held for the benefit of the persons entitled thereto.
Chapter V: Publication of a prospectus and an annual report
Art. 23. (law of 24 October 2008)
(1) The SICAR shall draw up a prospectus and an annual report for each financial
year.
(2) The annual reports together with the auditor’s report shall be made available
to the investors within 6 months from the end of the period these reports refer
to.
Art. 24. (1) The prospectus must include the information necessary for investors to be able
to make an informed judgement on the investment proposed to them and of the
risks attached thereto.
(2) The annual report must include a balance sheet or a statement of assets and
liabilities, an income and expenditure account for the financial year, a report
on the activities of the past financial year, as well as any significant information
enabling investors to make an informed judgment on the development of the
activities and the results of the SICAR.
(3) Notwithstanding Article 309 of the amended law of 10 August 1915 on
commercial companies, the SICAR shall be exempt from the obligation to
prepare consolidated accounts.
Art. 25. (1) The constitutional documents of the SICAR shall form an integral part of the
prospectus and must be annexed thereto.
(2) However, the documents referred to in paragraph (1) need not be annexed to
the prospectus, provided that the investor is informed that at his request, he
will either be sent those documents or be apprised of the place where he may
consult them.
Art. 26. The essential elements of the prospectus must be up to date when new shares
are issued.
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Art. 27. (1) The SICARs must have the accounting information provided in their annual
report audited by an authorised auditor160.
The auditor’s report and its qualifications, if any, are set out in full in each
annual report.
The auditor must establish that he has appropriate professional experience.
(2) The auditor shall be appointed and remunerated by the SICAR.
(3) The auditor must report promptly to the CSSF any fact or decision of which he
has become aware while carrying out the audit of the accounting information
contained in the annual report of a SICAR or any other legal task concerning a
SICAR, where such fact or decision is liable to:
– constitute a material breach of this law or the regulations adopted for its
execution, or
– affect the continuous functioning of the SICAR, or
– lead to a refusal to certify the accounts or to the expression of reservations
thereon.
The auditor shall likewise have a duty to promptly report to the CSSF, in the
accomplishment of its duties referred to in the preceding sub-paragraph in
respect of a SICAR, any fact or decisions concerning the SICAR and meeting
the criteria referred to in the preceding sub-paragraph of which he has become
aware while carrying out the audit of the accounting information contained in
the annual report of another undertaking having close links resulting from a
control relationship with the SICAR or while carrying out any other legal task
concerning such other undertaking.
For the purposes of this Article, a close link resulting from a control relationship
in the cases referred to in Article 77 of the amended law of 17 June 1992
concerning the annual accounts and consolidated accounts of credit institutions, or as a result of a relationship of the same type between any individual
or legal entity and an undertaking; any subsidiary undertaking of a subsidiary
undertaking is also considered as a subsidiary of the parent undertaking
which is at the head of those undertakings. A situation in which two or more
individuals or legal persons are linked to one and the same person by a control
relationship on a long-term basis shall also be regarded as constituting a close
link between such persons.
provided to investors or to the CSSF in the reports or other documents of
the SICAR does not truly describe the financial situation and the assets and
liabilities of the SICAR, he shall be obliged to inform the CSSF forthwith.
or certificates required by the latter on any matters of which the auditor has or
ought to have knowledge in connection with the discharge of his duties. The
same applies if the auditor ascertains that the assets of the SICAR are not or
have not been invested according to the regulations set out by the law or the
prospectus.
160 réviseur d’entreprises agréé
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and shall not result in liability of any kind for the auditor.
of the audit report on the annual accounting documents.
particular aspects of the activities and operations of a SICAR. This control is
performed at the expense of the SICAR concerned.
(4) The CSSF shall refuse or withdraw the entry on the list of SICARs whose
auditor does not satisfy the conditions or does not discharge the obligations
prescribed in this Article.
(5) The institution of statutory auditors161 provided for by Articles 61, 109, 114
and 200 of the amended law of 10 August 1915 on commercial companies,
is repealed with respect to Luxembourg SICARs. The directors are solely
competent in all cases where the amended law of 10 August 1915 on
commercial companies provides for the joint action of the statutory auditors
and the directors.
The institution of statutory auditors provided for by Article 151 of the amended
law of 10 August 1915 on commercial companies is not applicable to SICARs.
Upon completion of the liquidation, a report on the liquidation shall be drawn
up by the auditor. This report shall be tabled at the general meeting at which
the liquidators report on the application of the corporate assets and submit the
accounts and supporting documents. The same meeting shall resolve on the
approval of the accounts of the liquidation, the discharge and the closure of the
liquidation.
Art. 28. The SICAR must send its prospectus and any amendments thereto, as well as
its annual reports, to the CSSF.
Art. 29. (1) The prospectus currently in force and the latest annual report must be offered
free of charge to subscribers before the conclusion of the contract.
(2) The annual reports shall upon request be supplied free of charge to investors.
Chapter VI: Publication of other information
Art. 30. (…) Repealed by the law of 24 October 2008
Art. 31. Any invitation to purchase shares of a SICAR must indicate that a prospectus
exists and the places where it may be obtained.
Chapter VII: Transmission of other information to the CSSF
Art. 32. The CSSF may request SICARs to provide any information relevant to the
fulfilment of its duties and may, for that purpose, itself or through appointees,
examine the books, accounts, registers or other records and documents of
SICARs.
161 commissaires aux comptes
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Chapter VIII: Protection of name
Art. 33. (1) No SICAR shall make use of designations or of a description giving the
impression that it is subject to this law if it has not obtained the authorisation
provided for in Article 12.
(2) The District Court dealing with commercial matters of the place where the
SICAR is situated or of the place where the designation has been used, may at
the request of the Public Prosecutor issue an injunction, prohibiting anyone from
using the designation as defined in paragraph (1), if the conditions provided for
by this law are not or no longer met.
(3) The judgment or final court decision which delivers this injunction, is published
by the Public Prosecutor and at the expense of the person sentenced in two
Luxembourg or foreign newspapers with adequate circulation.
Chapter IX: Fiscal provisions
Art. 34. (1) The amended law of 4 December 1967 on income tax is amended as follows:
a) Article 14, number 1, is completed by the following sentence: “The
investment company in risk capital (SICAR) organised under the legal form
of a limited partnership shall however not be considered to be a commercial
company;”
b) Number 3 of Article 147 is amended and completed as follows:
“3. if the income is allocated by a Luxembourg holding company as defined
by the law of 31 July 1929 or by an undertaking for collective investment
(UCI), including a Luxembourg investment company in risk capital (SICAR),
without prejudice, however, to the taxation of the aforementioned income if
received by residents.”
c) Article 156, number 8, is completed by a point c) worded as follows: “c)
However, the income resulting from the transfer of a participation in an
investment company in risk capital (SICAR) is not covered by numbers 8a
and 8b.”
d) Article 164bis is completed by the insertion, after indent 4, of a new indent
5 worded as follows: “(5) Investment companies in risk capital (SICAR) are
excluded from the scope of this Article.” The other indents are renumbered
accordingly.
(2) Income resulting from securities as well as income resulting from the transfer,
contribution or liquidation of these assets does not constitute taxable income
of joint stock companies subject to this law. Realised losses resulting from the
transfer of transferable securities as well as unrealised losses accounted for
upon the reduction of the value of these assets may not be deducted from the
taxable income of the company.
(3) Income arising from funds held pending their investment in risk capital does not
constitute taxable incomes for SICARs; this exemption is only applicable for a
maximum period of twelve months preceding their investment in risk capital
and where it can be established that the funds have effectively been invested
in risk capital.
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Art. 35. The first indent of paragraph 3 of the amended law of 16 October 1934 on
wealth tax is completed by the reinsertion of a number 5 worded as follows:
“5. investment companies in risk capital (SICAR) organised under the form of
a joint stock company.”
Art. 36. The amended law of 1 December 1936 on commercial communal tax is
amended as follows:
a) Indent 2 of paragraph 2 is completed by the insertion of a number 4
worded as follows: “4. The provisions under number 3 are not applicable to
investment companies in risk capital (SICAR) organised under the form of
a limited partnership.”
b) Paragraph 9 is completed by a number 2b which states as follows: “2b.
participating shares added pursuant to paragraph 8 number 4 to the
operating profit of a partnership limited by shares, as long as they are
included in the operating profit determined pursuant to paragraph 7.”
Art. 37. (…) Repealed by the law of 19 December 2008
Art. 38. Article 44 paragraph 1, under point d) of the amended law of 12 February 1979
concerning value added tax is amended by adding the words “, comprising also
SICAR” after the word “UCI”.
Chapter X: Criminal law provisions
Art. 39. A fine of five hundred to twenty-five thousand Euro shall be imposed upon
any person who in infringement of Article 33 purports to use a designation or
description giving the impression that they relate to the activities subject to this
law if they have not obtained the authorisation provided for in Article 12.
Art. 40. (…) Repealed by the law of 24 October 2008
to twenty-five thousand Euro or either of such penalties shall be imposed upon
the founders or directors of a SICAR who have infringed the provisions of
Articles 5(1) and 5(3) of this law.
Art. 42. A penalty of imprisonment of three months to two years and a fine of five
hundred to fifty thousand Euro or either of such penalties shall be imposed on
the receipt of savings from investors concerned if the SICAR for which they
acted was not entered on the list provided for in Article 13.
to twenty-five thousand Euro or either of such penalties shall be imposed on
the directors of SICARs who, notwithstanding the provisions of Article 18, have
taken measures other than protective measures without being authorised for
that purpose by the supervisory commissioner.
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Chapter XI: Final provision
Art. 44. This law may, in abbreviation, be referred to as the “law of 15 June 2004
relating to the investment company in risk capital (SICAR)”.
Chapter XII: Modifying provision
Art. 45. Paragraph 3 of Article 129 of the amended law of 20 December 2002 relating
to undertakings for collective investment is completed by a point c) worded as
follows:
“c) UCIs whose securities are reserved for i) institutions for occupational
retirement provision, or similar investment vehicles, created on the initiative
of a same group for the benefit of its employees and ii) undertakings of this
same group investing funds they hold, to provide retirement benefits to their
employees.”
120
GRAND-DUCAL REGULATION OF 14 APRIL 2003 ESTABLISHING THE TERMS AND
AMOUNT OF THE FIXED CAPITAL DUTY PAYABLE PURSUANT TO ARTICLE 128 OF
THE LAW OF 2O DECEMBER 2002 RELATING TO UNDERTAKINGS FOR COLLECTIVE
INVESTMENT*
Art. 1. The fixed capital duty payable pursuant to Article 128 of the law of
20 December 2002 relating to undertakings for collective investment is fixed
at 1,250 euro.
The fixed duty is payable at the constitution and covers any aggregation of
capital which may be carried out by an undertaking for collective investment,
inter alia where the capital is increased, where an undertaking subject to the
aforementioned law is transformed into another undertaking subject to that law
and where such undertakings merge.
Art. 2. In respect of the aggregation of capital effected after 1 October 1983 in undertakings for collective investment existing at that date, capital duty paid on
formation by such undertakings has the same effects as those set out in
paragraph 2 of Article 1 and which derive from the payment of the fixed capital
duty referred to in paragraph 1 of such Article.
Art. 3. The transformation of an undertaking for collective investment governed by
the law of 30 March 1988 on undertakings for collective investment or by the
law of 19 July 1991 concerning undertakings for collective investment the
securities of which are not intended to be placed with the public into an undertaking governed by the law of 20 December 2002 relating to undertakings for
collective investment does not cause the fixed capital duty referred to in Article
1 to become payable.
Art. 4. The conversion of a civil company162 or of a commercial company not governed
by the law of 20 December 2002 relating to undertakings for collective
investment into an undertaking subject to the provisions of such law, triggers
the fixed capital duty referred to in Article 1.
Art. 5. The transformation of an undertaking for collective investment subject to the
law of 20 December 2002 relating to undertakings for collective investment
into a civil or commercial company not subject to the provisions of such law,
triggers the capital duties which according to the law of 29 December 1971 on
the tax levied on the aggregation of capital in civil and commercial companies
would have been payable on the aggregation of capital effected during the
period in which the relevant undertaking was subject to the particular conditions of undertakings for collective investment. The fixed capital duty of Article
1 will not be set off against the duties due.
Art. 6. The grand-ducal regulation of 30 March 1988 is abrogated effective
13 February 2007.
Art. 7. Our Minister of the Treasury and Budget is responsible for the execution of the
present regulation which will be published in the Mémorial.
*
This Regulation is no longer applicable following the repeal of Art. 128 of the law of 20 December 2002.
162 société civile
121
GRAND-DUCAL REGULATION OF 14 APRIL 2003 DETERMINING THE CONDITIONS
AND CRITERIA FOR THE APPLICATION OF THE SUBSCRIPTION TAX REFERRED TO
IN ARTICLE 129 OF THE LAW OF 20 DECEMBER 2002 RELATING TO UNDERTAKINGS
FOR COLLECTIVE INVESTMENT
Art. 1. “Money market instruments” as referred to in the provisions of Article 129,
paragraph (2), of the law of 20 December 2002 relating to undertakings for
collective investment, means any debt securities and instruments, irrespective
of whether they are transferable securities or not, including bonds, certificates
of deposits, deposit receipts and all other similar instruments, provided that, at
the time of their acquisition by the relevant undertaking, their initial or residual
maturity does not exceed twelve months, taking into account the financial
instruments connected therewith, or the terms and conditions governing those
securities provide that the interest rate applicable thereto is adjusted at least
annually on the basis of market conditions.
Art. 2. The Commission de Surveillance du Secteur Financier establishes a list of
undertakings for collective investment governed by the law of 20 December
2002, which fulfil the conditions required to benefit from the reduced rate, for
the purpose of calculating the annual subscription tax163. The inscription on
the appropriate list is carried out at the request of the undertakings concerned
which are undertakings the exclusive object of which either is the collective
investment in money market instruments and the placing of deposits with credit
establishments or is the collective placing of deposits with credit establishments. This inscription is subject to the condition that the prospectus of the
applying undertaking specifically indicates its investment policy.
The provisions of the preceding paragraph apply mutatis mutandis to the
individual compartments of an undertaking for collective investment with
multiple compartments.
Art. 3. In order to obtain application of the exemption from the subscription tax in
respect of the value of the assets represented by units of other undertakings
for collective investment which are already submitted to the subscription tax
provided for by Article 129 of the law of 20 December 2002, the undertakings
which hold such units must declare their value separately in the periodical declarations they file with the Administration de l’Enregistrement et des Domaines.
Art. 4. The amended grand-ducal regulation of 14 April 1995 adopted pursuant to
the amended law of 30 March 1988 relating to undertakings for collective
investment is repealed effective 13 February 2007.
Art. 5. Our Ministry of the Treasury and Budget is responsible for the execution of the
163 taxe d’abonnement
122
Grand-Ducal Regulation of 08 February 2008 relating to certain
definitions of the law of 20 December 2002 as amended concerning
undertakings FOR collective investment and implementing the
Directive 2007/16/EC of the European Commission implementing Council
Directive 85/611/EEC on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective
investment in transferable securities (UCITS) as regards the clarification of certain definitions
Art. 1
Art. 2
Subject matter
This Regulation lays down rules clarifying the following terms of the law of
20 December 2002 as amended concerning undertakings for collective investments
(“the law of 20 December 2002 as amended”)
(1) transferable securities, as defined in Article 1, item 26164 of the law of
20 December 2002 as amended;
(2) money market instruments, as defined in Article 1, item 18165 of the law of
20 December 2002 as amended;
(3) liquid financial assets, as referred to in the definition of undertakings for
collective investment (UCITS) laid down in Article 2 paragraph (2) of the law of
20 December 2002 with respect to financial derivative instruments;
(4) transferable securities and money market instruments embedding derivatives,
as referred to in the fourth subparagraph of Article 42 paragraph (3) of the law
of 20 December 2002 as amended;
(5) techniques and instruments for the purpose of efficient portfolio management,
as referred to in Article 42 paragraph (2) of the law of 20 December 2002 as
amended;
(6) index-replicating UCITS, as referred to in Article 44 paragraph (1) of the law of
20 December 2002 as amended.
Transferable securities
(1) The reference in Article 1, item 26166 of the law of 20 December 2002 as
amended to transferable securities shall be understood as a reference to
financial instruments which fulfil the following criteria:
a) the potential loss which the UCITS may incur with respect to holding those
instruments is limited to the amount paid for them;
b) their liquidity does not compromise the ability of the UCITS to comply with
Articles 11 (2), 28 (1) b) and 40 respectively of the law of 20 December
2002 as amended;
c) reliable valuation is available for them as follows:
164 English version item 22; German version item 24
165 English version item 14; German version item 8
166 See footnote 164.
123
i) in the case of securities admitted to or dealt in on a regulated market as
referred to in points (a) to (d) of Article 41(1) of the law of 20 December
2002 as amended, in the form of accurate, reliable and regular prices
which are either market prices or prices made available by valuation
systems independent from issuers;
ii) in the case of other securities as referred to in point (a) of Article 41 (2)
of the law of 20 December 2002 as amended in the form of a valuation
on a periodic basis which is derived from information from the issuer of
the security or from competent investment research;
d) appropriate information is available for them as follows:
i) in the case of securities admitted to or dealt in on a regulated market as
referred to in points (a) to (d) of Article 41(1) of the law of 20 December
2002 as amended in the form of regular, accurate and comprehensive
information to the market on the security or, where relevant, on the
portfolio of the security;
ii) in the case of other securities as referred to in point (a) of Article 41(2)
of the law of 20 December 2002 as amended in the form of regular and
accurate information to the UCITS on the security or, where relevant, on
the portfolio of the security;
e) they are negotiable;
f) their acquisition is consistent with the investment objectives or the investment
policy, or both, of the UCITS pursuant to the law of 20 December 2002 as
amended;
g) their risks are adequately captured by the risk management process of the
UCITS.
For the purposes of points (b) and (e) and unless there is information
available to the UCITS that would lead to a different determination,
financial instruments which are admitted or dealt in on a regulated market
in accordance with points (a), (b) or (c) of Article 41(1) of the law of
20 December 2002 as amended shall be presumed not to compromise
the ability of the UCITS to comply with Articles 11 (2), 28(1) b) and 40
respectively of the law of 20 December 2002 as amended and shall also be
presumed to be negotiable.
(2) Transferable securities as referred to in Article 1, item 26167 of the law of
20 December 2002 as amended shall be taken to include the following:
a) units in closed end undertakings for collective investment constituted as
investment companies or as unit trusts which fulfil the following criteria:
i) they fulfil the criteria set out in paragraph 1 of this Article;
ii) they are subject to corporate governance mechanisms applied to
companies;
iii) where asset management activity is carried out by another entity on
behalf of the closed end undertaking for collective investment, that entity
is subject to national regulation for the purpose of investor protection;
b) units in closed end undertakings for collective investment constituted under
the law of contract which fulfil the following criteria:
124
Art. 3
Art. 4
i) they fulfil the criteria set out in paragraph 1 of this Article;
ii) they are subject to corporate governance mechanisms equivalent to
those applied to companies as referred to in point (a)(ii);
iii) they are managed by an entity which is subject to national regulation for
the purpose of investor protection;
c) financial instruments which fulfil the following criteria:
i) they fulfil the criteria set out in paragraph 1of this Article;
ii) they are backed by, or linked to the performance of, other assets,
which may differ from those referred to in Article 41 (1) of the law of 20
December 2002 as amended.
(3) Where a financial instrument covered by point (c) of paragraph 2 contains an
embedded derivative component as referred to in Article 10 of this Regulation,
the requirements of Article 42 of the law of 20 December 2002 as amended
shall apply to that component.
Instruments normally dealt in on the money market
amended to money market instruments as instruments shall be understood as
a reference to the following:
a) financial instruments which are admitted to trading or dealt in on a regulated
market in accordance with points (a), (b) and (c) of Article 41(1) of the law
of 20 December 2002 as amended;
b) financial instruments which are not admitted to trading.
amended to money market instruments as instruments normally dealt in on
the money market shall be understood as a reference to financial instruments
which fulfil one of the following criteria:
a) they have a maturity at issuance of up to and including 397 days;
b) they have a residual maturity of up to and including 397 days;
c) they undergo regular yield adjustments in line with money market conditions at least every 397 days;
d) their risk profile, including credit and interest rate risks, corresponds to that
of financial instruments which have a maturity as referred to in points (a) or
(b), or are subject to a yield adjustment as referred to in point (c).
Liquid instruments with a value which can be accurately determined at any
time
amended to money market instruments as instruments which are liquid shall be
understood as a reference to financial instruments which can be sold at limited
cost in an adequately short time frame, taking into account the obligation of the
UCITS to repurchase or redeem its units at the request of any unit holder.
125
Art. 5
amended to money market instruments as instruments which have a value
which can be accurately determined at any time shall be understood as a
reference to financial instruments for which accurate and reliable valuations
systems, which fulfil the following criteria, are available:
a) they enable the UCITS to calculate a net asset value in accordance with
the value at which the financial instrument held in the portfolio could be
exchanged between knowledgeable willing parties in an arm’s length transaction;
b) they are based either on market data or on valuation models including
systems based on amortised costs.
(3) The criteria referred to in paragraphs 1 and 2 of this Article shall be presumed
to be fulfilled in the case of financial instruments which are normally dealt in
on the money market for the purposes of Article 1, item 18172 of the law of
20 December 2002 as amended and which are admitted to, or dealt in on, a
regulated market in accordance with points (a), (b) or (c) of Article 41(1) thereof,
unless there is information available to the UCITS that would lead to a different
determination.
Instruments of which the issue or issuer is regulated for the purpose of
protecting investors and savings
(1) The reference in Article 41(1)(h) of the law of 20 December 2002 as amended
to money market instruments, other than those dealt in on a regulated market,
of which the issue or the issuer is itself regulated for the purpose of protecting
investors and savings, shall be understood as a reference to financial instruments which fulfil the following criteria:
a) they fulfil one of the criteria set out in Article 3(2) and all the criteria set out
in Article 4(1) and (2) of this Regulation;
b) appropriate information is available for them, including information which
allows an appropriate assessment of the credit risks related to the investment
in such instruments, taking into account paragraphs 2, 3 and 4 of this
Article;
c) they are freely transferable.
(2) For money market instruments covered by the second and the fourth indents of
Article 41(1)(h) of the law of 20 December 2002 as amended, or for those which
are issued by a local or regional authority of a Member State or by a public
international body but are not guaranteed by a Member State or, in the case of
a federal State which is a Member State, by one of the members making up the
federation, appropriate information as referred to in point (b) of paragraph 1 of
this Article shall consist of the following:
a) information on both the issue or the issuance programme and the legal
and financial situation of the issuer prior to the issue of the money market
instrument;
b) updates of the information referred to in point (a) on a regular basis and
whenever a significant event occurs;
126
c) the information referred to in point (a), verified by appropriately qualified
third parties not subject to instructions from the issuer;
d) available and reliable statistics on the issue or the issuance programme.
(3) For money market instruments covered by the third indent of Article 41(1)(h) of
the law of 20 December 2002 as amended, appropriate information as referred
to in point (b) of paragraph 1 of this Article shall consist of the following information:
a) information on the issue or the issuance programme or on the legal and
financial situation of the issuer prior to the issue of the money market
instrument;
b) updates of the information referred to in point (a) on a regular basis and
whenever a significant event occurs;
c) available and reliable statistics on the issue or the issuance programme or
other data enabling an appropriate assessment of the credit risks related to
the investment in such instruments.
(4) For all money market instruments covered by the first indent of Article 41(1)
(h) of the law of 20 December 2002 as amended except those referred to in
paragraph 2 of this Article and those issued by the European Central Bank or
by a central bank from a Member State, appropriate information as referred to
in point (b) of paragraph 1 of this Article shall consist of information on the issue
or the issuance programme or on the legal and financial situation of the issuer
prior to the issue of the money market instrument.
Art. 6
Establishment which is subject to and complies with prudential rules
considered by the CSSF to be at least as stringent as those laid down by
Community law
The reference in the third indent of Article 41(1)(h) of the law of 20 December 2002
as amended to an establishment which is subject to and complies with prudential
rules considered by the CSSF to be at least as stringent as those laid down by
Community law shall be understood as a reference to an issuer which is subject to
and complies with prudential rules and fulfils one of the following criteria:
(1) it is located in the European Economic Area;
(2) it is located in the OECD countries belonging to the Group of Ten;
(3) it has at least “investment grade” rating;
(4) it can be demonstrated on the basis of an in-depth analysis of the issuer that
the prudential rules applicable to that issuer are at least as stringent as those
laid down by Community law.
Art. 7
Securitisation vehicles which benefit from a banking liquidity line
(1) The reference in the fourth indent of Article 41(1)(h) of the law of 20 December
2002 as amended to securitisation vehicles shall be understood as a reference
to structures, whether in corporate, trust or contractual form, set up for the
purpose of securitisation operations.
(2) The reference in the fourth indent of Article 41(1)(h) of the law of 20 December
2002 as amended to banking liquidity lines shall be understood as a reference
to banking facilities secured by a financial institution which itself complies
with the third indent of Article 41(1)(h) of the law of 20 December 2002 as
amended.
127
Art. 8
128
Liquid financial assets with respect to financial derivative instruments
(1) The reference in Article 2(2) of the law of 20 December 2002 as amended to
liquid financial assets shall be understood, with respect to financial derivative
instruments, as a reference to financial derivative instruments which fulfil the
following criteria:
a) their underlyings consist of one or more of the following:
i) assets as listed in the first indent of Article 41(1)(g) of the law of 20
December 2002 as amended including financial instruments having one
or several characteristics of those assets;
ii) interest rates;
iii) foreign exchange rates or currencies;
iv) financial indices;
b) in the case of OTC derivatives, they comply with the conditions set out in
the second and third indents of Article 41(1)(g) of the law of 20 December
2002 as amended.
(2) Financial derivative instruments as referred to in Article 41(1)(g) of the law of
20 December 2002 as amended shall be taken to include instruments which
fulfil the following criteria:
a) they allow the transfer of the credit risk of an asset as referred to in point (a)
of paragraph 1 of this Article independently from the other risks associated
with that asset;
b) they do not result in the delivery or in the transfer, including in the form of
cash, of assets other than those referred to in Article 41(1) and (2) of the
law of 20 December 2002 as amended;
c) they comply with the criteria for OTC-derivatives laid down in the second
and third indents of Article 41(1)(g) of of the law of 20 December 2002 as
amended and in paragraphs 3 and 4 of this Article;
d) their risks are adequately captured by the risk management process of
the UCITS, and by its internal control mechanisms in the case of risks
of asymmetry of information between the UCITS and the counterparty to
the credit derivative resulting from potential access of the counterparty to
non-public information on firms the assets of which are used as underlyings
by credit derivatives.
(3) For the purposes of the third indent of Article 41(1)(g) of the law of 20 December
2002 as amended, the reference to fair value shall be understood as a reference
to the amount for which an asset could be exchanged, or a liability settled,
between knowledgeable, willing parties in an arm’s length transaction.
(4) For the purposes of the third indent of Article 41(1)(g) of the law of 20 December
2002 as amended, the reference to reliable and verifiable valuation shall be
understood as a reference to a valuation, by the UCITS, corresponding to
the fair value as referred to in paragraph 3 of this Article, which does not rely
only on market quotations by the counterparty and which fulfils the following
criteria:
Art. 9
a) the basis for the valuation is either a reliable up-to-date market value of
the instrument, or, if such a value is not available, a pricing model using an
adequate recognised methodology;
b) verification of the valuation is carried out by one of the following:
i) an appropriate third party which is independent from the counterparty of
the OTC-derivative, at an adequate frequency and in such a way that
the UCITS is able to check it;
ii) a unit within the UCITS which is independent from the department in
charge of managing the assets and which is adequately equipped for
such purpose.
(5) The reference in Articles 2(2) and 41(1)(g) of the law of 20 December 2002 as
amended to liquid financial assets shall be understood as excluding derivatives
on commodities.
Financial indices
(1) The reference in point (g) of Article 41(1) of the law of 20 December 2002 as
amended to financial indices shall be understood as a reference to indices
which fulfil the following criteria:
a) they are sufficiently diversified, in that the following criteria are fulfilled:
i) the index is composed in such a way that price movements or trading
activities regarding one component do not unduly influence the
performance of the whole index;
ii) where the index is composed of assets referred to in Article 41(1) of the
law of 20 December 2002 as amended, its composition is at least diversified in accordance with Article 44 of that law;
iii) where the index is composed of assets other than those referred to in
Article 41(1) of the law of 20 December 2002 as amended, it is diversified in a way which is equivalent to that provided for in Article 44 of that
law;
b) they represent an adequate benchmark for the market to which they refer,
in that the following criteria are fulfilled:
i) the index measures the performance of a representative group of underlyings in a relevant and appropriate way;
ii) the index is revised or rebalanced periodically to ensure that it continues
to reflect the markets to which it refers following criteria which are publicly
available;
iii) the underlyings are sufficiently liquid, which allows users to replicate the
index, if necessary;
c) they are published in an appropriate manner, in that the following criteria are
fulfilled:
i) their publication process relies on sound procedures to collect prices and
to calculate and to subsequently publish the index value, including pricing
procedures for components where a market price is not available;
ii) material information on matters such as index calculation, rebalancing
methodologies, index changes or any operational difficulties in providing
timely or accurate information is provided on a wide and timely basis.
129
(2) Where the composition of assets which are used as underlyings by financial
derivatives in accordance with Article 41(1) of the law of 20 December 2002
as amended does not fulfil the criteria set out in paragraph 1 of this Article,
those financial derivatives shall, where they comply with the criteria set out
in Article 8(1) of this Regulation, be regarded as financial derivatives on
a combination of the assets referred to in points (i), (ii) and (iii) of Article 8(1)
(a).
Art. 10 Transferable securities and money market instruments embedding a
derivative
(1) The reference in the fourth subparagraph of Article 42(3) of the law of 20
December 2002 as amended to transferable securities embedding a derivative
shall be understood as a reference to financial instruments which fulfil the
criteria set out in Article 2(1) of this Regulation and which contain a component
which fulfils the following criteria:
a) by virtue of that component some or all of the cash flows that otherwise
would be required by the transferable security which functions as host
contract can be modified according to a specified interest rate, a financial
instrument price, a foreign exchange rate, an index of prices or rates, a
credit rating or credit index, or another variable, and therefore vary in a way
similar to a stand-alone derivative;
b) its economic characteristics and risks are not closely related to the economic
characteristics and risks of the host contract;
c) it has a significant impact on the risk profile and pricing of the transferable
security.
(2) Money market instruments which fulfil one of the criteria set out in Article
3(2) and all the criteria set out in Article 4(1) and (2) of this Regulation and
which contain a component which fulfils the criteria set out in paragraph 1
of this Article shall be regarded as money market instruments embedding a
derivative.
(3) A transferable security or a money market instrument shall not be regarded as
embedding a derivative where it contains a component which is contractually
transferable independently of the transferable security or the money market
instrument. Such a component shall be deemed to be a separate financial
instrument.
Art. 11 Techniques and instruments for the purpose of efficient portfolio
management
techniques and instruments which relate to transferable securities and which
are used for the purpose of efficient portfolio management shall be understood
as a reference to techniques and instruments which fulfil the following criteria:
a) they are economically appropriate in that they are realised in a cost-effective way;
b) they are entered into for one or more of the following specific aims:
i) reduction of risk;
ii) reduction of cost;
iii) generation of additional capital or income for the UCITS with a level of
risk which is consistent with the risk profile of the UCITS and the risk
130
diversification rules laid down in Article 43 of the law of 20 December
2002 as amended.
c) their risks are adequately captured by the risk management process of the
UCITS.
(2) Techniques and instruments which comply with the criteria set out in paragraph
1 and which relate to money market instruments shall be regarded as techniques
and instruments relating to money market instruments for the purpose of efficient
portfolio management as referred to in Article 42(2) of the law of 20 December
2002 as amended.
Art. 12 Index replicating UCITS
replicating the composition of a stock or debt securities index shall be understood as a reference to replication of the composition of the underlying assets of
the index, including the use of derivatives or other techniques and instruments
as referred to in Article 42(2) of the law of 20 December 2002 as amended and
Article 11 of this Regulation.
(2) The reference in the first indent of Article 44(1) of the law of 20 December 2002
as amended to an index whose composition is sufficiently diversified shall be
understood as a reference to an index which complies with the risk diversification rules of said Article 44.
(3) The reference in the second indent of Article 44(1) of the law of 20 December
2002 as amended to an index which represents an adequate benchmark shall
be understood as a reference to an index whose provider uses a recognised
methodology which generally does not result in the exclusion of a major issuer
of the market to which it refers.
(4) The reference in the third indent of Article 44(1) of of the law of 20 December
2002 as amended to an index which is published in an appropriate manner shall
be understood as a reference to an index which fulfils the following criteria:
a) it is accessible to the public;
b) the index provider is independent from the index-replicating UCITS.
Point (b) shall not preclude index providers and the UCITS forming part
of the same economic group, provided that effective arrangements for the
management of conflicts of interest are in place.
Art. 13 Final Provisions
(1) This present Regulation will enter into force four days following its publication in
the Mémorial.
(2) UCITS already in existence benefit from a time period until 23 July 2008 at the
latest to comply with the provisions of this Regulation.
(3) Any reference to this Regulation may be made under the abbreviated title “GrandDucal Regulation relating to certain definitions of the law of 20 December 2002 as
amended concerning undertakings for collective investments”.
Art. 14 Execution
Our Ministry of the Treasury and Budget is responsible for the execution of the
131
IML CIRCULAR 91/75 OF 21 JANUARY 1991
Revision and remodelling of the rules to which Luxembourg undertakings governed
by the Law of 30 March 1988 on undertakings for collective investment (“UCI”) are
subject
This circular repeals and replaces IML circular 88/48 of 8 April 1988 and the former circulars
which remained applicable to UCIs following the entry into force of the prementioned Law of
30 March 1988.
The circulars thus repealed in addition to IML circular 88/48 of 8 April 1988, are circulars VM
47 of 7 August 1978, VEF 48 of 7 November 1978, IML 84/12 of 8 March 1984, IML 84/13 of
9 March 1984, IML 84/15 of 30 March 1984, IML 85/23 of 25 March 1985 and IML 88/47 of
5 April 1988.
In accordance with its objective of clarification and simplification, the main object of this circular is to adapt and to specify the rules of the repealed circulars in light of the acquired experience during the practical application thereof and to reproduce the thus revised rules in one
single text with the following summary: (173)
173 Note: The summary is reproduced at the beginning of this brochure.
132
CHAPTER A
PURPOSE AND SCOPE OF THE LAW OF 30 March 1988.
The purpose of the Law of 30 March 1988 is the protection of the investor who is canvassed
by promoters the activity of which is the collection of funds in order to invest them collectively
in accordance with the principle of risk-spreading.
In accordance with its objective, the Law of 30 March 1988 determines the legal and regulatory frame in which this activity may be exercised and pursuant to which it is submitted to the
supervision of the Commission de Surveillance du Secteur Financier (“CSSF”)174 which is the
supervisory authority.
The exercise of the activity subject to the Law of 30 March 1988 is exclusively restricted to
those undertakings which qualify as UCIs in accordance with the definition given in Chapter
B hereafter; it follows from there that such activity, if exercised in Luxembourg, must be considered as illegal where it is exercised without the scope of this Law.
On the other hand, an undertaking which, in practice, does not meet the conditions for application of the Law of 30 March 1988 may not claim the status of a UCI by voluntarily submitting
to the provisions of the Law.
174 The initial regulator was the Institut Monétaire Luxembourgeois (IML) who became the Banque Centrale du
Luxembourg (BCL) on 1 June 1998. The CSSF was created on 1 January 1999 and replaced the BCL as the
supervisory authority of the financial sector. Whilst the text of this circular has not been formally amended, all
references in this translation to the IML have been replaced by references to the CSSF.
133
CHAPTER B
DEFINITION OF THE MEANING OF UCI
I. Criteria by which the meaning of UCI is being defined.
In order to qualify as an activity governed by the Law of 30 March 1988, it is required, and it
suffices, that the following conditions are cumulatively met:
– the collective investment of savings;
– the savings used for collective investment must have been collected from the public;
– the investment which forms the object of the collective investment must be made in accordance with the principle of risk-spreading.
Collective investment of savings shall be taken to mean the collective investment of funds
collected individually from the public. This investment may be made in transferable securities
or other assets. The objective is to obtain a yield or a capital gain. Hence the objective of UCIs
is not to acquire an interest for a purpose beyond that of obtaining a yield, namely to secure
influence or even control. Furthermore, the holding of such an interest entails a long-term
holding objective, whereas for UCIs the retention of assets in the portfolio only depends upon
the yield or the capital gains potential thereof. By way of exception, certain types of UCIs,
such as those investing in venture capital, may sometimes acquire more substantial interests
in companies of which they hold shares and even intervene in the management of such companies by the appointment of one or several representatives to the board of directors. Such
involvement, however, does not have control as an objective but is dictated by the particular
nature of the investments of such undertakings.
The public is canvassed where the collection of funds assigned to collective investment is not
restricted to a small circle of persons only.
In respect to the principle of risk-spreading, the purpose of its application is to prevent an excessive concentration of the investments which are the subject of the collective investment.
The above specified criteria of definition are common to all categories of UCIs provided for by
the Law of 30 March 1988. Indeed, depending upon the category to which they belong, UCIs
governed by the Law of 30 March 1988 only differ from one another by their legal form or by
their collective investment objective.
II. Practical application of the criteria retained for the definition of the meaning of UCI.
In principle, there is no problem to appreciate whether the conditions for application of the
Law of 30 March 1988 are met in case of common funds (“FCP”) and investment companies
with variable capital (“SICAV”). In case of undertakings which do not have the legal form of
common fund or SICAV, it is however sometimes difficult in practice to determine whether
the Law of 30 March 1988 is applicable to them or not. In such case, the supervisory authority will in the first instance rely on the definition criteria set out in the preceding Section I. in
order to determine whether such undertakings do or do not meet the required conditions for
UCI qualification.
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If the review of the application file based on these criteria is not sufficient to conclude with the
necessary certainty as to whether the Law of 30 March 1988 is applicable, further elements
will have to be taken into account such as the organisation and the general structure of such
undertakings, i.e. the systematic redemption of shares, the existence of an investment advisory company, the charging of commissions on the purchase of securities in such undertakings and for the management thereof.
Thus, in application of the preceding principles, financial investment companies set up with
the purpose of control, are excluded from the scope of application of the Law of 30 March
1988 because their activity is not the collective investment of savings. The same applies to
family holding companies and investment clubs which, even though their objective is the collective investment of savings, do not collect savings from the public.
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CHAPTER C
CLASSIFICATION OF THE UCIs SITUATED IN LUXEMBOURG
A UCI shall be deemed to be situated in Luxembourg if the registered office of the management company of the common fund or the registered office of the investment company is
situated in Luxembourg. UCIs situated in Luxembourg will be referred to hereafter as Luxembourg UCIs.
Depending on their characteristics, Luxembourg UCIs will be subject either to Part I or Part II
of the Law of 30 March 1988.
This classification permits to distinguish between
– undertakings within the meaning of Council Directive 85/611/EEC of 20 December 1985
on the co-ordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (the “85/611/EEC Directive”);
and
– the other undertakings which do not fall within the scope of application of the 85/611/EEC
Directive.
The consequences of this distinction are more fully specified in section III. hereafter.
I. Definition of the UCIs governed by Part I of the Law of 30 March 1988.
Part I of the Law of 30 March 1988 applies to all undertakings for collective investment in
transferable securities (“UCITS”) which are defined as being UCIs the exclusive object of
which is the investment in transferable securities.
Considering this definition, the criteria which determines whether a UCI is subject to Part I or
Part II of the Law of 30 March 1988, is the intended investment objective. If the undertaking
invests in transferable securities, it is subject to Part I, save for the exceptions commented in
section II. hereafter.
UCITS subject to Part I of the Law of 30 March 1988 are of the open-ended type, since the
rules to which they are subject to provide for the obligation to directly or indirectly redeem
their units or shares at the request of the investors.
The consequences of this distinction are more fully specified in section III hereafter.
II. Definition of the UCIs governed by Part II of the Law of 30 March 1988.
Part II of the Law of 30 March 1988 applies to all UCIs the principal object of which is the
investment in securities other than transferable securities and to all UCITS excluded from
Part I.
In its Article 2, the Law of 30 March 1988 provides for exceptions to the basic rule reproduced
in section I. above, by excluding from the scope of application of Part I certain categories of
UCITS. That is the transposition in national law of the corresponding provisions of the 85/611/
EEC Directive.
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The following types of UCITS are concerned by this exclusion:
1. UCITS of the closed-ended type.
These UCITS can be defined by distinguishing them from open-ended UCITS which directly or indirectly redeem their units or shares at the request of investors.
The reimbursement to investors after a decision of the management bodies is not tantamount to a redemption if such reimbursement occurred without any request from investors
which would have been based on a right to request redemption.
If the securities issued by UCITS of the closed-ended type are redeemed at the request of
investors after a certain date, such undertaking shall fall within the scope of application of
Part I of the Law of 30 March 1988 from such date onwards, unless it belongs to one of the
other categories of UCITS described in paragraphs 2. to 4. hereafter. In case this feature
is established at inception, the prospectus must from the outset attract the investors’ attention to that fact and to the eventual consequences thereof, inter alia on the investment
policy.
A UCITS, the constitutional documents of which provide for the right of investors to request redemptions, cannot qualify as being of the closed-ended type and as such fall
outside the scope of application of Part I of the Law of 30 March 1988, upon the grounds
that it provides for limitations on the exercice of such right. As a UCITS subject to the provisions of Part I, it must relinquish such limitations insofar as their purpose is to subject the
exercice of the right to redeem to conditions and procedures which render redemptions
practically impossible or unnecessarily and arbitrarily complicated or provide for unnecessary and arbitrary intervals.
2. UCITS which raise capital without promoting the sale of their units or shares to the
public within the European Union (“EU”)175 or any part of it.
The exclusion from Part I of the Law of 30 March 1988 does not dispense the UCITS concerned from the condition of the collection of public savings which all undertakings must
comply with in order to qualify as UCI; it simply prohibits the UCITS in question to engage
in any promotional activity within the EU; the terms “promotional activity” refer in particular
to the use of advertisement methods such as press, radio, television or advertisement
circulars. It does however not refer to offers for subscription which are addressed to a limited, particularly knowledgeable circle of investors such as pension funds and insurance
companies.
It follows from the above that the UCITS concerned hereby are those which, even though
they are addressed to the public, renounce any promotional activity within the EU.
3. UCITS the units or shares of which may, under their constitutional documents, only
be sold to the public in countries which are not members of the EU.
To this category belong UCITS the units or shares of which are listed on the Luxembourg
Stock Exchange and which market those units or shares solely outside the EU.
175 The designation European Economic Community (EEC) which is featured in this circular is replaced by “European
Union” (EU) as a consequence of Article A of the Maastricht Treaty of 7 February 1992 establishing a European
Union. This circular has not been formally amended but this publication will refer to the new designation.
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The supervisory authority does not interfere in the delimitation of the scope of application. The exclusion only operates at the condition that the management regulations or the
articles of incorporation of these UCITS provide expressly that the sale of their units or
shares is limited to the public of countries which are not members of the EU.
4. Categories of UCITS determined by the supervisory authority for which the rules
laid down in Chapter 5 of the Law of 30 March 1988 are inappropriate in view of their
investment and borrowing policies.
UCITS covered by this exclusion belong to one of the following categories:
4.1. Undertakings the investment policy of which provides for the investment of 20% or
more of their net assets in venture capital. Investment in venture capital shall be
taken to mean investment in securities of companies which have been recently constituted or which are still in the early development stage.
more of their net assets (other than liquid assets) in securities other than the transferable securities provided for in Article 40 (1) of the Law of 30 March 1988.
4.3. Undertakings the investment policy of which provides for the permanent borrowing
for investment purposes of at least 25% of their net assets.
more of their net assets in other open-ended UCIs.
more of their net assets in money market instruments and liquid assets (including
any regularly negotiated money market instruments the residual maturity of which
does not exceed 12 months) other than the transferable securities provided for in
Article 40 (1) of the Law of 30 March 1988.
more of their net assets in liquid assets.
4.7. Multiple compartment undertakings, one compartment of which is not subject to Part
I of the Law of 30 March 1988 by reason of its investment or borrowing policy.
III. Status of UCITS (Part I) and of other UCIs (Part II) in the European context.
For the regulation of UCITS subject to it, Part I of the Law of 30 March 1988 takes as a basis
the provisions of the 85/611/EEC Directive. Consequently, these UCITS conform to the entirety of the requirements of those provisions. They thus benefit from the status of EU UCITS
which gives them the right to freely market their units or shares in the whole of the territory
of the EU.
UCIs, other than UCITS governed by Part I of the Law of 30 March 1988, may not rely upon
the marketing facilities provided for by the 85/611/EEC Directive since they are excluded from
the scope of application thereof. Consequently, where such UCIs wish to market their units
or shares in other countries of the EU, they must comply with the specific conditions to which
the authorities of the countries concerned may, as the case may be, subject the authorisation
of UCIs which do not have the status of EU UCITS.
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CHAPTER D
RULES CONCERNING THE CENTRAL ADMINISTRATION OF LUXEMBOURG UCIs.
Under the provisions of the Law of 30 March 1988, the central administration of any Luxembourg UCI must be situated in Luxembourg. This requirement must ensure that the
supervisory authority, the depositary and the auditor may easily perform their respective
legal duties.
I. Definition of the meaning of central administration in Luxembourg.
The legal requirement that central administration be situated in Luxembourg implies inter alia
that:
– the accounts must be kept, and the accounting documents must be available, in Luxembourg;
– issues and redemptions must be carried out in Luxembourg;
– the register of participants must be kept in Luxembourg;
– the prospectus, financial reports and all other documents intended for investors must be
established in co-operation with the central administration in Luxembourg;
– the correspondence, dispatch of financial reports and of all other documents intended for
shareholders or unitholders must be carried out from Luxembourg and, in any case, under
the responsibility of the central administration in Luxembourg;
– the calculation of the net asset value must be carried out in Luxembourg.
It appears from the preceding enumeration that the meaning of central administration in Luxembourg exclusively includes accounting and administrative functions. It therefore neither excludes the possibility for Luxembourg UCIs to obtain assistance for the management of their
assets from investment advisors established abroad nor does it prevent that the decisions in
relation with that management (investment and disinvestment decisions) are made and executed elsewhere than in Luxembourg.
II. Organisation of the central administration in Luxembourg.
A Luxembourg UCI or its management company, where it is made up in the form of a common fund, is not obliged to perform itself the tasks connected to the accounting and administrative duties of the central administration in Luxembourg.
By a service contract, it may indeed entrust to a third party established in Luxembourg the
exercice of those duties which essentially concern the execution of the tasks set out in section
I. above. Upon the condition that a division of such tasks is not detrimental to the satisfactory performance of the central administration, this third party may delegate the execution of
specific tasks to one or more other providers of services established in Luxembourg subject
to it ensuring the co-ordination, general supervision and liability therefore.
It is also conceivable that a Luxembourg UCI may by separate service agreements organise
itself the division of tasks connected to the duties of central administration amongst various
providers of services established in Luxembourg provided that it must, in such case, be in the
position to co-ordinate and supervise itself the execution of such tasks unless it entrusts such
a mission to a duly qualified agent. Such agent then becomes the contact of the CSSF in its
relationship with the central administration of the relevant UCI.
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In both cases, the division of tasks connected to the duties of central administration must not
result in an excessive parcelling which renders the exercise of the coordination and general
supervisory function difficult if not impossible or which unnecessarily increases costs by unjustified overlapping.
For the reasons mentioned above, it is therefore recommended not to provide for too complicated and costly constructions or structures.
On the basis of the above, the CSSF considers that tasks as intimately connected as the
execution of issues and redemptions and the keeping of the register of participants may only
be entrusted to one single provider of services. The CSSF considers furthermore that it is not
conceivable to have different providers of services execute jobs relating to the same task.
Thus for instance, it is not admissible to have more than one provider of services perform the
execution of the necessary tasks in relation to the keeping of the accounts.
In organising its relationship with the depositary of the UCI which it administers, the central administration in Luxembourg must, by the operation of appropriate procedures, ensure
the satisfactory performance of information circuits and information flow necessary to obtain
upon request from the depositary all information and data required in order to establish the
position of the assets and liabilities of the UCI and to calculate net asset value.
The UCI, in case it ensures itself its own administration, or the providers of services which
may be appointed therefore, must have the necessary infrastructure in Luxembourg, i.e. sufficient human and technical means in order to accomplish the entirety of the tasks connected
to the duties of central administration in Luxembourg. This implies the localisation in Luxembourg of equipment and material used by the central administration as technical support for
the execution of its duties.
III. Execution of the accounting and administrative duties referred to by the meaning
of central administration in Luxembourg.
1. Keeping of the accounts, calculation of the net asset value and availability of basic
documentation relating to the UCI and its operations.
Where the central administration in Luxembourg uses a remote-access computing network as technical support for the execution of the tasks connected to the keeping of the
accounts and/or the calculation of the net asset value (such as operations necessary
for the valuation of the portfolio of securities, the determination of the amount of income
generated by such portfolio and the conversion in the currency of account of the UCI of
assets denominated in another currency), the requirement of localisation in Luxembourg
of the equipment and material necessary for the operation of such administration does
not exclude that the unit which is intended to ensure the processing of accounting and
other information which is entered in the network used may be situated elsewhere than in
Luxembourg.
The possible location abroad of the processing unit is however subject to the following
conditions:
– the central administration must have at its disposal in Luxembourg necessary means to
enter information in the processing unit of the remote-access computing network used
and to withdraw such information. Its access to the information memorised in the network
processing unit must be immediate and unlimited and must inter alia permit the instantaneous and full production of any data necessary for normal operation;
– the central administration must be aware of the operating conditions of the processing unit
and must give its consent for alterations to its programme;
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– the central administration must have the possibility to directly engage in the processing of
information memorised in the processing unit;
– information memorised in the processing unit must be transferred upon each valuation of
the assets, but at least once a week and, as the case may be, more frequently, if required
by safety necessities, on memory supports which are situated and which may be operated
in Luxembourg;
– the promoters must have at their disposal the necessary means to enable the central
administration to continue to operate normally in case of exceptional events such as the
interruption of the means of communication with the processing unit or the nonfunctioning
thereof for an extended period;
– where the central administration uses the remote-access computing network together
with other users which do not participate in the operations of the UCI, the central administration must ensure by the establishment of adequate protection measures that these users may not, at the level of the processing unit, have access to the information concerning
the UCI, in order to prevent them from obtaining knowledge of that information or altering
or deleting the same.
The conditions set out under the first, second, third and last indents above apply mutatis
mutandis where the network processing unit used is situated in Luxembourg.
In principle, it is the central administration’s responsibility to proceed in Luxembourg, as the
case may be in cooperation with the depositary, with the operations necessary to enter the
information relating to the operation of the UCI into the remote-access computing network
used wherever the processing unit of the network used is situated. This does not exclude that
portfolio managers established abroad may immediately access the relevant network and
set in motion the accounting operations connected to the execution of the decisions taken by
them within the scope of their management mandate. It does furthermore not exclude that
other agents participating in the operations of the UCI may proceed in the same way.
Such intervention by portfolio managers and by other agents the services of which are being
used, is however subject to the following conditions:
– the central administration must ensure by the establishment of adequate protection measures that these agents may not access information other than that which is necessary for
the execution of their respective duties notwithstanding the provisions concerning professional secrecy;
– the UCI must install, at the management level, supervisory procedures which are able to
ensure the regularity of the operations initiated by the portfolio managers with respect to
the obligations to which it is subject to under the Law of 30 March 1988 as well as under
its constitutional documents and prospectus.
Since the central administration in Luxembourg assumes the ultimate liability for the accuracy
of the financial information relating to the UCI, it alone is authorised to proceed with the allocations, apportionments and provisions necessary for finalising the calculation of the net
asset value, these operations concerning in particular the charges, expenses and taxes due
by the UCI.
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The central administration must have at its disposal in Luxembourg all accounting and other
documents which constitute the essential documentation of the UCI and which are necessary
for:
– the preparation of accounts and valuations;
– the drawing-up of certificates of title and of indebtedness;
– the establishment of the allotment of units or shares outstanding; and
– the general protection of the interests of the UCI such as the depositary agreement, the
agreements made with the portfolio managers as well as any other agreements with providers of services which participate in the operation of the UCI.
The requirement as to availability in Luxembourg of the essential documentation of the UCI
implies that the documents relating to transactions initiated from abroad must forthwith be
forwarded to Luxembourg.
2. Execution of issues and redemptions.
2.1. Role of the central administration in Luxembourg in connection with the execution of
issues and redemptions.
The requirement for issues and redemptions to take place in Luxembourg implies
that the performance of the tasks connected to the processing of subscription and
redemption orders for the securities issued by Luxembourg UCIs, is to be carried
out by the central administration in Luxembourg of such UCIs. This means that it is
in principle up to the central administration in Luxembourg to determine the prices
at which the subscription and redemption orders must be calculated, to draw up
subscription or redemption contract notes and the share and unit certificates and to
dispatch such documents to the individual investors.
The requirement relating to the execution in Luxembourg of issues and redemptions
does not prohibit Luxembourg UCIs to appoint Luxembourg or foreign intermediaries
as authorised financial agents and representatives for the placing and redemption of
their units or shares.
Such intermediaries are then authorised to collect subscription and redemption orders for the units or shares of the UCIs by which they have been appointed. Subject
to the conditions specified under heading 2.2. hereafter, they may participate in the
placing and redemption operations either as distributors, or as nominees or market
makers.
Provided that the recourse to the intermediaries referred to above may in no way
restrict the ability of investors to deal directly with the UCI of their choice when placing their subscription and redemption orders. It is therefore necessary for UCIs to
explicitly and apparently mention this possibility in their prospectus.
2.2. Conditions subject to which intermediaries may participate in placing and redemption
operations.
2.2.1. Conditions applicable to distributors.
Distributors are intermediaries who are part of the distribution process set
up by the promoters whether they actively participate in the marketing of the
securities issued by a UCI or whether they are appointed in the prospectus
or in any other document as being authorised to receive subscription and
redemption orders on behalf of that UCI.
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For the purposes of the processing of the subscription and redemption orders
collected by them, the distributors must forthwith transmit to the central administration in Luxembourg the data necessary for the timely accomplishment
of the entirety of the tasks connected to the processing of such orders.
In case the subscription or redemption orders concern registered securities,
distributors obviously shall provide the central administration in Luxembourg
with the registration data necessary to accomplish on an individual basis the
tasks referred to above.
Subject to the provisions of heading 2.3. below, this obligation does not exist in case the issue and redemption orders relate to bearer securities. In
such case, distributors act in the capacity of subscribers vis-à-vis the central
administration in Luxembourg. They may therefore aggregate individual subscription and redemption orders and transmit them in the form of a combined
order to the central administration in Luxembourg. In doing so, the distributors may, where appropriate after set-off, purchase or sell the whole of the
securities subscribed to or redeemed from investors to be followed by the
subsequent allotment thereof according to the individual orders received.
It is not necessary for distributors to forward to the central administration in
Luxembourg the documentation relating to subscription and redemption orders from investors. However, where such documentation is not forwarded to
Luxembourg, the distributors must allow the administration in Luxembourg to
have access thereto without any restriction in case of need.
Where the distributors are authorised to receive and make settlement payments in respect of the subscription and redemption orders collected by them,
they may aggregate and set off individual payments in order to deal on a net
basis with the central administration in Luxembourg. This possibility is available for orders relating to registered shares and for orders relating to bearer
shares.
In order to facilitate delivery of certificates, a Luxembourg UCI and its depositary may enter into an agreement with the distributors pursuant to which the
latter are authorised to hold a stock of unissued certificates. In such case, the
distributors must be duly authorised by such agreement to deliver their bearer
certificates to subscribers in accordance with the instructions from the central
administration in Luxembourg.
2.2.2. Conditions applicable to nominees.
Nominees act as intermediaries between investors and the UCIs of their
choice. Where the intervention of a nominee is an integral part of the distribution arrangement set up by the promoters, the relationship between the
UCI, the nominee, the central administration in Luxembourg and the investors
must be determined by contract which shall provide for their respective obligations. The promoters must nevertheless ensure that the nominee presents
sufficient guarantees for the proper execution of its obligations towards the
investors who utilise its services. The intervention of a nominee is only authorised if the following conditions are met:
a) the role of the nominee must be adequately described in the prospectuses;
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b) the investors must have the possibility to directly invest in the UCIs of their
choice without using a nominee and prospectuses must expressly state
this fact;
c) the agreements between the nominee and the investors must include a
termination clause which gives the investors the right to claim, at any time,
direct title to the securities subscribed through the nominee.
It is understood that the conditions set out sub b) and c) are not applicable in
circumstances where the use of the services of a nominee is indispensable or
even compulsory for legal, regulatory or compelling practical reasons.
2.2.3. Conditions applicable to market makers.
Market makers are intermediaries which participate for their own account and
at their own risk in subscription and redemption transactions on securities issued by UCIs. Where the organisation of a market by such intermediaries is
an integral part of the distribution arrangement set up by the promoters, the
relationship between the UCI, the central administration in Luxembourg and
the market makers must be determined by contract.
Additionally, the following conditions must be met:
a) the role of the market makers must be adequately described in the prospectuses;
b) the market makers may not act as counterparts to subscription and redemption transactions without the specific approval of the investors initiating the relevant transactions;
c) market makers may not price subscription and redemption orders addressed to them on less favourable terms than those that would be applied to such orders had they been directly processed by the relevant
UCIs;
d) market makers must regularly notify to the central administration in Luxembourg the orders executed by them where such orders relate to registered securities, in order to ensure (i) that the data relating to investors
are updated in the register of unitholders or shareholders and (ii) that the
registered certificates or confirmations of investment may be forwarded
from Luxembourg to the new investors.
2.3. Duties of the central administration in Luxembourg and of the marketing intermediaries in respect of the prevention of the laundering of drug trafficking proceeds.
IML circular 89/57 of 15 November 1989 on the laundering of drug trafficking proceeds is in principle applicable to Luxembourg UCIs.
When considering the particular way the UCI industry is operating, notably in the
area of marketing, it appears that it is often extremely difficult for the central administration in Luxembourg to know the identity of investors the subscription and redemption orders of which are collected by Luxembourg or foreign intermediaries.
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Considering the above, a derogatory system is applicable to subscription and redemption orders collected by intermediaries established, or the activities of which
in this respect are exercised, in a State which belongs to the Financial Action Task
Force on Money Laundering established after the “Arch” summit in June 1989 or
which applies the recommendations issued by this Task Force.
The central administration in Luxembourg is not obliged to check the identity of investors, the orders of which emanate from such intermediaries, such checking being
made in the State where these orders are collected. The status of the foreign intermediary must however be verified and unusual transactions monitored.
In respect of subscription or redemption orders collected by intermediaries established in States which do not apply the recommendations issued by the Task Force,
the central administration in Luxembourg is fully responsible for the compliance with
the rules specified in IML circular 89/57.
3. Maintenance of the register of participants.
The requirement for the register of participants to be kept in Luxembourg not only implies
that such register must be permanently available there, but also implies the obligation
for the central administration in Luxembourg to perform in Luxembourg the registrations,
alterations or deletions necessary to ensure the regular update thereof.
Where the central administration in Luxembourg uses a remote-access computing network as technical support for the performance of these duties, it may, subject to applying
the security and protection measures described under heading 1. above and whilst preserving the confidentiality required by legal and regulatory requirements, use the network
to access and store the registration data relating to participants in the processing unit. The
processing unit then constitutes the storage facility required for the maintenance of the
register of participants.
Distributors who are connected to the remote-access computing network used may,
through this network, transmit to the central administration in Luxembourg the information
relating to the issue and redemption orders collected by them so that it can initiate in the
network the necessary operations to update the data of the participants’ register stored in
the processing unit.
4. Drawing up of prospectuses, financial reports and other documents intended for
investors.
The requirement for prospectuses, financial reports and other documents intended for
investors to be drawn up in cooperation with the central administration in Luxembourg
only relates to the intellectual tasks necessary for the drawing up of these documents
as opposed to the physical realisation thereof. For the performance of these tasks, this
requirement does not exclude the limited recourse to experts, advisors and other specialised providers of services established abroad.
Since technical or purely physical tasks are not addressed by this requirement, the central administration in Luxembourg may use the services of printers or other providers of
services established abroad in connection with the physical production of the documents
intended for investors.
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5. Correspondence and dispatch of prospectuses, financial reports and other documents intended for investors.
The requirement for correspondence and dispatch of prospectuses, financial reports and
other documents intended for investors to be made from Luxembourg is intended to safeguard the confidentiality of data relating to investors who directly apply to the central
administration in Luxembourg to place their subscription orders or the names of which
appear in the register of participants.
Save for the case specified below, only the central administration in Luxembourg may,
in accordance with this objective, carry out from Luxembourg the dispatches intended for
the investors referred to above, including the case where these dispatches concern documents printed abroad. As an exception to this rule, dispatches to the relevant investors
may be carried out from abroad (e.g. from the printer’s address) provided such dispatches
are made under the supervision of the central administration in Luxembourg.
It must then ensure by adequate measures of protection that non-authorised third parties
may not access data relating to investors for whom the dispatches are intended for.
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CHAPTER E
RULES CONCERNING THE DEPOSITARY OF A LUXEMBOURG UCI.
I. Conditions of admission to the activity of depositary.
The admission to the activity of depositary of a UCITS subject to Part I of the Law of 30 March
1988 is exclusively limited to banks incorporated under Luxembourg Law or Luxembourg
branches of banks established in an EU Member State.
This also applies to the depositary of a UCI subject to Part II of the Law of 30 March 1988
save that such depositary may also be a Luxembourg branch of a bank established in a nonmember State of the EU.
Pursuant to Article 71(2) of the Law of 30 March 1988, a UCI may only be authorised if the
supervisory authority approves the choice of the depositary. This approval is only given if the
proposed depositary can justify that it possesses the necessary infrastructure to perform the
totality of the tasks relating to its duties, namely sufficient human and technical resources.
II. General mission of the depositary.
Pursuant to the Law of 30 March 1988, the custody of the assets of each Luxembourg UCI
must be entrusted to a depositary. This requirement is of a general application insofar as it
indistinctively refers to all UCIs whatever their status or legal form.
Pursuant to the commentary of the Articles of the Law of 30 March 1988, the concept of custody used to describe the general mission of the depositary should be understood not in the
sense of “safekeeping”, but in the sense of “supervision”, which implies that the depositary
must have knowledge at any time of how the assets of the UCI have been invested and where
and how these assets are available.
In accordance with the meaning thus attributed to the concept of custody, the physical deposit
of all or part of the assets may be made either with the depositary itself (which represents the
most prudent solution) or with any professional designated by the UCI in agreement with the
depositary.
This interpretation of the custody mission of a depositary in no way prevents the recourse to a
fiduciary agreement to be entered into between the depositary and the UCI for the deposit of
the latter’s assets; this solution presents some considerable advantages since the depositary
thus receives significant authority for the exercise of its duties.
In the context of its custody duties over the assets of the UCI, the depositary may communicate with foreign correspondents by using electronic means of communication developed or
operated by third parties and possibly computer equipment located abroad, provided however that these means are used for the direct communication with the foreign correspondents
without the intervention of a third party.
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III. Specific duties of the depositary.
1. Specific duties of the depositary of a common fund subject to Part I of the Law of
30 March 1988.
The Law of 30 March 1988 provides that the depositary carries out all operations concerning the day-to-day administration of the assets of the common fund.
This means that the depositary is in particular responsible for the collection of dividends,
interest and proceeds of matured securities, the exercise of options and, in general, for
any other operation concerning the day-to-day administration of the securities and liquid
assets making up the fund.
To the extent that the operations referred to above involve assets that are not held by the
depositary itself, it may charge third parties with whom the assets are actually deposited,
with the execution thereof. In such case and in order to comply with its obligation of supervision of the assets of the common fund, the depositary must organise its relationship with its
correspondents so as to ensure that it is immediately informed of any operation executed by
them within the day-to-day administration of the assets deposited with them.
The depositary is in addition entrusted with the following supervisory and monitoring duties:
– ensure that the sale, issue, redemption and cancellation of units effected on behalf of
the fund or by the management company are carried out in accordance with the Law
and the management regulations;
– ensure that the value of units is calculated in accordance with the Law and the management regulations;
– carry out the instructions of the management company, unless they conflict with the
Law or the management regulations;
– ensure that in transactions involving the assets of the funds, the consideration is remitted to it within the usual time limits;
– ensure that the income of the fund is applied in accordance with the management
regulations.
In connection herewith, it is not possible for the depositary to delegate to third parties
the execution of tasks relating to the obligation to “ensure” the correct performance of
the duties referred to above.
However, the term “to ensure” as used in the provisions of the Law of 30 March 1988
implies that the depositary need not “carry out” such tasks itself, but that it must verify
the correct execution thereof. Thus for instance, it is conceivable that for objective
reasons a depositary might set up a structure in which a foreign company assists in
the settlement of portfolio transactions.
Finally, the provision pursuant to which the depositary must carry out the instructions
of the management company unless they conflict with the Law or the management
regulations, does not prevent the depositary to operate by way of mandate in case
the management company entrusts the management of the fund’s assets to portfolio
managers established abroad.
In such case, the relationship between the depositary and its representatives must
be organised in such a way that the latter have at their disposal all the resources and
data necessary to perform the preliminary verifications required for the appraisal of the
conformity of a decision taken by the portfolio managers with the requirements of the
Law or the management regulations.
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Where in the cases referred to above the depositary does not have the possibility to
perform these preliminary verifications itself or through its representatives, it must,
in conjunction with the central administration in Luxembourg, set up supervision procedures capable to ensure the regularity of the transactions initiated by the portfolio
managers in light of the requirements of the Law or the management regulations.
The possibility for the depositary not to execute itself all duties incumbent upon it and
to be assisted by or to delegate to third parties, must not lead to a situation where all
duties are concentrated in the hands of one and the same third party. Such a situation would indeed be contrary to relevant legal provisions since its purpose would be
to avoid the application thereof. Additionally, it would constitute a structure leading to
unnecessary additional costs and could cast doubt on the Luxembourg nationality of
the common fund.
The prohibition of the concentration of duties to be executed by third parties in the
hands of the same correspondent of the depositary does not apply to situations where
one single correspondent has been chosen for technical reasons. This is inter alia the
case (without being exclusive) in situations where investments are made on a single
market.
2. Specific obligations of the depositary of a common fund subject to Part II of the
Law of 30 March 1988.
The depositary referred to herein has the same duties as the depositary of a common
fund subject to Part I of the Law save that it is not obliged to ensure that the calculation of
the value of units is carried out in accordance with the Law and the management regulations.
Subject to the conditions specified under the preceding heading 1., it may, to the same
extent as a depositary of a common fund subject to Part I, seek assistance from third parties for the execution of its tasks or entrust to its representatives the execution thereof.
3. Specific obligations of the depositary of a SICAV or any other UCI which has not
been constituted as a common fund.
For this purpose, no distinction is made between the depositary of a UCI subject to Part I
and the depositary of a UCI subject to Part II of the Law of 30 March 1988.
In addition to its role of custodian of the assets entrusted to it, the depositary referred to
herein must:
– ensure that the sale, issue, redemption and cancellation of units or shares effected by
or on behalf of the UCI are carried out in accordance with the Law and the constitutional documents;
– ensure that in transactions involving the assets of the UCI, the consideration is remitted to it within the usual time limits;
– ensure that the income of the UCI is applied in accordance with the constitutional
documents.
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In light of the preceding enumeration, it appears that the depositary of a SICAV or of any
other UCI which has not been constituted as a common fund does not have supervisory and
monitoring duties as extensive as those provided for other depositaries by the Law of 30
March 1988.
Thus, the depositary of a SICAV or of any other UCI which has not been constituted as a
common fund is not obliged to verify whether the instructions of the management bodies are
in accordance with the Law or the constitutional documents.
Likewise to a depositary of a common fund subject to Part II of the Law of 30 March 1988 it is
furthermore not obliged to ensure that the calculation of the value of units or shares is carried
out in accordance with the Law and the constitutional documents.
Insofar as they refer to obligations which are shared by all depositaries, the provisions sub
1. herebefore apply mutatis mutandis to the depositary of a SICAV or of any other UCI which
has not been constituted as a common fund.
IV. Liability of the depositary.
As stated above, the concept of custody of UCI assets by the depositary is to be understood
in the sense of supervision.
With respect to the full range of duties incumbent upon it under the provisions of the Law of 30
March 1988, the depositary has a duty of supervision which implies a liability for its wrongful
failure to perform its obligations or its wrongful improper performance thereof. Anyone suffering damages must prove the depositary’s negligence in respect of its duty of supervision and
the correspondence between cause and effect.
This supervision by the depositary is in particular exercised over the third parties with which
the assets of the UCI have been deposited.
As regards the extent of the duty of supervision of the depositary, one can consider that the
depositary has discharged its duty of supervision when it is satisfied from the outset and during the whole of the duration of the contract that the third parties with which the assets of the
UCI are on deposit are reputable and competent and have sufficient financial resources.
The duty of supervision of the assets of the UCI and, consequently, the liability for such supervision always resides with the depositary. Any provision of the management regulations
and the articles or any other agreement aiming to exclude or limit this liability are null and
void.
It follows from there that the depositary may, in no case, release itself from its duty of supervision. Therefore the depositary may in particular not argue that the deposit of the assets of the
UCI has been carried out with its general or specific approval. The liability of the depositary
is furthermore unaffected by the fact either that it has been assisted by third parties in the
execution of its tasks or that it has entrusted the execution thereof to its representatives.
The liability of the depositary in matters of custody is basically different from that in respect of
the deposit agreement. Indeed, where the assets of the UCI are on deposit with the depositary itself, its liability is governed by the Law applicable to deposit agreements (Article 1915
and the following Articles of the Civil Code).
In the light of the above, depositary agreements containing liability provisions must distinguish the three following liability regimes:
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– liability of the depositary for the tasks incumbent upon it pursuant to the provisions of
the Law of 30 March 1988 where the assets of the UCI are on deposit with third parties;
– liability of the depositary where the assets of the UCI are on deposit with the depositary itself;
– liability of the depositary for the tasks assigned to it by the depositary agreement
where such tasks are not expressly referred to by the Law of 30 March 1988.
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CHAPTER F
RULES APPLICABLE TO UCITS GOVERNED BY PART I OF THE LAW OF
30 March 1988.
I. Intervals at which the issue and redemption prices must be determined.
UCITS must determine the issue and redemption prices of their units or shares at sufficiently
close and fixed intervals, but at least twice a month.
II. Redemption by UCITS of their units or shares.
As already mentioned in heading I. of Chapter C. above, UCITS are required to redeem their
units or shares directly or indirectly at the request of investors.
In this connection, one has to recall that UCITS must waive any restrictions the object of
which is to submit the exercise of the right to redeem to conditions and procedures which
would render the redemption practically impossible or needlessly and arbitrarily complicated
and less frequent.
It remains however that a UCITS may, subject to adequate justification of the necessity thereof, provide in its constitutional documents that the management bodies may, in particular
circumstances (e.g. in case of temporary liquidity shortage) or where redemption requests
received in connection with the same dealing day exceed a certain level in respect of the
number of securities outstanding, either provide for a delay of settlement of redemptions
during a determined period of time, or for a proportional reduction of all redemption requests
so that the set level is not exceeded provided, however, that in such case any proportion of
a redemption request which would not have been honoured by virtue of this possibility, must
be treated as if the request had been made for the next following dealing day or days until full
settlement of the original requests.
III. Requirements in respect of the constitution of assets.
1. Investment in transferable securities.
Subject to the exceptions provided for in Chapter 5 of the Law of 30 March 1988, the
investment of the assets of UCITS must be exclusively made in transferable securities
which are either admitted to official stock exchange listing or dealt in on another regulated
market which operates regularly and is recognised and open to the public.
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It follows that the authorised investments of UCITS must simultaneously meet the following two essential conditions:
– firstly, they must qualify as transferable securities;
– secondly, these transferable securities must be admitted to official stock exchange
listing or dealt in on another regulated market which operates regularly and is recognised and open to the public.
Neither the 85/611/EEC Directive, nor the Law of 30 March 1988 give a definition of the
concept of “transferable securities”.
A problem may therefore arise where in actual cases involving Luxembourg or foreign
securities, it is not clear, prima facie, whether the securities qualify as transferable securities.
In case of Luxembourg securities, the CSSF will continue to rely on the Luxembourg
practice which adopted the interpretation according to which the words “transferable securities” mean quoted securities, that is securities which are capable of being quoted
irrespective of whether their admission to official stock exchange listing has been effectively realised or not. According to this practice, a quotation is deemed possible where
the determination of a single price can be contemplated; this is the case where securities
do not appreciably differ from one another either by their amount, maturity or in any other
material respect.
The above criteria are, however, not applied where foreign securities are to be qualified.
In this case, it is the CSSF’s policy to align itself with the definition of the relevant securities made by the respective regulations of the countries concerned.
The words “regulated, operating regularly, recognised and open to the public” as used to
designate the definition criteria of the markets referred to above are likewise not defined
by the 85/611/EEC Directive nor by the Law of 30 March 1988.
In the absence of such definition, the CSSF considers that the following meaning should
be given to these words:
– regulated: the essential characteristic of a regulated market is the clearing which presupposes the existence of a central market organisation for the settlement of orders.
Such a market can furthermore be distinguished by multilateral order matching (general matching of bid and offers enabling the setting of a single price), transparency
(maximum distribution of information amongst buyers and sellers giving them the possibility to follow the evolution of the market so that they may ensure that their orders
have been carried out at current conditions) and the neutrality of its organisor (the
organisor’s role must be limited to recording and supervision);
– recognised: the market must be recognised by a state or by a public authority which
has been delegated by that state or by another entity which is recognised by that state
or by that public authority such as a professional association;
– operating regularly: securities admitted to this market must be dealt in at a certain
fixed frequency (no sporadic dealings);
– open to the public: the securities dealt in thereon must be accessible to the public.
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2. Debt instruments which are treated as equivalent to transferable securities pursuant to Article 40(2)b) of the Law of 30 March 1988.
Securities referred to here are regularly traded money market instruments the residual
maturity of which exceeds 12 months.
3. Investments in liquid assets.
In addition to the investments authorised pursuant to heading 1. above, a UCITS may hold
ancillary liquid assets.
This term not only covers cash and short-term bank deposits, but also regularly traded
money market instruments the residual maturity of which does not exceed 12 months.
The term “ancillary” means in this context that liquid assets may not in themselves constitute an investment objective, the exclusive object of UCITS being the investment of their
assets in transferable securities. The Law of 30 March 1988 does therefore not prohibit
a UCITS to hold an important amount of liquid assets during a certain amount of time
because of circumstances provided such UCITS does not transform such investment in
liquid assets in an investment purpose onto itself.
4. Investments in closed-ended UCIs.
The restrictions to which Article 44 of the Law of 30 March 1988 submits the purchase
of units of open-ended UCIs does not apply to the investment in units of closed-ended
UCIs.
The units of closed-ended UCIs are indeed considered as being similar to any other transferable security and are therefore, in respect of investment rules, subject to the general
rules applicable to transferable securities.
IV. Borrowings.
The restrictions to which the borrowings of UCITS are subject to, will not prohibit a UCITS to
acquire currency by way of a back-to-back loan. A “back-to-back” loan is given in case of a
UCITS which borrows currency in the context of the acquisition of foreign transferable securities and the holding thereof while depositing with the lender, its agent or any other person
designated by it, an amount in national currency equal or larger than the amount borrowed.
V. Method of calculation of the investment limits provided for by Chapter 5 of the Law
of 30 March 1988.
The investment limit percentages to be complied with by UCITS must be applied to the net
assets of UCITS.
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CHAPTER G.
RULES APPLICABLE TO UCITS SUBJECT TO PART II OF THE LAW OF
30 March 1988.
I. Intervals at which the issue and redemption prices must be determined.
UCITS must determine the issue and redemption prices of their units or shares at sufficiently
close and fixed intervals, but at least once a month, subject to the exceptions provided for by
the Law of 30 March 1988.
II. Investment limits.
The purpose of the investment limits is to ensure that investments are sufficiently liquid and
diversified. Certain of these limits do not apply to the categories of UCITS defined in heading
II.4. of Chapter C. above insofar as they are incompatible with the investment policy assigned
to each such category. Subject to this exception UCITS may not in principle:
a) invest more than 10% of their net assets in securities not listed on a stock exchange nor
dealt in on another regulated market which operates regularly and is recognised and open
to the public;
b) acquire more than 10% of the securities of the same kind issued by the same issuing
body;
c) invest more than 10% of their net assets in securities issued by the same issuing body.
The restrictions mentioned hereabove are not applicable to securities issued or guaranteed
by a Member State of the OECD or their local authorities or public international bodies with
EU, regional or worldwide scope.
The restrictions mentioned in a), b) and c) above are applicable to the purchase of units of
UCIs of the open-ended type if such UCIs are not subject to risk diversification requirements
comparable to those provided for by this circular for UCIs subject to Part II of the Law of 30
March 1988.
It should be remembered that units of closed-ended UCIs are treated in the same way as
other transferable securities and are therefore subject to the general rules applicable to transferable securities.
The possibility to invest in units of other UCIs must not be used to avoid the provisions of
Article 70 of the Law of 30 March 1988.
If it is intended to make investments in other UCIs, the prospectus must expressly state this
possibility. In case it is intended to make investments in other UCIs of the same promoter,
the prospectus must also specify the nature of the fees and expenses which may arise out of
such investment.
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III. Borrowings.
UCITS may borrow the equivalent of up to 25% of their net assets without restriction in respect of the intended use thereof. This limit does not apply to the category of UCITS defined
in heading II.4.3. of Chapter C. above.
IV. Provisions applicable to UCITS which are subject to Chapter 11 of the Law
of 30 March 1988.
1. Information to be provided in the constitutional documents.
The constitutional documents must inter alia specify
– the principles and methods of valuation of assets;
– the time allowed for payment in respect of issues (and redemptions, if any);
– the conditions which enable suspension of issues (and redemptions, if any).
2. Valuation of assets.
Unless otherwise provided for in the constitutional documents, the valuation of the assets
of UCITS referred to herein must be based, in the case of officially listed securities, on
the last known stock exchange price, unless such price is not representative. For securities not so listed and for securities which are so listed but for which the latest price is not
representative, the valuation shall be based on the probable realisation value which must
be estimated with care and in good faith.
3. Purchases and sales of securities held in the portfolio.
The purchase and sale of securities held in the portfolio of these UCITS can only be
carried out at prices consistent with the valuation criteria specified in heading 2. above
(“Valuation of assets”).
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CHAPTER H.
RULES APPLICABLE TO ALL UCITS.
Pursuant to Article 41 of the Law of 30 March 1988 UCITS are authorised
– to employ techniques and instruments relating to transferable securities provided that
such techniques and instruments are used for the purpose of efficient portfolio management;
– to employ techniques and instruments intended to provide protection against exchange
risks in the context of the management of their assets and liabilities.
The techniques and instruments which UCITS are authorised to use under this provision are
more fully described under headings I. and II. of this Chapter. The use of other techniques
and instruments is in principle not permitted.
Where a UCITS wishes to use the techniques and instruments described below, this must be
expressly mentioned in its prospectus. In such case, the prospectus must list the envisaged
types of transactions and specify the purpose thereof and the conditions and limits within
which such transactions may be made. As the case may be, the prospectus must also include
a description of the risks inherent to the envisaged transactions.
I. Techniques and instruments relating to transferable securities.
For the purpose of efficient portfolio management, a UCITS may participate in transactions
relating to
– financial futures and related options;
– securities lending;
– repurchase agreements.
1. Transactions relating to options on transferable securities.
The purchase and writing of call and put options by a UCITS is permitted provided such
options are traded on a regulated market which is operating regularly, recognised and
open to the public.
When entering into these transactions, the UCITS must comply with the following rules:
1.1. Rules applicable to the purchase of options.
The total premiums paid for the acquisition of call and put options outstanding and
referred to herein may not, together with the total of the premiums paid for the purchase of call and put options outstanding and referred to in heading 2.3. below,
exceed 15% of the net assets of the UCITS.
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1.2. Rules to ensure the coverage of the commitments resulting from option transactions.
Upon the conclusion of contracts whereby call options are written, the UCITS must
hold either the underlying securities, or equivalent call options or other instruments
capable of ensuring adequate coverage of the commitments resulting from such
contracts, such as warrants. The underlying securities related to call options written
may not be disposed of as long as these options are in existence unless such options
are covered by matching options or by other instruments that can be used for that
purpose. The same applies to equivalent call options or other instruments which the
UCITS must hold where it does not have the underlying securities at the time of the
writing of such options.
As an exception to this rule, a UCITS may write call options on securities it does not
hold at the entering into the option contract provided the following conditions are
met:
– the aggregate exercise (striking) price of such uncovered call options written
shall not exceed 25% of the net assets of the UCITS;
– the UCITS must at any time be in the position to ensure the coverage of the
position taken as a result of the writing of such options.
Where it writes put options, the UCITS must be covered during the entire duration
of the option contract by adequate liquid assets that may be used to pay for the
securities which could be delivered to it in case of the exercise of the option by the
counterpart.
1.3. Conditions and limits for the writing of call and put options.
The aggregate of the commitments arising from the writing of put and call options
(excluding call options written in respect of which the UCITS has adequate coverage) and the aggregate of the commitments from the transactions referred to in
heading 2.3. hereafter may not, at any time, exceed the value of the net assets of
the UCITS.
In this context, the commitment on call and put options written is deemed to be equal
to the aggregate of the exercise (striking) prices of those options.
1.4. Rules concerning the regular information of the public.
In its financial reports, the UCITS must identify the portfolio securities which are the
subject of an option and individually indicate the writing of call options on securities
which are not held in the portfolio. It must also breakdown by category of options the
aggregate of the exercise (striking) prices of options outstanding as at the reference
date of the relevant reports.
2. Transactions relating to futures and option contracts relating to financial instruments.
Except for transactions by private agreement mentioned under heading 2.2. below, the
transactions described herein may only relate to contracts that are dealt in on a regulated
market which is operating regularly, recognised and open to the public.
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Subject to the conditions specified below, these transactions may be made for hedging
or other purposes.
2.1. Transactions with the purpose of hedging risks connected to the evolution of stock
markets.
A UCITS may sell stock index futures for the purpose of hedging against a global risk
of an unfavourable evolution of stock markets. For the same purpose, it may also
write call options on stock indices or purchase put options thereon.
The hedging purpose of these transactions presupposes that there exists a sufficient
correlation between the composition of the index used and the corresponding portfolio.
In principle, the aggregate commitments resulting from futures contracts and stock
index options may not exceed the aggregate estimated market value of the securities
held by the UCITS in the corresponding market.
2.2. Transactions with the purpose of hedging interest rates.
A UCITS may sell interest rate futures contracts for the purpose of achieving a global
hedge against interest rate fluctuations. It may also, for the same purpose, write call
options or purchase put options on interest rates or enter into interest rate swaps by
private agreement with highly rated financial institutions specialised in this type of
operations.
In principle, the aggregate of the commitments relating to futures contracts, options
and swap transactions on interest rates may not exceed the aggregate estimated
market value of the assets to be hedged and held by the UCITS in the currency corresponding to those contracts.
2.3. Transactions made for a purpose other than hedging.
Besides option contracts on transferable securities and contracts on currencies, a
UCITS may, for a purpose other than hedging, purchase and sell futures contracts
and options on any kind of financial instruments provided that the aggregate commitments in connection with such purchase and sale transactions together with the
amount of the commitments relating to the writing of call and put options on transferable securities does not exceed at any time the value of the net assets of the
UCITS.
The writing of call options on transferable securities for which a UCITS has adequate
coverage are not considered for the calculation of the aggregate amount of the commitments referred to above.
In this context, the concept of the commitments relating to transactions other than
options on transferable securities is defined as follows:
– the commitment arising from futures contracts is deemed equal to the value of the
underlying net positions payable on those contracts which relate to identical financial instruments (after setting off all sale positions against purchase positions),
without taking into account the respective maturity dates and
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– the commitment deriving from options purchased and written is equal to the aggregate of the exercise (striking) prices of net uncovered sales positions which
relate to single underlying assets without taking into account respective maturity
dates.
It is reminded that the aggregate amount of premiums paid for the acquisition of call
and put options outstanding which are referred to herein, may not, together with the
aggregate of the premiums paid for the acquisition of call and put options on transferable securities mentioned in heading 1.1. above, exceed 15% of the net assets
of the UCITS.
2.4. Periodical information of the public.
In its financial reports, the UCITS must separately indicate for each of the categories
of transactions mentioned in headings 2.1, 2.2. and 2.3. above the total amount of
commitments deriving from operations outstanding as at the date of reference of the
relevant reports.
3. Securities lending transactions.
UCITS may enter into securities lending transactions provided the following rules are
complied with:
3.1. Rules intended to ensure proper completion of lending transactions.
A UCITS may only participate in securities lending transactions within a standardised
lending system organised by a recognised securities clearing institution or by a highly rated financial institution specialised in that type of transactions.
In relation to its lending transactions, the UCITS must in principle receive security of
a value which, at the conclusion of the lending agreement, must be at least equal to
the value of the global valuation of the securities lent.
This collateral must be given in the form of cash and/or of securities issued or guaranteed by Member States of the OECD or by their local authorities or by supranational institutions and organisations with EU, regional or worldwide scope and blocked in
favour of the UCITS until termination of the lending contract.
3.2. Conditions and limits of lending transactions.
Lending transactions may not be carried out on more than 50% of the aggregate market
value of the securities in the portfolio. This limit is not applicable where the UCITS has the
right, at any time, to terminate the contract and obtain restitution of the securities lent.
Lending transactions may not extend beyond a period of 30 days.
3.3 Periodical information of the public.
The UCITS must indicate in its financial reports the global valuation of securities lent
at the date of reference of the relevant reports.
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4. Repurchase agreements.
UCITS may enter into repurchase agreements which consist in the purchase and sale of
securities whereby the terms of the agreement entitle the seller to repurchase from the
purchaser the securities at a price and at a time agreed amongst the two parties at the
conclusion of the agreement.
The UCITS may act either as purchaser or seller in repurchase transactions. Its entering
in such agreements is however subject to the following rules:
4.1. Rules intended to ensure the proper completion of repurchase agreements.
The UCITS may purchase or sell securities in the context of a repurchase agreement
only if its counterpart is a highly rated financial institution specialised in this type of
transactions.
4.2. Conditions and limits of repurchase transactions.
During the lifetime of a repurchase agreement, the UCI may not sell the securities
which are the object of the agreement (i) either before the repurchase of the securities by the counterparty has been carried out or (ii) the repurchase period has
expired.
Where the UCITS is open-ended, it must ensure to maintain the importance of purchased securities subject to a repurchase obligation at a level such that it is able, at
all times, to meet its obligations to redeem its own shares.
4.3. Periodical information of the public.
In its financial reports, the UCITS must separately indicate for purchases and sales
subject to repurchase obligations, the total amount of repurchase agreements outstanding at the date of reference of the relevant reports.
II. Techniques and instruments intended to hedge currency risks to which UCITS are
exposed to in the management of their assets and liabilities.
In order to protect its assets against currency fluctuations, UCITS may enter into transactions the objects of which are currency forward contracts as well as the writing of call
options and the purchase of put options on currencies. The transactions referred to herein
may only concern contracts which are traded on a regulated market which is operating
regularly, recognised and open to the public.
For the same purpose, the UCITS may also enter into forward sales of currencies or
exchange currencies on the basis of private agreements with highly rated financial institutions specialised in this type of transactions.
The herebefore mentioned transactions’ objective of achieving a hedge presupposes the
existence of a direct relationship between them and the assets to be hedged. This implies
that transactions made in one currency may in principle not exceed the valuation of the
aggregate assets denominated in that currency nor exceed the period during which such
assets are held.
In its financial reports, the UCITS must indicate, for the different types of transactions
made, the aggregate amount of commitments relating to transactions outstanding as at
the date of reference of the relevant reports.
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CHAPTER I.
RULES APPLICABLE TO UCIs OTHER THAN UCITS.
The Law of 30 March 1988 does not provide for the collective investment objective of UCIs
other than UCITS which means that such UCIs may carry out investments in assets other
than transferable securities.
The detailed provisions which provide investors in traditional UCITS with certain safety guarantees may not be applied entirely as they stand to UCIs the objective of which differs from
that of such UCITS, in particular with respect to the particular nature of the investment policy
of these UCIs which makes it impossible to apply certain operational rules which must be
obided by traditional UCIs. UCIs the objective of which differs from the objective of traditional
UCITS must therefore be submitted to a certain extent to a particular regime the rules of
which are differentiated according to the nature of their investments.
To date, the supervisory authority has set up separate rules for three types of specialised
UCIs the principal object of which is either:
– the investment in venture capital which means the investment in securities of unlisted
companies either because these companies have been recently formed or because they
still are in the course of development and therefore have not yet obtained the stage of
maturity required to have access to stock markets; or
– the investment in commodity futures contracts and/or financial futures contracts and/or in
options; or
– the investment in real estate.
The separate rules established by the supervisory authority for each of the three specialised
types of UCIs do not replace the general rules which remain applicable, but only modify certain rules in order to adapt them to the particularities of each type of UCI.
The particular rules applicable to the UCIs referred to here are specified under headings I.,
II. and III. hereafter.
In specific cases, the CSSF may grant certain derogations from these rules on the basis of
adequate justification.
I. Rules of the particular regime applicable to UCIs the principal object of which is the
investment in venture capital.
The rules provided for hereafter modify the rules of the general regime on the following
points:
1. Management and supervisory bodies.
With regard to the professional qualification, the directors of the management bodies and,
where applicable, the investment advisors, must establish a specific experience in the
field of investment in venture capital.
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2. Investment restrictions.
The investment restrictions applicable to traditional UCITS do not apply to UCIs subject
hereto except that the investment in venture capital must be diversified to such an extent
that an adequate spread of the investment risk is warranted. In order to ensure a minimum
spread of such risks, the UCIs concerned may not invest more than 20% of their net assets in anyone company.
3. Issue and redemption of units or shares.
The date of determination of the issue and redemption prices will depend upon the frequency of the periods of issue and redemption of units or shares.
Should the investors have the right to present their units or shares for redemption, the
UCI may provide certain restrictions to such right. These restrictions must be clearly and
precisely described in the prospectus.
4. Special regulations.
Apart from these general rules which, fundamentally, are based upon those applicable to
traditional UCITS, UCIs the principal object of which is the investment in venture capital
must also comply with the following special regulations:
4.1. Type of securities.
Bearer certificates of the UCI and entries in the register of participants must represent a number of shares or units the value of which at the time of issue is at least
equal to 12,394.68 euro.
4.2. Remuneration of investment management and advisory bodies.
If the remuneration of the investment management and advisory bodies is higher
than that usually received by similar bodies from traditional UCITS, the issue prospectus must state whether the additional remuneration is also payable on assets
which are not invested in venture capital.
4.3. Information for investors.
The annual and semi-annual reports of the UCI must contain information on the
development of the companies in which it has invested. In the case of sale of securities of the portfolio, the UCI must publish separately for each investment the amount
of profit or loss. In addition, the financial statements must mention where there is
a potential conflict of interest between the interests of a director of the investment
management or advisory bodies and the interests of the UCI.
4.4. Special indications to be made in the issue prospectus.
The issue prospectus must contain a detailed description of the investment risks inherent to the investment policy of the UCI and of the type of conflict of interest which
could arise between the interests of a director of the investment management and
advisory bodies and the interests of the UCI.
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Furthermore, the prospectus must include a statement indicating that since an investment in such UCI represents an above average risk, the UCI in question is only
suitable for those persons who can afford to take such risks and that it is advisable
for the average subscriber to invest therein only a part of the sums such subscriber
intends for a long-term investment.
II. Rules of the particular regime applicable to UCIs the principal object of which is the
investment in futures contracts (commodity futures and/or financial futures) and/or
in options.
points:
1. Management and supervisory bodies.
where applicable, the investment advisors must establish a specific experience in the field
of investment in commodities, financial futures and options respectively.
2.1. Margin deposits relating to commitments taken on futures purchase and sale contracts, and call and put options written may not exceed 70% of the net assets of the
UCI, the balance of 30% representing a liquidity reserve.
2.2. The UCI may only enter into futures contracts dealt in on an organised market. Futures contracts underlying options must also comply with this condition.
2.3. The UCI may not enter into commodity contracts other than commodity futures contracts. As a departure therefrom, the UCI may, for cash consideration, acquire precious metals which are negotiable on an organised market.
2.4. The UCI may only acquire call and put options which are dealt in on an organised
market. Premiums paid for the acquisition of options outstanding are included in the
70% limit provided for under heading 2.1. above.
2.5. The UCI must ensure an adequate spread of investment risks by sufficient diversification.
2.6. The UCI may not hold an open forward position in anyone futures contract for which
the margin requirement represents 5% or more of net assets. This rule also applies
to open positions resulting from options written.
2.7. Premiums paid to acquire options outstanding having identical characteristics may
not exceed 5% of net assets.
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2.8. The UCI may not hold an open position in futures contracts concerning a single commodity or a single category of financial futures for which the margin required represents 20% or more of net assets. This rule also applies to open positions resulting
from options written.
3. Borrowings.
The UCI may only borrow up to the equivalent of 10% of its net assets provided such borrowings may not be used for investment purposes.
traditional UCITS, UCIs the principal object of which is the investment in futures contracts
and/or options must also comply with the following special regulations:
4.1. Type of securities.
Bearer certificates of the UCI and entries in the register of participants must represent a number of shares or units the value of which at the time of issue is at least
equal to 12,394.68 euro.
4.2. Remuneration of managers and investment advisors.
If the remuneration of the investment management and advisory bodies is higher
than that usually received by similar bodies from traditional UCITS, the issue prospectus must state whether the additional remuneration is also payable on assets
which are not invested in futures contracts and/or options.
4.3. Information for investors.
The annual and semi-annual reports of the UCI must contain information, for each
category of futures and option contracts that has been carried out, the amount of
profit or loss realised by the UCI. In addition, the financial statements must quantify
the commissions paid to brokers and the fees paid to the investment management
and advisory bodies.
4.4. Special indications to be made in the issue prospectus.
The issue prospectus must contain a detailed description of the trading strategy followed by the UCI with respect to futures contracts and options as well as the investment risks inherent to the investment policy. In particular, mention must be made
that the futures contracts and option markets are extremely volatile and that the risk
of loss is very high.
In addition, the prospectus must include a statement indicating that the UCI in question is only suitable for persons who can afford to take such risks since the investment in that UCI represents an above average risk.
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III. Rules of the particular regime applicable to UCIs the principal object of which is the
investment in real estate assets.
By real estate assets this circular means:
– property consisting of land and/or buildings registered in the name of the UCI;
– share holdings in real estate companies (including claims on such companies) the exclusive object and purpose of which is the acquisition, promotion and sale as well as the letting and agricultural lease of property provided that these shareholdings must be at least
as liquid as the property rights held directly by the UCI;
– property-related long-term interests such as surface ownership, lease-hold and options
on real estate assets.
points:
1. Management bodies.
where applicable, the investment advisors, must establish a specific experience in real
estate assets.
The investment restrictions applicable to traditional UCITS do not apply to UCIs subject
hereto. Nevertheless, the investment in real estate assets must be diversified to an extent
that an adequate spread of the investment risk is warranted. In order to achieve a minimum spread of such risks, UCIs subject hereto may not invest more than 20% of their net
assets in a single property, such restriction being effective at the date of acquisition of the
relevant property. Property whose economic viability is linked to another property is not
considered a separate item of property for this purpose.
This 20% rule does not apply during a start-up period which may not extend beyond four
years after the closing date of the initial subscription period.
3. Issue and redemption of securities.
The net asset value on which the issue and redemption prices of the securities are based
must be determined at least once a year, namely at the end of the financial year, as well
as on each day on which shares or units are issued or redeemed. In respect of real estate
assets, management may use the valuation established at the year end throughout the
following year unless there is a change in the general economic situation or in the condition of the properties which requires new valuations to be carried out under the same
conditions as the annual valuation.
Should the investors have the right to present their securities for redemption, the UCI may
provide for certain restrictions thereto. In addition, where it is justified, notably with regard
to a specific investment policy, the UCI has the obligation to restrict such right of redemption. These restrictions must be clearly and precisely described in the prospectus. The
UCI may inter alia provide for delays of payment in case it does not hold sufficient liquid
assets to immediately settle redemption requests.
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traditional UCITS, UCIs the principal object of which is the investment in real estate must
also comply with the following special regulations:
4.1. Remuneration of investment management and advisory bodies.
If the remuneration of investment management and advisory bodies is higher than
that usually received by similar bodies from traditional UCITS, the issue prospectus
must indicate whether such additional remuneration is also payable on assets which
are not directly or indirectly invested in real estate assets.
4.2. Valuation of properties.
Management must appoint one or more independent property valuers with a specific
experience in the field of property valuation.
At the end of the financial year, management must instruct the property valuer(s)
to examine the valuation of all properties owned by the UCI or by its affiliated real
estate companies.
In addition, properties may not be acquired or sold unless they have been valued
by the property valuer(s), although a new valuation is unnecessary if the sale of the
property takes place within six months after the last valuation thereof.
Acquisition prices may not be noticeably higher, nor sales prices noticeably lower,
than the relevant valuation except in exceptional circumstances which are duly justified. In such case, the managers must justify their decision in the next financial
report.
4.3. Borrowings.
The aggregate of all borrowings of the UCI may not exceed in average 50% of the
valuation of all its properties.
4.4. Financial statements.
The audit of the accounts of the UCI and of real estate companies which are funded
for more than 50% by the UCI either by way of equity or loans, must be carried out
under the responsibility of one and the same auditor. The accounts of these entities
must in principle be drawn up as at the same date.
At the end of each half year, the accounts of the UCI must be consolidated with those
of the real estate companies referred to in the preceding paragraph subject to the
relevant legal requirements.
Where the UCI holds minority interests in real estate companies the securities of
which are not listed on a stock exchange nor dealt in on another regulated market
operating regularly, recognised and open to the public, the UCI must provide either
for a partial consolidation at year end or for a valuation on the basis of the probable
sale value estimated with prudence and in good faith by the management. For the
valuation of minority shareholdings held in real estate companies the securities of
which are listed on a stock exchange or dealt in on another regulated market operating regularly, recognised and open to the public, the stock exchange or market value
must be taken into consideration.
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In its annual and semi-annual reports, the UCI must clearly explain the accounting
principles applied for the consolidation of its own accounts with those of affiliated real
estate companies.
The inventory of properties included in the annual and semi-annual reports must, for
each category of property held by the UCI or its real estate companies, indicate the
aggregate of the purchase price or cost, the insured value and the valuation. In the
financial statements, properties must be shown as valued.
4.5. Specific indications to be disclosed in the issue prospectus.
The issue prospectus must give a description of the investment risks inherent to the
UCI’s investment policy. In addition, the prospectus must provide details of the type
of commissions, expenses and charges to be borne by the UCI and the way in which
they are calculated and charged.
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CHAPTER J.
RULES APPLICABLE TO MULTIPLE COMPARTMENT UCIs.
I. General principle.
The Law of 30 March 1988 introduced in Luxembourg law the concept of UCIs with multiple
compartments commonly referred to as “umbrella funds”.
These are UCIs formed as common funds or investment companies with a multitude of compartments within a single entity. These compartments are for instance used for investment in
transferable securities denominated in different currencies or of different geographic regions
or economic sectors. From a practical point of view, it appeared attractive to offer investors
the possibility to select within a single entity between a multitude of currencies or assets.
Furthermore, after having invested in one compartment, the investor may easily switch in one
or several other compartments. The conversion from one compartment to the other within the
same UCI does in principle not give rise to the payment of commissions of the category of
those which would be provided for if the investor had invested in legally separate and independent undertakings.
The Law of 30 March 1988 provides that a multiple compartment UCI constitutes a single
legal entity. This implies that a multiple compartment UCI, certain compartments of which
would normally fall under Part I of the Law of 30 March 1988 whilst other compartments would
fall under Part II, is to be considered to fall in its entirety under Part II because of the criterion
of the “single legal entity”.
Nevertheless, the Law of 30 March 1988 provides that the constitutional documents of multiple compartment UCIs may provide that in respect of the relations between unitholders,
each compartment will be treated as a separate entity.
Considering that the multiple compartment UCI, existing as a single legal entity, is consisting
of different compartments and that the investor may restrict his investment to one or the other
compartment, it appears that it is inevitable that the units or shares of this single legal entity
can have different values. For this reason, the Law of 30 March 1988 provides in its Article
111 that the units or shares may be of different values with or without par value depending on
the legal form which has been chosen. This is a derogatory provision to Article 37 of the Law
of 10 August 1915 on commercial companies (as amended) which, inter alia, provides that
the capital of limited liability companies is divided into shares of equal value.
The experience of multiple compartment UCIs has led to the drawing up of the rules set out
under headings II., III. and IV. hereafter.
II. Common funds.
In order to remain within the scope of Article 111(2) of the Law of 30 March 1988 which provides that multiple compartment UCIs constitute a single legal entity, the following conditions
must be met:
– the different compartments of the fund must have a collective generic denomination and a
single management company which determines the investment policies and their application to the relevant compartments through a single board of directors of the management
company;
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– the custody of the assets of the different compartments of the fund must be ensured by a
single depositary who may however utilise, to the same extent as in respect of funds with
a single portfolio, correspondents in different geographic regions;
– the fund must be governed by a single set of management regulations which form its
legal basis. Subject to derogations which may be granted by the CSSF on the basis of
adequate justification, the management regulations must notably determine for each compartment the same redemption conditions for each category of units and the same general
valuation, suspension, redemption and investment restriction principles;
– the supervision of the fund must be carried out by a single auditor;
– the unitholders shall in principle, subject to reasonable limits, be able to switch from one
compartment to the other without payment of commissions;
– the management regulations must indicate the currency in which the combined position of
the fund is expressed and which is obtained by aggregating the financial positions of all
the compartments in the fund.
In addition to the more specific preceding conditions, common funds with multiple compartments must also comply with the following conditions:
– the certificates or other documents evidencing the rights of unitholders may only differ on
the designation of the respective compartments in respect of which they are issued;
– the issue and redemption of units attributable to each compartment must be carried out at
a price arrived at by dividing the net asset value of the corresponding compartment by the
number of outstanding units in such compartment;
– the investment and borrowing restrictions provided for by the Law of 30 March 1988 or by
this circular must be complied with inside each compartment with the exception of those
restricting the holding of securities of a single issuer which shall also apply to the different
compartments taken together.
As regards more particularly the condition of minimum net assets resulting from Article 22 of
the Law of 30 March 1988, it is considered that this condition is complied with if a common
fund with multiple compartments reaches minimum assets of 1,239,467.62 euro in respect of
all its compartments taken together within a period of 6 months following its authorisation.
As a consequence of the above, the provisions of the first paragraph of Article 23 of the Law
of 30 March 1988 only become applicable after the aggregate net assets of all the compartments of a multiple compartment common fund taken together have fallen below two thirds of
the legal minimum of 1,239,467.62 euro.
III. Investment companies.
The inherent specifics of the concept of multiple compartment investment companies call for
the following commentaries:
1. In a multiple compartment investment company the net asset value of a share is calculated on the basis of the net assets of the compartment in respect of which the share is
issued. The value of shares of the same company shall therefore necessarily differ from
one compartment to the other.
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However, this difference of value of shares representing share capital of a multiple compartment investment company bears no consequence on the voting rights attached to
such shares. Indeed, each share gives right to one vote within the exercise of voting rights
and all shares participate equally in the decisions to be taken in general meetings.
For the sake of clarity, it is recommended that this equal treatment of shareholders in respect of the exercise of their voting rights is emphasised in the articles of incorporation of
a multiple compartment investment company.
Furthermore, the articles should in addition distinguish between the decisions affecting all
shareholders and which are to be considered in a single general meeting and decisions
only affecting specific rights of shareholders of one compartment and which are therefore
taken by the general meeting of one compartment.
2. Every company must have a share capital represented by shares. The Law implies that
there be
– a single share capital;
– denominated in a single currency;
– the nominal or accounting par value being expressed in that same currency;
– the annual accounts being also expressed in that same currency.
It follows from there that the share capital of a multiple compartment investment company
must be denominated in a single reference currency. However, the net asset value of each
compartment is denominated in the currency of the relevant compartment.
In the interest of a clear understanding of the operating mechanism of multiple compartment investment companies, it is recommended that the articles of these companies clearly indicate the preceding particularities.
3. The articles of a multiple compartment investment company, similarly to the articles of
investment companies with a single portfolio, must enumerate the circumstances of suspension of the calculation of the net asset value of the company and consequently, the
suspension of issues and redemptions of shares of that company.
The articles of a multiple compartment investment company must furthermore provide
for the circumstances of suspension of the calculation of the net asset value (and consequently, of issues and redemptions) of the individual compartments.
4. The investment and borrowing restrictions provided for by the Law of 30 March 1988 or by
this circular must be complied with inside each compartment with the exception of those
restricting the holding of securities of a single issuer which shall also apply to the different
compartments taken together.
IV. Common rules to all multiple compartment UCIs.
It must clearly result from the constitutional documents of multiple compartment UCIs irrespective of whether they are established in the form of common funds or in the form of
investment companies, that for the purposes of the relations between unit- or shareholders, each compartment shall be treated as a single entity with its own funding, capital
gains and losses, expenses etc.
The opening of a new compartment is subject to the authorisation of the CSSF and the
update of the prospectus, as the case may be by means of an insert.
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CHAPTER K.
CONTENTS OF THE FILE IN SUPPORT OF THE APPLICATION FOR AUTHORISATION
OF UCIs.
In support of their application for entry on the list provided for by Article 72(1) of the Law of 30
March 1988 Luxembourg UCIs must submit to the CSSF on application file which, inter alia,
contains the following:
a) Drafts of
– the constitutional documents (articles of incorporation of the management company
and management regulations or articles of incorporation of the UCI),
– the prospectus and all other information and/or advertisement document intended for
investors,
– any agreements such as depositary and advisory agreements;
b) Indication of the name of the depositary in Luxembourg with a precise and detailed description of the human and technical resources at its disposal for the accomplishment of
all the tasks related to its duties;
c) Indication of the name of the auditor;
d) Indications on the organisation of the central administration of the UCI in Luxembourg with
a precise and detailed description of the human and technical resources at its disposal for
the accomplishment of all the tasks linked to its duties;
e) Information on the promoter(s) such as recent financial reports;
f) Biographical notices of directors and officers;
g) Indication on the method of marketing of the securities issued by the UCI, on the countries
of marketing and on the targeted investors.
Where the information and documents mentioned in items b), d), e) and f) hereabove have
already been furnished to the CSSF in respect of a previous application they must not be
resubmitted provided that no change has occurred in the interim.
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CHAPTER L.
INFORMATION AND ADVERTISEMENT DOCUMENTS INTENDED FOR INVESTORS.
I. Prospectus.
1. Contents of the prospectus.
The prospectus must include the information necessary for investors to be able to make
an informed judgment on the investment proposed to them.
It shall contain the information provided for in Schedule A annexed to the Law of 30 March
1988 insofar as such information does not already appear in the documents annexed to
the prospectus in accordance with Article 87(1) of the same Law. In addition, it must carry
a statement that no person is authorised to give any information other than that contained
in the prospectus or in the documents referred to therein which are available for inspection by the public.
The CSSF may require the publication of such additional information it deems necessary
in order to provide for an objective and complete information of the public.
Every prospectus must be dated and may be used only as long as the information contained therein remains accurate. The essential elements of the prospectus must be kept
up-to-date. This may be achieved by the periodical financial reports.
UCIs may in principle only enter into the transactions specifically mentioned in their prospectus. This particularly applies to the transactions concerned by Chapter H above. Reference is made to the detailed provisions of that Chapter.
2. Particular rules applicable to multiple compartment UCIs.
In the interest of a correct information of investors, it is recommended that the characteristics set out under headings II. to IV. of Chapter J. above should be stated clearly
not only in the constitutional documents of multiple compartment UCIs, but also in the
prospectuses of such UCIs.
Multiple compartment UCIs must make provision for a single prospectus for all their compartments. In that prospectus, it must be specified that commitments in relation to a single
compartment bind the whole of the UCI unless contrary arrangements have been agreed
with the relevant creditors.
Besides this prospectus, multiple compartment UCIs may provide for the publication of
separate prospectuses for each of their compartments. Where this facility is used, the
following indications, adequately emphasised, must compulsorily be included in the separate prospectuses:
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– Indication that the particular compartment, to which the separate prospectus relates,
does not constitute a separate legal entity, but that there exist other compartments
which together with the particular compartment form a single entity;
– Indication that for the purposes of the relationship between unit- or shareholders, each
compartment is considered a separate entity with its own funding, capital gains and
losses, expenses etc.;
– Indication that commitments in respect of the compartment to which the separate prospectus relates, bind the whole UCI unless contrary arrangements have been agreed
to with the relevant creditors;
– Indication that there exists a prospectus which includes a complete description of all
the compartments of the UCI with an indication of the locations where that prospectus
may be obtained.
3. Visa.
In order to ensure an identification of the prospectuses which have obtained the “nihil obstat” of the CSSF, such prospectuses are enfaced with its visa by the CSSF and remitted
with such visa to the person who submitted the dossier.
For this purpose, the CSSF must receive five copies of each prospectus, when final with
respect to both content and presentation. The enfacement with the visa may in no circumstances be used as an advertisement means.
II. Advertising documents.
The advertising material used by those responsible for the placing and their agents must
be submitted for supervision to the CSSF where such material is not subject to the supervision of the competent authorities of the countries in which it is to be used.
III. Financial reports.
1. Periodicity and content of financial reports.
Every UCI must publish an annual report for each financial year and a semi-annual report
covering the first six months of the financial year.
The financial year ends in principle on the last calendar day of a month.
The annual and semi-annual reports must be published within the following time limits with
effect from the end of the period to which they relate:
– four months in the case of the annual report;
– two months in the case of the semi-annual report.
In respect of the content of the financial reports, reference is made to Article 86(2), (3)
and (4) of the Law of 30 March 1988 as well as to Schedule B annexed to that Law. In the
same context, it is reminded that the financial reports must include the indications required
by the provisions of Chapter H. above in respect of the transactions referred to in that
Chapter.
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The auditor’s report provided for by Article 89(1) of the Law of 30 March 1988 must be
included in the annual reports.
2. Specific rules applicable to multiple compartment UCIs.
Multiple compartment UCIs must include in their financial reports separate information on
each of their compartments as well as combined information on all of their compartments.
The information referred to hereby is provided for by Article 86(2), (3) and (4) of the Law
of 30 March 1988 as well as in Schedule B annexed to that Law, provided that headings
II., III., IV., VI. and VII. of that Schedule are not to be considered for the establishment of
combined information.
The separate financial reports, which must be established for each of the compartments,
must be expressed in their respective reference currency. For the purpose of the establishment of the combined situation of the UCI, these financial reports must be aggregated
after having been converted in the denomination of the share capital, where the UCI has
been formed as an investment company, or in the currency determined for that purpose
by the management company, where the UCI has been formed as a common fund.
Alongside the full report to be established pursuant to these rules, multiple compartment
UCIs may provide for the publication of separate financial reports for each of their compartments. Where this facility is used, the conditions provided for the publication of separate prospectuses are applicable to this case by analogy. Reference is made in this connection to heading I.2. above.
Where a separate annual report is established for each compartment of a multiple compartment UCI, the auditor’s report provided for by Article 89(1) of the Law of 30 March
1988 must also be included in the relevant report unless the auditor establishes separate
reports for each compartment. If such separate auditor’s reports are established, they
may be published in the separate annual reports of the relevant compartments in lieu of
the report covering all the compartments which make up the UCI.
3. Publication of the financial reports and communication thereof to the CSSF.
The UCI must transmit to the CSSF two copies of its annual and semi-annual reports,
when final with respect to both contents and presentation, at the latest on the time of publication. It is not necessary to submit drafts to the CSSF prior to publication.
Financial reports are not subject to the formality of the visa.
Where periodical reports contain errors or omissions, the CSSF reserves the right to appreciate if an amended report must be published.
IV. Use of the prospectus and periodical reports.
Pursuant to the provisions of Article 91(1) of the Law of 30 March 1988 the prospectus and
the latest annual report as well as the subsequent semi-annual report, if published, must be
offered to subscribers free of charge before the conclusion of a contract.
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In this respect, the question arises whether the above-mentioned documents must, before the
conclusion of a subscription contract, be supplied to the subscriber only upon his request or
whether they must be supplied in any event even in the absence of such request.
On this matter, the CSSF considers that the subscription contract may be entered into without the subscriber having actually looked into or, even received, a copy of the prospectus
and periodical reports, provided these documents had been offered to him in the prescribed
fashion.
It follows from the above that Article 91(1) of the Law of 30 March 1988 does not prohibit that
the subscription form is attached not to the prospectus, but to a brief information brochure
which includes the offer to subscribers to obtain the prospectus and the periodical reports.
It naturally remains that for the purposes of marketing their securities abroad, Luxembourg
UCIs must comply with the legal, regulatory and administrative provisions which govern the
use of the prospectus and periodical reports in the respective countries of marketing.
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CHAPTER M.
FINANCIAL INFORMATION176 INTENDED FOR THE CSSF AND THE STATEC177
The following indications intend to clarify for the concerned undertakings for collective investment the requirements concerning the establishment and communication of the required
financial information.
I. Content of the monthly and annual financial information
The monthly and annual financial information of undertakings for collective investment are to
be drawn up pursuant to the tables O 1.1., O 4.1. and O 4.2. annexed to this circular178 as appendices A, B and C respectively179. The appendices also include definitions and discussions
concerning the various headings of such tables.
II. Collection of data provided for by tables O 1.1., O 4.1. and O 4.2.
The Centrale de Communications Luxembourg S.A. (“CC Lux”) is entrusted with the duty to
electronically collect the information provided for in tables O 1.1., O 4.1. and O 4.2. and to
transmit them to the CSSF which will serve as an intermediary between CCLux* and STATEC
for the transmission of the data required by the latter.
The central administrations of the undertakings for collective investment concerned by this
collection of information will forward the required information under the format defined by CC
Lux* either directly or by using the software put at their disposal by CCLux*.
In order to securitise the data transmission, data may be encrypted from dispatch by the
central administrations until their receipt by the CSSF. In the absence of encryption by the
central administrations, CC Lux* will encrypt the data for the purpose of their transmission to
the CSSF.
CC Lux* will separately communicate to each central administration instructions for the input
of data.
176 Chapter M of this Circular was globally replaced by a circular issued on 13 June 1997 by the IML (now replaced by
the CSSF), as amended by CSSF Circular 08/348
177 Service Central de la Statistique et des Etudes Economiques; Central Service for Statistics and Economic Studies.
178 IML Circular 97/136 of 13 June 1997, as amended by CSSF Circular 08/348
179 For ease of presentation of this translation, these Annexes have not been included here.
*
Centrale de Communications Luxembourg S.A. (CCLux) changed its name to Finesti S.A. on 28 January 2009.
177
III. Reference date
Monthly financial information
In principle, the last day of each month shall be taken as the reference date for the preparation
of the monthly financial information to be transmitted by undertakings for collective investment.
However, the preceding rule is not compulsory for undertakings for collective investment
which calculate their net asset value at least once a week. For this category of undertakings
for collective investment, the reference date may be the last day on which the net asset value
of that month is calculated.
This derogation is also valid for those undertakings for collective investment which calculate
the per unit or per share net asset value at least monthly if the day of such calculation falls
either on the last week of the reference month or on the first week of the following month. The
financial information to be transmitted must then be prepared on the basis of the data available at the calculation date nearest to the last day of the month.
Undertakings for collective investment which do not calculate their per unit or per share net
asset value on a monthly basis need only indicate in their monthly statements the amounts
effectively booked in the accounts at the end of the month excluding any non-accounting
estimates.
Annual financial information
The fiscal year-end date is the reference date for the preparation of the yearly financial information to be transmitted by undertakings for collective investment.
IV. Delay for transmission
Undertakings for collective investment must provide the monthly and yearly financial statements to CCLux* within a period of 20 days respectively 4 months after the reference date.
V. Currency used in the statement
The monthly and yearly tables must indicate in the place provided therefor the reporting currency used for the preparation of the numbered information which they contain. This reporting
currency must be the currency used to calculate the net asset value. All amounts are to be set
out without decimals with the exception of the amounts concerning items 120, 130 and 520 of
the monthly table which are, if required, to be indicated with decimals.
VI. Undertakings for collective investment with multiple compartments
The monthly and yearly financial statements must be drawn up for each compartment separately. The relevant tables must indicate in the place provided for that purpose the reporting
currency used to set out numbered information contained therein. The reporting currency
must be the currency used to determine the net asset value of the compartment.
*
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It is not required to draw up a combined situation of the whole undertaking for collective investment.
VII. Identification number
The CSSF will attribute to each undertaking for collective investment and, if applicable, to
each compartment of an undertaking for collective investment an identification number. The
CSSF will separately communicate such numbers to the undertakings for collective investment which must indicate that number in the space provided for that purpose on the monthly
and annual tables.
VIII. Reference period
The annual tables must indicate in the space provided therefor the reference period which
they cover. This period which is identical to the period covered by the annual report is to be
expressed in number of months (in principle 12 months) and, if required, in number of days if
the period does not in its entirety cover full month (in this last case, the number of full month
and of days remaining are to be indicated).
IX. Name of staff member
In each table it has to be indicated in the space reserved therefor the name of the staff member responsible for the drawing-up of the relevant table as well as the telephone number at
which the relevant staff member may be contacted by the CSSF if appropriate.
X. Date of the first drawing-up of monthly and annual financial information
The monthly and annual financial information pursuant to tables O 1.1., O 4.1. and O 4.2. are
to be drawn up for the first time at 31 December 1997.
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CHAPTER N.
RULES APPLICABLE TO MANAGEMENT COMPANIES OF COMMON FUNDS.
I. Information obligation of management companies vis-à-vis the CSSF.
Immediately following the approval thereof by the general meeting of shareholders, the management companies of common funds must transmit to the CSSF their annual accounts together with the directors’ report and the report of the external auditors responsible for the audit
of the annual accounts.
II. Authorisation of the shareholders of a management company.
Pursuant to Article 71(3) of the Law of 30 March 1988 the directors of a management company must be of sufficiently good repute and have the experience required for the performance
of their duties.
To that end, the names of the directors of the management company, and of every person
succeeding them in office, must be communicated forthwith to the supervisory authority.
The Law of 30 March 1988 defines directors as being the persons who represent the management company or who effectively determine the policy thereof.
This raises the question as to whether the shareholders of the management company are to
be considered as directors which require the authorisation of the supervisory authority. This
question must be answered by the affirmative insofar as one has to consider that the shareholders actually determine the policy of the management company.
The principal shareholders of the management company of a common fund must therefore be
of sufficient good repute and have the experience required for the performance of their duties
and must, in this respect, obtain the authorisation of the CSSF.
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CHAPTER O.
MARKETING RULES APPLICABLE IN LUXEMBOURG.
The marketing rules which UCIs must comply with in Luxembourg when their units or shares
are distributed therein derive in particular from:
– the Law of 25 August 1983 on the legal protection of consumers;
– the Law of 27 November 1986 regulating certain commercial practices and penalising
unfair competition; and
– the Law of 16 July 1987 on door-to-door sales, itinerant trade, display of goods and canvassing for orders.
181
CHAPTER P.
OBLIGATION OF UCIs TO INFORM THE CSSF ON THE AUDIT MADE BY THE AUDITOR.
UCIs must forthwith communicate to the CSSF without being specially requested to do so,
the certificates, reports and written commentaries made by the auditor within the scope of the
supervision which he must carry out pursuant to Article 89 of the Law of 30 March 1988. The
documents to be communicated must inter alia include the written commentaries issued by
the auditors which generally take the form of a management letter to the UCI.
182
APPENDIX
To be forwarded to the
Commission de Surveillance du Secteur Financier
L-2991 Luxembourg
MONTHLY FINANCIAL INFORMATION CONCERNING
UNDERTAKINGS FOR COLLECTIVE INVESTMENT
(Table annexed to IML circular 91/75 of 21 January 1991.)
Name of the undertaking for collective investment:
_________________________________________________________________________
Reference month:
________________________
Currency: _________________
I. Information concerning the net asset value at the month end:
1. Total net asset value (in millions):
_________________
2. Net asset value per unit or share:
_________________
3. Percentage change (+ or -) in the value at sub 2. in relation
to previous month’s value: _________________
II. Percentage value of the portfolio in relation to the total net asset
value at the end of the month:
_________________
III. Information concerning the amount of issues and redemptions
of units or shares during the reference month (in millions):
1. Net proceeds of issues:
_________________
2. Payment made in respect of redemptions:
_________________
3. Net issues (net repurchases) (3=1-2):
_________________
IV. Information concerning distributions declared during the
reference month:
1. Total amount of distributions (in millions):
2. Amount per unit or share:
_______________________________________________
Authorised signature(s) and stamp:
_________________
_________________
Name of employee(s):
____________________________
Tel.: ________________________
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CSSF Circular 02/77 of 27 November 2002 concerning the Protection of
investors in case of NAV calculation error and correction of the
consequences resulting from non-compliance with the investment
rules applicable to undertakings for collective investment.
Luxembourg, 27 November 2002
To: All Luxembourg undertakings for collective investment and all parties involved in the
operation and supervision of such undertakings
CIRCULAR CSSF 02/77
Concerns:
Protection of investors in case of NAV calculation error and correction
of the consequences resulting from non-compliance with the investment
rules applicable to undertakings for collective investment.
Ladies and Gentlemen,
The purpose of this circular is to set out the minimum rules of conduct to be followed by
collective investment professionals in Luxembourg in case of errors in the administration
or management of the undertakings for collective investment (“UCIs”) for which they are
responsible.
Errors which occur in practice are essentially those resulting from the incorrect calculation
of the net asset value (“NAV”) or from non-compliance with the investment rules applicable
to UCIs. In most cases, non-compliance is caused either by investments which are not in
compliance with the investment policy which the UCIs define in their prospectus or because of
a breach of the investment or borrowing restrictions provided for by law or their prospectus.
It is the responsibility of the UCIs’ promoters to ensure that any errors are correctly dealt with
in strictest compliance with the rules of conduct specified in this circular. This is of a primordial
importance not only because the interests of the UCIs and/or of the investors having suffered
a loss need to be protected, but it must be ensured that investors maintain their trust in the
integrity of collective management professionals which exercise their activities in Luxembourg and the effectiveness of the supervision exercised over UCIs.
The corrective and compensatory actions to be taken in case of NAV calculation errors or in
case of non-compliance with the investment rules applicable to UCIs are separately dealt with
under sections I. and II. hereafter. That presentation is necessary to take account of the fact
that this circular takes a different approach to deal with losses in each of the two situations.
This circular replaces and supersedes CSSF circular 2000/8 of 15 March 2000.
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I. The treatment of NAV calculation errors
1. Definition of a calculation error
It is reminded that the NAV per unit/share of UCIs is obtained by dividing the value
of their net assets, meaning assets less liabilities, by the number of units/shares
outstanding.
Unless provided differently in their constitutional documents, the valuation of the
assets of UCIs, whose investment policy provides for the investment in transferable
securities, must be based, in case of securities admitted to official stock exchange
listing, on the last known price on such stock exchange, unless such price is not
representative. Securities which are not so listed or securities which are so listed but
of which the last price is not representative, are valued on the basis of the reasonably
foreseeable sales price which must be determined prudently and in good faith.
It is presumed that the NAV is correctly calculated where the rules provided for its
determination in the constitutional documents and prospectus of the UCI are strictly
applied, consistently and in good faith, on the basis of the most current and most
reliable information available at the time of the calculation.
An error in the NAV calculation occurs as a result of one or more factors or circumstances which cause the calculation to yield an incorrect result. Generally, these
factors and circumstances are related to inadequate internal control procedures,
management shortfalls, imperfections or deficiencies in the operation of the IT,
accounting or communication systems as well as to non-compliance with the valuation
rules provided in the constitutional documents and the prospectus of UCIs.
2. The materiality concept in the context of the NAV calculation errors
It is generally recognised that the NAV calculation process is not an exact science and
that the result of the calculation constitutes the closest possible approximation of the
true market value of the assets of a UCI. The level of precision with which the NAV
is calculated will indeed depend on a series of external factors more or less linked to
the complexity of each particular UCI such as volatility of the markets on which an
important part of the assets of the UCI are invested in, the availability at the appropriate time of up-to-date information on market prices and/or other elements relevant
for the calculation of the NAV as well as the reliability of the price information sources
used.
In consideration of these factors, it is accepted in the majority of the principal collective
management industry centres that only those calculation errors, which have a material
impact on the NAV and whose proportion compared to the NAV reaches or exceeds a
certain threshold, referred to as the materiality or tolerance threshold, must be notified
to the CSSF and corrected in order to protect the interests of the investors concerned
while it is indeed considered that in all other cases, the immateriality of the errors does
not justify the recourse to relatively long and costly administration procedures which
must be put into place in order to recalculate incorrect NAVs and indemnify affected
investors.
Following the use and practices adopted abroad, this circular introduces the materiality concept for Luxembourg UCIs whilst determining acceptable tolerance thresholds
at different levels depending on the type of UCI concerned by the NAV calculation
error. This differentiating approach is justified to the extent that the implicit level of
imprecision in each NAV calculation can vary from one type of UCI to the next by
virtue of the external factors referred to above and in particular market volatility. That
185
factor is indeed of a primordial importance in this context as it is generally admitted
that the volatility of a market depends to a large extent on the risks associated with the
financial assets dealt on that market and that such volatility increases depending on
whether those assets are money market instruments, bonds/debt securities or shares
and other types of securities.
In conformity with that approach, different tolerance thresholds are provided for UCIs
which invest in money market instruments and/or cash assets (“money market UCIs/
cash funds”), UCIs which invest in debt obligations and/or similar debt instruments
(“bond UCIs”), UCIs which invest in shares and/or financial assets other than those
referred to above (“equity or other financial assets’ UCIs”) and UCIs which follow a
mixed investment policy (“mixed UCIs”).
For each of these types of UCIs the tolerance threshold is specified hereunder:
money market UCIs/cash funds:
0.25% of NAV
bond UCIs:
0.50% of NAV
shares and other financial assets’ UCIs:
1.00% of NAV
mixed UCIs:
0.50% of NAV.
The introduction of the materiality concept does not mean that UCI promoters will
in case of calculation errors be obliged to apply the tolerance thresholds specified
above. Promoters are on the contrary free to apply less high tolerance thresholds or
even not apply any at all.
It is the responsibility of the governing bodies of Luxembourg UCIs whose units/
shares are admitted to distribution abroad to ensure that the tolerance thresholds they
propose to adopt in case of NAV calculation errors are not in conflict with the requirements that may be applicable in those circumstances in the host countries.
3. Procedures to be followed for the correction of calculation errors which have a material
impact on the NAV.
The indications given under the points below relate to the principal stages of the
correction process and fix in detail the rules of conduct to be followed in the correction
of the calculation errors whose impact on the NAV reaches or exceeds the acceptable
tolerance threshold as specified above and which are thereby considered to constitute
material errors. These rules of conduct concern in particular
– the information to be furnished to the promoter and the custodian of the UCI and
to the CSSF;
– the determination of the financial impact of the calculation errors;
– the indemnification of the damages which result from the calculation errors for the
UCI and/or its investors;
– the implication of the external auditor in the monitoring of the correction process
and
– the communications to be made to those investors which have to be indemnified.
186
Significant errors not only means isolated calculation errors which have a significant
impact on the NAV but also unprocessed simultaneous or successive calculation
errors which each remain below the acceptable tolerance threshold but which, if
considered on an aggregate basis, reach or exceed that threshold.
The correction procedures must form an integral part of the internal control procedures
which the head office of UCIs must put into place to limit as much as possible the risk
for calculation errors and detect any errors that occur.
a) The information to be furnished to the promoter and the custodian of the UCI and
to the CSSF
As soon as a significant calculation error is discovered, the head office of the UCI
must immediately advise the promoter and the custodian of the UCI as well as the
CSSF of the occurrence of the error and submit to the promoter and the CSSF
a corrective action plan dealing with the steps which are proposed or have been
taken to cure the problems which have caused the ascertained calculation error
and to put into place the improvements to the administrative and control structures
which are necessary to avoid the subsequent occurrence of the same problems.
The corrective action plan must also specify the steps which are proposed or
which have been taken to
– identify in the most appropriate way the different categories of investors who
are affected by the errors,
– recalculate the NAVs which have been applied to subscription and redemption
requests received during the period starting on the date on which the error
became significant and the date on which it was corrected (“the error period”);
– determine, on the basis of the recalculated NAVs, the amounts which have to
be repaid to the UCI and the amounts payable by way of indemnity to investors
who have suffered a loss as result of the error;
– notify the error to the supervisory authorities of the countries in which the units/
shares of the UCI are authorised for distribution, to the extent the latter so
require;
– notify the error to the investors who have to be indemnified and inform them on
the steps that will be put into place for indemnifying their losses.
If, following a NAV calculation error, the indemnification amount does not exceed
EUR 25,000 and the amount to be reimbursed to an investor does not exceed EUR
2,500, no corrective action plan as detailed hereabove needs to be submitted to
the CSSF. In that case, the head office must notify the occurrence of the material
calculation error to the CSSF and must quickly take the measures necessary
for correcting the calculation error and for arranging the indemnification of the
damages incurred as provided in items b), c), and e) hereafter.
b) The determination of the financial impact of significant calculation errors
In case of a material calculation error, the head office of the UCI must as quickly
as possible take the steps necessary to correct the error. In particular, it must
recalculate the NAVs which have been determined during the error period and
quantify the loss for the UCI and/or its investors on the basis of the corrected
NAVs, provided however that the recalculation of incorrect NAVs is required only
in case subscription or redemption requests have been processed during the error
period.
In determining the financial impact of calculation errors, the head office of the UCI
must fundamentally distinguish between
– investors which have joined the UCI before the error period and which have
redeemed their units/shares during such period and
187
– investors which have joined the UCI during the error period and which continued
to hold their units/shares after such a period,
provided that investors other than those belonging to the above categories may be
affected depending on actual circumstances.
The indications below give an overview of the situation of the UCI and the concerned
investors in the following cases:
Cases where the NAV is undervalued.
In that case,
– investors which have joined the UCI before the error period and which have
redeemed their units/shares during such period, must be indemnified of the
difference between the recalculated NAV and the undervalued NAV which was
applied to the redeemed units/shares ;
– the UCI must be indemnified of the difference between the recalculated NAV
and the undervalued NAV which has been applied to units/shares subscribed to
during the error period and which remained outstanding beyond that period.
In case the NAV is overvalued.
In that case,
– the UCI must be indemnified of the difference between the overvalued NAV
which was applied to units/shares redeemed during the error period but which
were subscribed to before that period, and the recalculated NAV;
– investors which have joined the UCI during the error period and which have held
their units/shares beyond such period must be indemnified of the difference
between the overvalued NAV applied to the units/shares subscribed to and the
recalculated NAV.
188
The investors having suffered a loss as a result of a calculation error may be
indemnified out of the assets of the UCI in case the payments due to the relevant
investors correspond to excess sums within the assets of the UCI and the payment
of which can therefore not affect the interests of the other investors. It remains
nevertheless that the head office of the UCI or, as the case may be, its promoter
may decide to themselves support the payments necessary to indemnify affected
investors.
There is an open issue as to whether the UCI affected by a calculation error has
the right to require investors who have involuntarily benefited from that error to
subsequently pay to the UCI the amount not paid by them in respect of units/
shares subscribed by them on the basis of an undervalued NAV or to repay the
excess of the sums received by them in respect of units/shares redeemed at an
overvalued NAV. Since this is a controversial issue to which no clear response can
be given in the absence of a court precedent, it is not recommended to call upon
the investors concerned to indemnify the UCI for its losses, unless the beneficiaries are institutional investors or other sophisticated investors who accept in full
knowledge of the circumstances to cover the loss of the UCI.
In those circumstances, it is in principle the obligation of the head office of the UCI
or, as the case may be, of its promoter, to make the payments due to the UCI in
lieu of the investors who have benefited from the error. This solution is particularly justified because any claim on the investors having benefited from the error
could have a negative effect on the promoter’s reputation and result therefore in a
non-negligible commercial prejudice for the promoter.
As soon as the operations consisting in the recalculation of the incorrect NAVs and
the computation of the losses resulting from the calculation error for the UCI and/
or its investors have been concluded, the head office of the UCI must make the
entries in the accounts of the UCI which are necessary to reflect the payments to
be received and the payments to be made by the UCI.
c) The correction of the consequences for the UCI and/or its investors of calculation
errors
The compensation for damages is only compulsory by reference to the specific
dates on which NAV calculation errors were significant. Insofar as other dates are
concerned, it is the responsibility of the governing bodies of the UCI to determine
whether it is necessary to determine the financial impact of the error and establish
an indemnification plan.
The head office of the UCI must diligently put into place the measures provided
for in the correction plan referred to in item a) above for the recalculation of the
incorrect NAVs and the determination of the loss suffered by the UCI and/or the
affected investors.
It must also act with diligence in the organisation of the indemnity payments due to
the UCI and/or the affected investors, provided however that these payments can
only be made after the external auditor has completed his special report referred
to in item d) below.
In order to accelerate the process of calculation error correction, the head office of
the UCI can initiate the different stages of that process without having obtained the
prior consent of the CSSF. It suffices in that case that the CSSF is informed of the
steps taken subsequently thereto.
If, following a NAV calculation error, the total indemnification amount does not
exceed EUR 25,000 and the amount to be reimbursed to an investor does not
exceed EUR 2,500, the head office must be diligent in operating the payment of
the amounts due as indemnification to the UCI and/or to affected investors as soon
as the sums payable as indemnification will have been determined.
It remains, however, that the CSSF can intervene in the correction process on a
subsequent basis if it deems such intervention necessary in order to preserve the
interests of the UCI and/or the affected investors.
In most of the main centres for collective management, UCIs are authorised by the
CSSF to apply the de minimis rule to the amounts to which individual investors can
claim.
In accordance with that rule, the UCIs which benefit from such an authorisation
may decide not to pay to individual investors sums which do not exceed a specific
amount, the level of which is generally fixed as a lump sum figure, referred to
as the de minimis amount. That lump sum figure is applied in order to avoid that
investors who have a right to be paid lesser amounts, end up with no real benefit
because of the bank charges (cheque collection charges for cheques issued to
their order or bank transfer charges) and other costs they have to bear.
189
For the reasons specified in the preceding paragraph, Luxembourg UCIs can also
take advantage of the de minimis rule. This document does however not introduce
a single lump sum for the de minimis amount Luxembourg UCIs can apply.
It is therefore the responsibility of each UCI to determine itself, with the approval
of the CSSF, the lump sum of de minimis amount it intends to apply provided that,
in determining such lump sum, it must take into account the level of bank charges
and other costs which are charged to investors to whom payments are made. This
approach is justified because a large majority of Luxembourg UCIs are distributed
abroad and that the level of those charges can appreciably vary between UCIs
depending on the geographic location of investors.
Concerning the indemnification of investors who already hold units/shares at the
moment of payment of the amounts due to them, UCIs may decide the attribution
to them of new units/shares (or, as the case may be, fractions of units or shares)
instead of making a payment by cheque or bank transfer. For those investors,
recourse to this particular method of indemnification is even recommended since
such investors then avoid the bank charges which would otherwise be charged
to them and since it additionally allows a complete indemnification without any
consideration being given to the actual amounts they are entitled to, as in those
circumstances there is no justification to apply a de minimis amount.
It is clear that UCIs which issue new units/shares to indemnify affected investors
may not deduct commissions or other entry costs in respect to those units/
shares.
Where affected investors have subscribed units/shares through a “nominee”, the
head office of the UCI must remit to such “nominee” the amounts which are
intended for the relevant investors. In such cases, the “nominee” must commit to
the head office that it will forward the amounts received by it to the persons effectively entitled thereto.
The term “nominee” as used herein means an intermediary who intervenes
between the investors and the UCI they have selected and who offers nominee
services which the investors may use in the conditions set out in the prospectus of
the UCI.
The de minimis rule can in no case be used to refuse payment to investors of
amounts which are less than the de minimis amount applicable to such investors
in case such investors expressly claim such payment.
d) The implication of the external auditor in the monitoring of the correction process
At the same time as the head office notifies the promoter and the custodian of the
UCI and the CSSF of the occurrence of a significant calculation error, the head
office of the UCI must also notify the UCI’s external auditor and instruct him to
report on the adequacy of the method it intends to use in order to
– identify the different categories of investors affected by the error;
– recalculate the NAVs applied to subscription and redemption requests received
during the error period; and
– determine, on the basis of the recalculated NAVs, the amounts which must be
repaid to the UCI and the amounts payable on an indemnity basis to investors
who have suffered a significant loss because of the error.
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The conclusions of the external auditor on the proposed methods must be
documented in writing and must be attached to the correction plan referred to in
item a) above.
When the calculation error is discovered by the external auditor, the external
auditor must immediately notify the head office of the UCI thereof and request it
to immediately inform the promoter, the custodian and the CSSF thereof. If the
external auditor realises that the head office does not comply with that request, the
external auditor must notify this fact to the CSSF.
As soon as the head office of the UCI has carried out the entries in the accounts
of the UCI which are necessary to correct the calculation error, the external auditor
must draw up a special report in which he opines whether the correction process
is appropriate and reasonable or not. This opinion must address the following:
– the methods referred to above,
– the incorrect NAVs which have been recalculated,
– the losses suffered by the UCI and/or its investors.
The head office must forward a copy of the special audit report to the CSSF as well
as to the supervisory authorities of those countries in which the units/shares of the
UCI are admitted for distribution, in case such authorities so request.
Finally, the external auditor must establish a confirmation in which he certifies that
the amounts due on an indemnity basis to the UCI and/or affected investors have
effectively been paid.
A copy of that confirmation must also be forwarded to the CSSF and, as the case
may be, the foreign regulatory authorities referred to above.
In the context of a NAV calculation error for which the indemnification amount does
not exceed EUR 25,000 and the amount to be reimbursed to an investor does not
exceed EUR 2,500, the external auditor must review the correction process in the
course of its annual audit of the UCI. The external auditor must in the report on
its review state whether, in its opinion, the process of correction is or is not appropriate and reasonable. This statement must cover the following items:
– the methods referred to above;
– the incorrect NAVs which have been recalculated;
– the losses suffered by the UCI and/or its investors; and
– the payment of the amounts due as indemnification.
e) The communications to be made to those investors which have to be indemnified
Significant calculation errors must be brought to the attention of the investors who
are to be indemnified.
If applicable, the communications which are made for that purpose through
individual notices and/or by publication in the press must inter alia include particulars on the calculation error and the steps taken to correct it and to indemnify the
UCI and/or the affected investors accordingly.
These communications must be submitted in draft form to the CSSF and, as
the case may be, the supervisory authorities of those countries in which the
units/shares of the UCI are admitted for distribution, in case such authorities so
request.
191
4. Responsibility for the costs resulting from the correction operations of a calculation error
The costs caused by the correction operations of a calculation error, including the
costs associated with the intervention of the external auditor, cannot be charged to the
assets of the UCI. These costs must be fully supported by the head office of the UCI,
failing which, by the promoter of the UCI, in each case irrespective of the impact of the
error on the NAV.
The external auditor will be responsible to ascertain within the framework of the audit
of the accounting information contained in the annual reports of the UCI that the costs
referred to herein will not be charged to the UCI.
II. The compensation of the consequences resulting from non-compliance with the
investment rules applicable to UCIs
Promptly upon discovering a non-compliance with investment rules, the directors180 of the
UCI concerned must take the steps which are necessary to regularise the situation of the
UCI caused by such non-compliance.
In case the ascertained non-compliance results from investments which do not comply
with the investment policy defined in the prospectus, the UCI must realise those investments.
In case the investment restrictions provided for by law or by the prospectus are breached
in circumstances other than those referred to in Article 46 of the Law of 30 March 1988
concerning undertakings for collective investment, the UCI must realise the excess
positions.
Where the borrowing limits provided for by law or by the prospectus are breached, the UCI
must reduce its borrowings to the authorised limit.
In the three circumstances referred to above, the UCI must be indemnified to the extent of
any damage suffered.
In the first two circumstances, the damage must be determined in principle by reference
to the loss of the UCI resulting from the realisation of the non-authorised investments. In
the third circumstance, the UCI must in principle be indemnified to the extent of its interest
and other charges resulting from the non-authorised portion of the borrowings.
In the presence of a number of simultaneous breaches of investment rules, the indemnity,
if any, is to be calculated in respect of the net result of the corrective actions concerning
all the breaches.
In case the corrective actions have a net positive result for the UCI, it will retain the benefit
thereof. In those circumstances, it suffices for the head office of the UCI to notify the CSSF
and the external auditor.
By exception to the preceding principle and to the extent there is adequate justification
therefore, methods other than those described above may be used to determine the
suffered damage including in particular the method which consists in determining the
damage by reference to the performance which would have been realised if the nonauthorised investment had been subject to the same fluctuations as the portfolio invested
in compliance with the investment policy and the investment restrictions provided for by
law or the prospectus.
180 In French “dirigeant” which includes directors, managers and officers.
192
The tolerance levels which are provided for NAV calculation errors cannot be
applied to damages of UCIs resulting from non-compliance with investment
rules.
Because they did not comply with their obligations it is the responsibility of the persons
who have caused the losses to ensure that such losses are repaid. In case this
principle cannot be applied, the promoters will have to indemnify.
The principles which determine the procedures to be followed for the processing of
NAV calculation errors and the treatment of NAV calculation errors for which the total
indemnification amount does not exceed EUR 25,000 and the indemnification amount
to be paid to one investor does not exceed EUR 2,500 will apply mutatis mutandis in
all cases where a UCI suffers a loss as a result of non-compliance with investment
rules. The principles referred to herein which have to be applied are in particular those
concerning
– the information to be furnished to the promoter and the custodian of the UCI and
to the CSSF;
– the identification of the categories of investors which are affected because of the
loss suffered by the UCI;
– the determination of the financial impact of the loss for individual investors and the
measures to be taken for their indemnification;
– the implication of the independent auditor in the monitoring of the correction
process;
– the communications to be made to those investors which have to be indemnified.
As regards the procedures for indemnifying investors, the rules set out in Section I. 3.
(c) of this circular will apply.
III. Final Provisions
1. Repealment provision
CSSF circular 2000/8 is repealed.
2. Entry into force
The provisions of this circular are immediately applicable in their entirety.
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CSSF Circular 02/80 of 5 december 2002 concerning the specific rules
applicable to Luxembourg undertakings for collective investment
(“UCIs”) pursuing alternative investment strategies
Luxembourg, 5 December 2002
To all persons and companies supervised by the CSSF
CSSF CIRCULAR 02/80
Concerns:
Specific rules applicable to Luxembourg undertakings for collective
investment (“UCIs”) pursuing alternative investment strategies.
Preamble
The law of 30 March 1988 relating to UCIs does not comprise any provisions regarding
restrictions applicable to UCIs governed by Part II of such law. Such restrictions are set out
in the IML Circular 91/75 of 21 January 1991 applicable to UCIs. However, the UCIs which
adopt alternative investment strategies are not specifically covered by the provisions of the
above-mentioned circular. Therefore, in the past, the investment restrictions applicable to
UCIs pursuing so called alternative investment strategies were dealt with by the Commission
for the Supervision of the Financial Sector (“CSSF”) on a case-by-case basis.
Considering the increasing number of applications for the creation and authorisation of
Luxembourg UCIs which pursue investment strategies akin to those pursued by “hedge
funds”181 or “alternative investment funds”174, the CSSF intends to clarify the legal and
regulatory framework applicable to such UCIs.
This circular is issued in the context of the existing legal framework and its purpose is
to clarify the specific rules applicable to Luxembourg UCIs which pursue so-called alternative investment strategies. In this context and due to the high investment risks which the
investment strategies pursued by the UCIs concerned by this circular may entail, the CSSF
will pay attention to the reputation, experience and financial standing of the promoters of such
UCIs. Moreover, the CSSF considers that the professional qualification and the experience
of the directors182 of the management bodies, and, if applicable, of the investment managers
and the investment advisers are particularly important in relation to such UCIs.
For the avoidance of doubt, it is to be understood that the rules laid down in chapter I of IML
Circular 91/75 of 21 January 1991 applicable to UCIs other than UCITS and providing for
specific rules for three types of specialised UCIs remain unchanged. Such rules are not applicable to UCIs concerned by this circular. UCIs which pursue so-called alternative investment
strategies are subject to Part II of the law of 30 March 1988 relating to UCIs as the rules set
forth in chapter 5 of such law are not appropriate for such UCIs.
Although these UCIs have no obligation to borrow, their investment policy may provide for the
possibility to borrow on a permanent basis for investment purposes.
181 In English in the French text.
182 The French version of this circular uses the term “dirigeant” which term includes directors, managers and
officers. See footnote 25.
194
Such UCIs have to comply with the provisions of this circular. However, the CSSF may grant
derogations from the provisions set forth hereafter on the basis of an appropriate justification
or impose additional investment restrictions.
A. Risk diversification rules regarding short sales
A.1. Short sales may not, in principle, result in the UCI holding:
a) a short position on transferable securities which are not admitted to official stock
exchange listing or dealt in on another regulated market, which operates regularly
and is recognised and open to the public. However, the UCI may hold short
positions on transferable securities which are not quoted or not dealt in on a
regulated market if such securities are highly liquid and do not represent more than
10% of the assets of the UCI;
b) a short position on transferable securities which represent more than 10% of the
securities of the same type issued by the same issuer;
c) a short position on transferable securities of the same issuer, (i) if the sum of
the prices at which the short sales have been carried out represents more than
10% of the assets of the UCI or (ii) if the short position represents a commitment
exceeding 5% of the assets.
A.2. The commitments arising from short sales on transferable securities at a given time
correspond to the cumulative non-realised losses resulting, at that time, from the short
sales made by the UCI. The non-realised loss resulting from a short sale is the positive
amount resulting from the difference between the market price at which the short
position can be covered and the price at which the relevant transferable security has
been sold short.
A.3. The aggregate commitments of the UCI resulting from short sales may at no time
exceed 50% of the assets of the UCI. If the UCI enters into short sales transactions, it
must hold sufficient assets enabling it at any time to close the open positions resulting
from such short sales.
A.4. The short sales of transferable securities for which the UCI holds adequate coverage
are not to be considered in the calculation of the total commitments referred to above.
For the avoidance of doubt, it is to be noted that the fact for a UCI to grant a security, of
whatever nature, on its assets to third parties in order to secure its obligations towards
such third parties, is not to be considered as adequate coverage for the UCI’s commitments.
A.5. In connection with short sales on transferable securities, UCIs are authorised to enter,
as borrower, into securities lending transactions with first class professionals specialised
in this type of transactions. The counterparty risk resulting from the difference between
(i) the value of the assets transferred by a UCI to a lender as security in the context of
the securities lending transactions and (ii) the debt of the UCI owed to such lender may
not exceed 20% of the assets of the UCI. For the avoidance of doubt, it is to be noted
that UCIs may, in addition, give security by using security arrangements which do not
result in a transfer of ownership or which limit the counterparty risk by other means.
195
B.
Borrowings
UCIs concerned by this circular may borrow permanently and for investment purposes
from first class professionals specialised in this type of transaction.
Such borrowings are limited to 200% of the net assets of the UCI. Consequently, the
value of the assets of the UCI may not exceed 300% of its net assets. UCIs pursuing a
strategy with a high level of correlation between long positions and short positions are
authorised to borrow up to 400% of their net assets.
The counterparty risk resulting from the difference between (i) the value of the assets
transferred by the UCI to a lender as security in the context of borrowing transactions
and (ii) the value of the debt of the UCI owed to such lender may not exceed 20% of
the assets of the UCI. For the avoidance of doubt, it is to be noted that UCIs may, in
addition, give security by using security arrangements which do not result in a transfer
of ownership or which limit the counterparty risk by other means.
The counterparty risk resulting from the sum of (i) the difference between the value of
the assets transferred as security in the context of securities lending transactions and
the value of the amounts due referred to under item A.5 above and (ii) the difference
between the assets transferred as security and the amounts borrowed referred to above
may not, in respect of a single lender, exceed 20% of the assets of the UCI.
C.
Restrictions applicable to investments in UCIs (“target UCIs”)
The UCIs referred to in this circular may not, in principle, invest more than 20% of their
net assets in securities issued by the same target UCI. For the purpose of the application of this 20% limit, each compartment of a target UCI with multiple compartments is
to be considered as a distinct target UCI provided that the principle of segregation of the
commitments of the different compartments vis-à-vis third parties is ensured. The UCI
may hold more than 50% of the units of a target UCI provided that, if the target UCI is
a UCI with multiple compartments, the investment of the UCI concerned by this circular
in the legal entity constituting the target UCI must represent less than 50% of the net
assets of the UCI concerned by this circular.
These restrictions are not applicable to the acquisition of units of open-ended target
UCIs if such target UCIs are subject to risk diversification requirements comparable
to those applicable to UCIs which are subject to Part II of the law of 30 March 1988
and if such target UCIs are subject in their home country to a permanent supervision
by a supervisory authority set up by law in order to ensure the protection of investors.
This derogation may not result in an excessive concentration of the investments of the
UCI referred to in this circular in one single target UCI provided that for the purpose of
this limitation, each compartment of a target UCI with multiple compartments is to be
considered as a distinct target UCI on the condition that the principle of segregation of
the commitments of the different compartments towards third parties is ensured.
UCIs which principally invest in other UCIs must make sure that their portfolio of target
UCIs presents appropriate liquidity features to enable the UCIs to meet their obligation
to redeem its shares. Their investment policy must comprise an appropriate description
in that respect.
196
D.
Additional Investment Restrictions
UCIs concerned by this circular shall, in principle, not:
a)
invest more than 10% of their assets in transferable securities which are not
admitted to official listing on a stock exchange or dealt in on another regulated
market, which operates regularly and is recognised and open to the public,
b)
acquire more than 10% of the securities of the same kind issued by the same
issuer,
c)
invest more than 20% of their assets in securities issued by the same issuer.
The restrictions set forth under a), b) and c) above are not applicable to securities
issued or guaranteed by a member State of the OECD or its local authorities or by
supranational institutions and bodies with EU, regional or worldwide scope.
The restrictions set forth under a), b) and c) above are not applicable to units or shares
issued by target UCIs. The restrictions set forth in section C. above are applicable to
investments in target UCIs.
E.
Use of derivative financial instruments and other techniques
The UCIs concerned by this circular are authorised to employ derivative financial instruments and use the techniques specified hereafter.
These derivative financial instruments may, amongst others, include options, financial
futures and related options as well as swap contracts by private agreement on any type
of financial instruments. In addition, such UCIs may employ techniques consisting of
securities lending transactions as well as sales with right of repurchase transactions
and repurchase transactions183. UCIs which employ such derivative financial instruments and techniques must state in their prospectus the total leverage which may not
be exceeded and include in their prospectus a description of the risks arising from the
transactions which they intend to pursue. The derivative financial instruments must
be dealt in on an organised market or contracted by private agreement with first class
professionals specialised in this type of transactions.
The aggregate commitments resulting from short sales of transferable securities
together with the commitments resulting from financial derivative instruments entered
into by private agreement and, if applicable, the commitments resulting from financial
derivative instruments dealt in on an organised market may not at any time exceed the
value of the assets of the UCI.
E. 1. Restrictions relating to derivative financial instruments
1.
Margin deposits in relation to derivative financial instruments dealt on an organised
market as well as the commitments arising from derivative financial instruments
contracted by private agreement may not exceed 50% of the assets of the UCI. The
reserve of liquid assets of such UCIs must represent an amount at least equal to the
margin deposits made by the UCI. Liquid assets do not only comprise time deposits
and regularly negotiated money market instruments the remaining maturity of which
is less than 12 months, but also treasury bills and bonds issued by Member States
of the OECD or their local authorities or by supranational institutions and bodies with
EU, regional or worldwide scope as well as bonds admitted to official listing on a stock
183 The French text refers to “opérations à réméré” and “opérations de mise en pension”. For the distinction between
the two, see the description under E.3.
197
exchange or dealt in on a regulated market, which operates regularly and is open to the
public, issued by first class issuers and which are highly liquid.
2.
The UCI may not borrow to finance margin deposits.
3.
The UCI may not enter into contracts relating to commodities other than commodity
futures contracts. However, the UCI may acquire, for cash consideration, precious
metals which are negotiable on an organised market.
4.
The premiums paid for the acquisition of options outstanding are included in the calculation of the 50% limit referred to under item 1. above.
5. The UCI must ensure an adequate spread of investment risks by sufficient diversification.
6.
The UCI may not hold an open position in any one single contract relating to a derivative
financial instrument dealt in on an organised market or in a single contract relating to a
derivative financial instrument entered into by private agreement for which the required
margin or the commitment taken, respectively, represents 5% or more of its assets.
7.
Premiums paid to acquire options outstanding having identical characteristics may not
exceed 5% of the assets.
8.
The UCI may not hold an open position in derivative financial instruments relating to a
single commodity or a single category of financial futures for which the required margin
(in relation to derivative financial instruments dealt in on an organised market) as well
as the commitment (in relation to derivative financial instruments entered into by private
agreement) represent 20% or more of the assets.
9.
The commitment in relation to a transaction on a derivative financial instrument entered
into by private agreement by the UCI corresponds to the non-realised loss resulting, at
that time, from the said transaction.
E. 2. Securities lending transactions
The UCI may enter into securities lending transactions in accordance with the provisions set forth in IML Circular 91/75. However, the limitation that securities lending
transactions may not extend beyond a period of 30 days is not applicable where the UCI
has the right, at any time, to terminate the lending transaction and obtain the restitution
of the securities lent.
E. 3. Sale with right of repurchase transactions and repurchase transactions
198
The UCI may enter into sale with right of repurchase transactions which consist of
the purchase and sale of securities where the terms reserve the right to the seller to
repurchase the securities from the buyer at a price and at a time agreed between the
two parties at the time when the contract is entered into. The UCI can also enter into
repurchase transactions which consist of transactions where, at maturity, the seller has
the obligation to take back the asset sold whereas the original buyer either has a right
or an obligation to return the asset sold.
The UCI can either act as buyer or as seller in the context of the aforementioned transactions. Its participation in the relevant transactions is however subject to the following
rules:
1.
Rules to bring the transactions to a successful conclusion
The UCI may participate in sale with right of repurchase transactions or repurchase
transactions only if the counterparties in such transactions are first class professionals
specialised in this type of transactions.
2.
Conditions and limits of these transactions
During the duration of a sale with right of repurchase agreement where the UCI acts as
purchaser, it may not sell the securities which are the subject of the contract before the
counterparty has exercised its right to repurchase the securities or until the deadline for
the repurchase has expired, unless the UCI has other means of coverage. If the UCI is
open for redemption, it must ensure that the value of such transactions is kept at a level
such that it is at all times able to meet its redemption obligation. The same conditions
are applicable in the case of a repurchase transaction on the basis of a purchase and
firm re-sale agreement where the UCI acts as purchaser (transferee).
Where the UCI acts as seller (transferor) in a repurchase transaction, the UCI may not,
during the whole duration of the repo, transfer the title to the security under the repo
or pledge them to a third party, or repo them a second time, in whatever form. The
UCI must at the maturity of the repurchase transactions hold sufficient assets to pay, if
appropriate, the agreed repurchase price payable to the transferee.
3.
Periodical information of the public
In its financial reports, the UCI must separately, for its sale with right of repurchase
transactions and for its repurchase transactions, indicate the total amount of the open
transactions at the date as of which the relevant reports are issued.
F. Breach of investment limits otherwise than by investment decisions
If the percentage limits referred to above are exceeded for reasons other than investment
decisions (market fluctuations, redemptions), the priority objective of the UCI must be to
remedy the situation taking due account of the interests of the investors.
G.
Management and supervisory bodies
Concerning their professional qualification, the directors of the management bodies and,
if applicable, the investment managers and investment advisers, must have confirmed
experience in the area of the proposed investment policy.
H.
Specific rules
H.1. The issue prospectus must contain a description of the investment strategy of the UCI
concerned as well as a description of the specific risks inherent to its investment policy.
The prospectus must, if applicable, provide that:
199
–
the potential losses resulting from unsecured sales on transferable securities differ from
the possible losses resulting from the investment of liquid assets in such transferable
securities. In the first case, the loss may be unlimited whereas, in the second case,
the loss is limited to the amount of liquid assets invested in the transferable securities
concerned;
–
leverage generates an opportunity for higher return and therefore more important
income, but, at the same time, increases the volatility of the value of the assets of the
UCI and, hence, the risk of losing capital. Borrowings generate interest costs which may
be higher than the income and capital gains produced by the assets of the UCI;
–
due to the limited liquidity of the assets of the UCI, it may not be in a position to meet
the redemption requests of its units which may be presented to it by its investors.
H.2. In addition, the prospectus must state that the investment in the relevant UCI entails an
above-average risk and is only appropriate for persons who can take the risk of losing
their entire investment. If appropriate, the issue prospectus must contain a description
of the investment strategy in futures and options pursued by the UCI as well as the
investment risks resulting from the investment policy. It must for example be mentioned
that the futures and options markets are extremely volatile and that the risk of incurring
a loss in relation to such markets and/or in relation to uncovered sales is very high.
200
CSSF Circular 02/81 of 6 december 2002 relating to the guidelines
concerning the task of auditors of undertakings for collective
investment
To all Luxembourg undertakings for collective investment
CSSF CIRCULAR 02/81
Concerns:
Guidelines concerning the task of auditors of undertakings for collective
investment.
The purpose of this circular it to set out the rules concerning the scope of the audit of the
annual accounting documents and the content of the audit reports to be drawn up in this
context, pursuant to the law of 30 March 1988 relating to undertakings for collective investment
(“UCIs”), as amended by the law of 17 July 2000.
This circular intends to define the role and task of the auditor in the context of the audit of the
accounting documents provided for by law. The task of the auditor is not limited to the audit
of the accounting documents but also covers the analysis of the operation and procedures of
the UCI.
It is understood that the task of the auditor may vary depending on the risks existing in the
markets in which the UCI is active and the quality of the control mechanisms implemented at
the level of the UCI.
This circular does not amend the contents of the reports on the annual accounts to be established pursuant to Schedule B as provided for by the law, but aims to specify the subjects
which need to be developed in the long form report184 because that report constitutes, together
with the report on the annual accounts and the management letter, an important source of
information for the CSSF in the performance of its supervisory functions.
184 The circular uses the term “report on the audit of the activities of the UCI” but the term used in the industry is “long
form report” and that term will be used in this translation.
201
CONTENTS
I. Mandate
II. Report on the annual accounts
III. Long form report
A. General principles
B. Structure of the long form report
C. Explanatory comments on the structure of the long form report
IV.Reporting to the CSSF pursuant to Article 89(3) of the law relating to UCIs
V. Final provisions
202
I. Mandate
The auditor is appointed by the general meeting of shareholders of the UCI. For common
funds, the auditor is appointed by the board of directors of the management company.
The board of directors of the UCI or of the management company of the UCI must subsequently specify in writing to the auditor the terms of engagement which shall contain at
least the following provisions:
1. The audit of the annual accounts has to be undertaken in accordance with the working
recommendations of the Luxembourg Auditors’ Institute185. In this context, the IRE provides
for the application of the International Standards on Auditing (ISAs) published by IFAC
(“International Federation of Accountants”), adapted or completed, if needed, by national
legislation or practice.
2. The audit has to cover all categories of operations of the UCI whether these operations
are accounted for on the balance sheet or are recorded off-balance sheet. The mandate
given to the auditor cannot exclude from its scope a category of operations or a specific
operation. The audit must also cover all risks incurred by the UCI.
3. The audit must cover all aspects of the organisation and verification of the procedures
which apply to the UCI. The analysis must inter alia cover the procedures concerning
compliance with the investment restrictions, control of the calculation of the NAV and
reconciliations as well as the procedures relating to the valuation methods. The audit must
indeed enable all information to be provided which is required for the report on the annual
accounts and the long form report.
4. The mandate for the annual audit must specifically include the following tasks:
– to check compliance with the principles established by the circulars of the supervisory
authority concerning the fight against money laundering, including in particular circular
IML 94/112 concerning the fight against money laundering and the prevention of
the use of the financial sector for money laundering purposes and its supplements,
circulars BCL 98/153, CSSF 00/21, CSSF 01/40 and CSSF 02/78, as well as the
correct application of internal procedures for the prevention of money laundering;
– to check compliance with all other circulars applicable to UCIs.
5. The audit of the annual accounts as defined hereabove has to be documented on the one
hand by a report on the annual accounts (see chapter II. hereunder) and on the other hand
by a long form report (see chapter III. hereunder).
In general, the UCI must immediately inform the CSSF in case the auditor resigns
from its mandate before the end of the term or if the auditor envisages not to seek a
re-appointment.
In the same way, the UCI must notify the CSSF, with an indication of the reasons, of its
intention to terminate the appointment of the auditor. The CSSF will in respect of each
request for replacement of the auditor analyse the reasons for the proposed change and
will assess if the UCI has, in the procedure for the appointment of a new auditor, given due
regard to the competence and resources of the latter in view of the type and volume of the
activities of the UCI.
185 Institut des Réviseurs d’Entreprises luxembourgeois (IRE)
203
II. Report on the annual accounts
The report on the annual accounts contains the auditor’s attestation (attestation du réviseur
d’entreprises, Bestätigungsvermerk) and is to be published in accordance with Article 85
(1) of the law of 30 March 1988 relating to undertakings for collective investment.
In the report on the annual accounts, the auditor issues its attestation in accordance with
the ISA 700186 standards as adopted by IRE.
In accordance with Article 86 (2) of the law of 30 March 1988 relating to UCIs, the report
on the annual accounts has to contain a balance sheet or a statement of assets and
liabilities, a detailed income and expenditure account for the financial year, a report on
the activities of the financial year and the other information provided for in Schedule B
annexed to the prementioned law, as well as any significant information which will enable
investors to make an informed judgment on the development of the activities and the
results of the UCI.
In case the auditor announces to the UCI that it will issue a qualified attestation or that it
will refuse to certify the accounts, the UCI concerned must immediately inform the CSSF
(see also chapter IV. “Reporting to the CSSF pursuant to Article 89 (3) of the law relating
to UCIs” hereunder).
The report on the annual accounts has in any case to be submitted to the CSSF within a
period of four months from the end of the period to which such report relates.
III. Long Form Report
A. General principles
The purpose of the long form report is to report on the findings of the auditor in the
course of its audit concerning the financial and organisational aspects of the UCI
comprising inter alia its relationship with the head office, the custodian and the other
intermediaries (the investment managers, the transfer agents, the distributors, etc.).
The long form report must be concise, clear and critical.
It is not intended to be made available to the public. It is issued for the exclusive use
by the board of directors of the UCI or the management company of the UCI as well
as the CSSF.
It must detail for every item listed under III.B., the verifications which are essential to
permit a precise and informed judgment on the organisation and the financial statements of the UCI.
The auditor must, in the context of its usual audits carried out in accordance with
recommendations RRC n° 21187 of IRE, give its opinion on the compliance with the
investment restrictions set out by law and/or regulations and must also obtain the
assurance that the systems which have been put into place permit a proper calculation
of the net asset value.
The auditor has to indicate the NAV calculation errors and the infringements to the
investment restrictions which it will have ascertained during its audit and which have
nevertheless not been notified to the CSSF in accordance with CSSF circular 02/77.
186 International Standard on Auditing n° 700: The Auditor’s report on financial statements.
187 Recommendation on accounting audit n° 21: The audit of the financial statements of the UCIs.
204
In the long form report, the auditor must also analyse the NAV calculation errors or the
failures to comply with investment rules which have been the subject of a notification
in application of CSSF circular 02/77, but for which the amount of indemnification did
not exceed EUR 25,000 and for which the amount to be reimbursed to any one shareholder did not exceed EUR 2,500 as set out in CSSF circular 02/77.
The auditor has to communicate in detail the weaknesses and the areas to be improved
which it will have ascertained during its audit. This communication can be made in the
context of the long form report or through a letter of recommendation188 addressed
to the board of directors of the UCI or the management company of the UCI. The
findings of the auditor must mandatorily be supplemented by comments of the board
of directors of the UCI or the management company of the UCI. In case a management
letter is drawn up, it must be annexed to the long form report. If the auditor does not
issue a management letter, this must be expressly noted in the long form report.
In accordance with chapter P of circular IML 91/75 of 21 January 1991189, the UCI
must immediately communicate to the CSSF, without having been invited to do so, all
other documents issued by the auditor in the context of its annual audit as referred to
hereabove.
The long form report has to be remitted to the CSSF within a period of four months from
the end of the period to which the report refers.
B. Structure of the long form report
The long form report must be drawn up in accordance with the layout featured below.
The layout concerned corresponds to the minimum information to be detailed by the
auditor in its report. However, the layout of the report can be adapted to the volume
and the complexity of the activity and to the structure of the UCI. If appropriate, the
auditor will have to supplement the layout set out below by those items which it will find
necessary. If one particular item of the layout does not apply to a UCI, the auditor will
have to explicitly mention this fact under the item concerned.
1. Organisation of the UCI
1.1.
Head office
1.1.1. Situation where the auditor of the UCI relies on the audit report of
the auditor of the central administration
1.1.2. Situation where the audit and verifications are made by the
auditor of the UCI
1.1.2.1. Assessment of procedures
1.1.2.2. Computer systems
1.2.
Custodian
1.2.1. Situation where the auditor of the UCI relies on the audit report of
the auditor of the custodian
1.2.2. Situation where the audit and verifications are made by the
auditor of the UCI
188 commonly referred to as a “management letter”.
189 Circular IML 91/75 relating to the revision and remodeling of the rules to which undertakings for collective investment governed by the law of 30 March 1988 on undertakings for collective investment are subject.
205
1.2.2.1. Assessment of procedures
1.2.2.2. Computer systems
1.2.2.3. Result of the reconciliations
1.3.
Relationship with the management company
1.4.
Relationship with other intermediaries
2. Audit of the operations of the UCI
2.1.
Control of anti-money laundering rules
2.2. Valuation methods
2.3.
Audit of the risk management system
2.4. Specific audits
2.5. Assets and liabilities and profit and loss account
2.6. Publication of the NAV
3. Internet
4. Complaints from investors
5. Follow-up on problems identified in preceding long form reports
6. General conclusion
C. Explanatory comments on the structure of the long form report
1. Organisation of the UCI
206
The operations of a UCI require the recourse to specialised service providers in
Luxembourg as well as abroad.
Under the provisions of the law of 30 March 1988 relating to undertakings for
collective investment (as amended), the head office of the UCI must be located
in Luxembourg. The prementioned law also provides that the custodian of a UCI
must be established in Luxembourg. The entities which exercise one or several
functions in relation to the head office and/or the custody for the UCI play a significant role in the operation of a UCI.
To the extent that the custodian and the professional of the financial sector which
carries out the head office duties for the UCI have been subjected by their auditor
to an audit on the activities exercised for UCIs which covers at least the items
detailed under paragraphs 1.1.2. and 1.2.2. herebelow, the auditor of the UCI may
refer to the long form reports of the auditor of the custodian or the professional
of the financial sector on dealing with the services provided to undertakings for
collective investment.
In case the auditor of the UCI does not make use of that possibility and considering the important role in the organisation of the UCI assumed by the entities
which carry out the function of head office and/or custodian, the auditor must itself
undertake the verifications and controls detailed in the pre-mentioned paragraphs.
In that case the auditor of the UCI will have to advise the board of directors of
the UCI or the management company of the UCI that it needs to have access to
certain information on the entity concerned in order to carry out the verifications
and audits required by this circular. The board of directors of the UCI or of the
management company of the UCI must in that case request the entity concerned
to provide access to the information which is necessary for the auditor of the UCI
to accomplish its mission.
For common funds the management of which is performed by a management
company, the auditor of the UCI will have to carry out certain audits and verifications as defined under paragraph 1.3. hereafter. The auditor of the UCI may
for these tasks refer to the long form report of the auditor of the management
company if such report covers at least the items detailed under paragraph 1.3. In
case it does not make use of that possibility, it must call upon the board of directors
of the management company of the common fund. The board of directors of the
management company must then make available to the auditor all information
necessary in relation to the activities exercised by the management company for
the common fund and, in case the management company has delegated certain
important administration functions to a specialised entity, the board will have to
request that entity to provide access to the information required.
It also must be noted, that in case the various head office functions are performed
by more than one professional of the financial sector, the auditor of the UCI must
give its opinion on the procedures regarding the coordination and general supervision of the activities of the UCI.
In respect of the relationship of the UCI with other service providers established in
Luxembourg and/or abroad, reference is made to paragraph 1.4. below.
1.1.
Head office
1.1.1.
Situation where the auditor of the UCI relies on the audit report of
the auditor of the head office
The auditor of the UCI must, in its long form report, specify the audit
report of the auditor of the head office he has relied upon. He must in
this context provide the following data:
–
the name of the auditor of the head office
–
the date of the audit report
–
if applicable, the audit report in accordance with international
standard ISA 402, type B or in accordance with US standard SAS
70, type 2, or in accordance with any other equivalent standard,
as well as the name of the auditor which has established that
report.
In cases where the head office functions are fulfilled by more than one
entity, the auditor of the UCI has to indicate in its long form report the
data mentioned hereabove in respect of each of these entities individually.
1.1.2.
Situation where the audit and verifications are made by the auditor
of the UCI
1.1.2.1.
Assessment of procedures
In its long form report, the auditor must indicate the exact functions
performed by the head office on behalf of the UCI. In case these
functions are split among more than one professional of the financial
sector and/or management body of the fund, the auditor must in its
report indicate the allocation of the tasks between the different parties.
207
208
The auditor must specify if the head office or the different parties are
in possession of a procedures manual describing the functions which
they perform on behalf of the UCI and which are, inter alia, set forth in
chapter D. of IML Circular 91/75.
In addition, the auditor has to verify if specific procedures have been
established in connection with the following items:
a)
internal control procedure on the origin of funds (anti-money
laundering procedures),
b)
valuation procedure of the portfolio by the accounting agent, distinguishing between the different types of investment and insisting in
particular on unquoted and illiquid securities,
c)
internal control procedures on the investment policy and restrictions,
d)
internal control procedure on the accuracy of the NAV calculation,
e)
recording and settlement procedure of subscription/redemption
orders of units/shares,
f)
validation and recording procedure in relation to the acquisition
and sale of securities.
The auditor must give its opinion on the adequacy of the procedures put
in place.
Finally, the auditor must indicate if the human resources made available
are sufficient to ensure a proper execution of the contractual obligations
of the entity for the relevant UCI.
In case of splitting of the head office functions, it goes without saying
that, in addition, the auditor must give its opinion on the procedures
regarding the coordination and the general supervision of the activities
of the UCI.
1.1.2.2.
Computer systems
As regards computer systems, the auditor will give a brief description of
the software used by the head office and of the functions for which the
software is used.
The auditor must indicate whether, during the financial year under
review, significant changes have occurred with respect to the computer
system and whether problems were encountered at the time of migration
from one system to another.
The auditor must also give its opinion on the adequacy of the computer
system in consideration of the volume of the activities of the relevant UCI
and, if applicable, in respect of pooling or co-management techniques.
With regard to the accounting system for the calculation of the NAV,
the auditor will give its opinion on whether the accounting system is
adequate in view of the type of investments made by the UCI. Manual
accounting operations and valuations and the internal control procedures relating thereto must be pointed out.
The auditor must also verify if appropriate measures to safeguard the
confidentiality of information have been put into place.
In addition, the auditor must outline the general principles of the contingency plan in place which should permit the head office to operate
normally in case of a breakdown of its computer systems, including its
Internet connections.
When use is made of an external processing unit, whether based in
Luxembourg or abroad, the auditor must clearly indicate which functions
have been sub-delegated and to whom.
The auditor must furthermore give its opinion on compliance with the
provisions of item III.1. of chapter D of IML circular 91/75.
Generally, the auditor must highlight the significant deficiencies which it
will have detected during its audit and must describe them in a detailed
manner so that the CSSF can assess the situation.
1.2.
Custodian
1.2.1.
Situation where the auditor of the UCI relies on the audit report of
the auditor of the custodian
The auditor of the UCI must in its long form report, specify the audit
report of the auditor of the custodian he has relied upon. He must in this
context provide the following data:
–
the name of the auditor of the custodian
–
the date of the audit report
–
if applicable, the audit report in accordance with international
standard ISA 402, type B, or in accordance with US standard SAS
70, type 2 or in accordance with any other equivalent standard, as
well as the name of the auditor which has established the report.
The auditor of the UCI must in any case give its opinion on the result
of the reconciliations between assets accounted for by the UCI and the
assets deposited with the custodian as well as on the off-balance sheet
operations of the UCI.
In case the auditor, during its audit, notes serious problems at the level
of the reconciliation between the positions accounted for by the UCI and
those registered with the custodian, it must make a detailed description
of those problems in the long form report.
1.2.2.
Situation where the controls and verifications are made by the
auditor of the UCI
1.2.2.1.
Assessment of procedures
The long form report indicates if the entity is in possession of a procedures manual describing the duties of the custodian and whether this
manual includes general procedures and specific procedures relating to
the activities undertaken.
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210
The long form report will describe in particular the correspondent bank
network. The long form report will describe the policy of the entity as
regards the selection criteria of those counterparties. The auditor will
give an outline of the third parties with which the entity has entered
into a relationship and it will indicate if these counterparties have been
retained in accordance with the policy of the entity.
In case the custodian exercises also part or all of the head office functions,
the long form report has to provide explanations on the separation of
duties, specifically between custody and head office duties.
In case the auditor notes deficiencies, the auditor will have to indicate
exactly which obligation(s) the custodian has not complied with.
1.2.2.2.
Computer Systems
As regards computer systems, the auditor will give a brief description of
the software used by the custodian.
The auditor must indicate whether, during the financial year under
review, significant changes have occurred with regard to the computer
system and whether problems were encountered at the time of migration
from one system to another.
The auditor must give its opinion on the adequacy of the computer
system and the available human resources for ensuring the proper
execution by the credit institution of its contractual obligations towards
the UCI concerned.
1.2.2.3.
Result of the reconciliations
The auditor must indicate whether the custodian has established procedures concerning the reconciliation of positions accounted for by the
UCI and those registered with the custodian. It will also give an opinion
on the adequacy of those procedures.
The auditor must give its opinion on the results of the reconciliation
between the positions accounted for by the UCI and the positions registered with the custodian.
In case the auditor would during its audit identify serious problems as
regards the reconciliation between the positions accounted for by the
UCI and those registered with the custodian, the auditor must give a
detailed description of the problems in the long form report.
1.3. Relationship with the management company
The auditor verifies whether the management company assumes its
functions in compliance with legal and contractual obligations.
It indicates in its long form report which functions are performed by
the management company on behalf of the UCI. To the extent that
the management company performs all or part of the administration
functions, the auditor has to proceed as provided for under item 1.,
paragraph 1.1.1. or 1.1.2. hereabove.
In case the auditor becomes aware of major problems, it has to provide
a detailed description of those problems in the long form report of the
UCI.
1.4.
Relationship with other intermediaries
In the context of the relationship of the UCI with other intermediaries,
comprising inter alia the investment managers, the distributors, etc.,
the auditor must indicate in its long form report if the activity of the UCI
has been hindered by major problems encountered in the course of the
operations conducted with these other intermediaries.
If this is the case, the auditor must describe in a detailed manner the
problem(s) encountered during its analysis in order to enable the CSSF
to assess the situation.
2. Audit of the operations of the UCI
2.1.
Audit of anti-money laundering rules
As the head office of a UCI deals with subscription, redemption and
transfer requests of units or shares of UCIs, it has to ensure compliance
with the provisions set forth in the circulars relating to the fight against
money laundering, comprising circulars IML 94/112, BCL 98/153, CSSF
00/21, CSSF 01/40 and CSSF 02/78.
IML circular 94/112 has, however, taken into account the specific
manner in which UCIs are marketed, by dispensing the head office
of a UCI in Luxembourg under certain conditions from the obligation
to carry out itself the identification of investors in case it makes use of
professionals of the financial sector subject to identification obligations
equivalent to those provided for by Luxembourg law. In this context,
it has to be reminded that in respect of all intermediaries participating
in the placement of the units or shares of UCIs, the head office has to
systematically verify the conditions provided for by circular IML 94/112
concerning equivalent identification. That verification has to cover inter
alia the status of the intermediary and its submission to the FATF recommendations. If the conditions of an equivalent identification provided for
by circular IML 94/112 are not met, the head office of the UCI in Luxembourg must itself carry out the identification of the investors in the UCI.
On the basis of the description provided by the head office, the auditor
must analyse the distribution channel of units or shares of the UCI
in order to determine if the head office complies with its obligations
concerning the fight against money laundering.
In addition, the auditor must check whether the head office supervises
abnormal transactions.
In this context, the auditor has to indicate its method of selection of
sample files checked and the percentage of the total transactions
covered.
In case a non-compliance is noted, the auditor will have to provide
precise indications to the CSSF enabling it to make an appreciation of
the situation (number of files which are incomplete, detail of the failures
noted, etc.).
In case the auditor of the UCI makes use of the possibility to base itself
on the audit report of the auditor in charge of the review of the entity
which is responsible for compliance with anti-money laundering rules,
the long form report must provide the following details:
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212
– name of the auditor of the entity in question
– date of the audit report
2.2.
Valuation methods
The law of 30 March 1988 provides that, unless otherwise provided
for in the management regulations or the Articles of incorporation,
the valuation of the assets shall be based ‘in case of officially quoted
security’ on the latest known stock exchange quotations unless such
quotations are not representative. For securities not so quoted and for
securities which are so quoted but for which the latest quotation is not
representative, these Articles provide that the valuation must be based
on the probable realisation value which must be estimated with care
and in good faith.
The auditor will thus check if the valuation methods are applied in
accordance with the procedures and the rules determined by the
management regulations or the Articles of incorporation and if these
methods are also applied in a consistent manner.
The auditor must inter alia verify the application and the sincerity of the
valuation rules of the securities portfolio, securities’ lending/borrowing,
repurchase and reverse repurchase agreements, sale with right of
repurchase agreements, transactions, futures, swaps and options.
In connection with the valuation of portfolio securities, it must in particular
insist on unquoted securities and illiquid securities.
In addition, the auditor will request the board of directors of the UCI or
the management company of the UCI to provide details on the trans
actions undertaken by the UCI to enable the auditor to verify by sample
tests if these transactions were undertaken at arm’s length.
In case of non-compliance with the valuation methods described in the
procedures or in the management regulations or the Articles of incorporation, the auditor must provide detailed information enabling the CSSF
to assess the situation.
2.3.
Control of the risk management system
The board of directors of the UCI or of the management company of the
UCI is supposed to have put into place the necessary controls to ensure
compliance with the investment restrictions and policies of the UCI as
well as the management of the risks encountered by the UCI. Either it
assumes all or part of the above mentioned controls itself or it delegates
this duty to one or several third parties.
The auditor must indicate the responsible persons/entities appointed
by the board of directors of the UCI or the board of directors of the
management company of the UCI which are entrusted with the control
of the different risks for which the UCI is exposed. The auditor will also
have to specify the frequency with which risk controls are made.
The long form report must indicate whether the control system put into
place within those entities covers at least the risks inherent to the policy
and the investment risks of the UCI concerned, such as:
– credit risk/counterparty risk
– market risk
– settlement risk
– foreign exchange risk
If appropriate:
– interest rate risk
– liquidity risk
– risk on derivative instruments
The long form report must provide an analysis and an assessment of
the systems put in place by the UCI to control and manage the different
risks to which the UCI is exposed when it carries out its activities.
If shortfalls are noted, the auditor must give precise indications enabling
the CSSF to assess of the situation.
2.4.
Specific audits
In the context of his mission, the auditor must also proceed to specific
audits. These are the audit of the compliance with the investment policy
and the investment restrictions and the audit of the calculation of the
NAV.
The auditor must under this item analyse every NAV calculation error
and every non-compliance with the investment rules for which the
amount of indemnification did not exceed EUR 25,000 and for which
the amount to be reimbursed to any one investor did not exceed
EUR 2,500 as set out in CSSF circular 02/77.
Under this item, the auditor must also indicate the following:
–
material errors which the auditor has detected during its mission
and which should have been notified in accordance with the provisions of CSSF circular 02/77;
–
cases of non-compliance which the auditor has detected during its
mission and which should have been notified in compliance with
the provisions of CSSF circular 02/77.
In those cases, the auditor will in its long form report describe the
material errors and the cases of non-compliance with investment rules
identified during its audit and which have not been notified to the CSSF
in compliance with CSSF circular 02/77. The auditor will thereafter deal
with these errors and cases of non-compliance with the investment
rules in accordance with the procedures set forth in CSSF circular
02/77.
In case no significant NAV error or in case of non-compliance with the
investment policy will have been identified, the auditor must expressly
state so in its long form report of the UCI.
2.5.
Assets and liabilities and profit and loss account
The auditor will comment on the different items of the consolidated190
balance sheet in a clear on and precise manner. The auditor must check
190 UCIs are not required to produce consolidated accounts. What is meant here is the combined balance sheet of the
multiple compartment UCIs consisting of the combination of the balance sheets of all compartments.
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the existence of those items, their amounts and their adequate accounting
treatment, as well as the consistent application of accounting principles.
In addition, the auditor must examine the sale and purchase trans
actions of securities made during the two weeks preceding and the
two weeks following the end of the financial year (this period needs to
be extended if suspicious operations have been detected), in order to
determine whether transactions have been entered into for the purpose
of “window dressing”.
Furthermore, the auditor will have to collect statistics on portfolio
turnover in order to make an appreciation whether transactions have
been entered into for the purpose of “churning”.
The auditor must also comment on the various items of the combined
profit and loss account. The auditor will have to check the existence of
those items, their amounts and their adequate accounting treatment, as
well as the consistent application of the accounting principles.
During its mission, the auditor will have to pay particular attention to the
performance fee which may be payable to the investment managers.
The auditor will also have to receive from the board of directors of the
UCI or of the management company of the UCI confirmation to the
effect that neither the investment managers nor any of their connected
parties have received rebates from brokers and a confirmation on any
arrangements concerning the payment of “soft commissions” in the
context of the activities of the UCI. In case “soft commissions” are paid,
the auditor will have to provide in the long form report details on the
arrangements in relation thereto.
In addition, the auditor will need to receive from the board of directors of
the UCI or the management company of the UCI confirmation indicating
whether there have been any commission rebates and, in the affirmative, describe the nature thereof.
Finally, the auditor will ask for a list of all costs, comprising transaction
costs, which have been attributed to the UCI. It is recommended that
this list of costs refers where possible to the gross amount of the costs
attributable to the UCI. In relation to the most significant costs, the
auditor will have to determine whether they have been calculated in
compliance with the provisions of the applicable agreements.
In case of irregularities or shortfalls, the auditor will have to provide
precise indications enabling the CSSF to assess the situation.
2.6.
Publication of the NAV
The auditor shall indicate if the UCI has published its NAV in accordance with Article 92 of the law of 30 March 1988.
In case of non-compliance with this legal requirement, the auditor will
indicate in detail the origin of this shortfall.
3. Internet
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The long form report will indicate whether the UCI makes direct use of the Internet
as a communication or distribution channel.
4. Complaints from investors
The auditor will query with the board of directors of the UCI or of the management
company of the UCI whether, during the course of the financial year under review,
complaints have been received by the head office in Luxembourg and to which the
UCI had to respond.
If this is not the case, the auditor will specifically mention this in its long form
report.
If complaints have been received, the auditor will indicate how many complaints
have been received by the UCI in Luxembourg.
5. Follow-up on problems identified in preceding reports on the audit of the
activities of the UCI
The auditor indicates in this part of its long form report the follow-up on irregularities and important weaknesses identified during its preceding audits and which
are detailed either in an earlier long form report or in a separate management letter
addressed to the board of directors of the UCI or of the management company of
the UCI (see also chapter III.A. “General Principles” hereabove).
6. General conclusion
In its general conclusion the auditor must give its opinion on all the important items
of its control in order to give a general view on the situation of the UCI.
More specifically, the auditor must summarise the main comments and conclusions
contained in the long form report. It will also indicate the main recommendations
and observations made to the board of directors of the UCI or the management
company of the UCI as well as the latter’s response thereto. In case the auditor
issues a separate management letter to the board of directors of the UCI or of the
management company of the UCI, it is sufficient that the general conclusion refers,
for this part, to that document which, in such case, must be annexed to the long
form report (see also chapter III.A. “General Principles” hereabove).
IV.Reporting to the CSSF pursuant to Article 89(3) of the law relating to UCIs
In compliance with paragraph (3) of Article 89 as amended of the law on UCIs, introduced
by the law of 29 April 1999191, the auditor must report to the CSSF any fact or decision it
has become aware of while carrying out the audit of the accounting information contained
in the annual report of a UCI or any other legal task concerning a UCI where such fact or
decision is liable to:
– constitute a material breach of the provisions of the law on UCIs or the regulations
adopted for its execution, or
191 Law of 29 April 1999
- implementing directive 95/26/EC concerning the reinforcement of prudential supervision into the law of 5 April
1993 relating to the financial sector (as amended) and into the law of 30 March 1988 on undertakings for collective investment (as amended);
- partially implementing Article 7 of directive 93/6/EEC on the capital adequacy of investment firms and credit
institutions into the law of 5 April 1993 relating to the financial sector (as amended);
- operating certain other amendments to the law of 5 April 1993 relating to the financial sector (as amended);
- amending the grand-ducal regulation of 19 July 1983 relating to fiduciary contracts of credit institutions.
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– affect the continuous functioning of the UCI, or
– lead to a refusal to certify the accounts or to the expression of reservations therein.
The auditor shall likewise have the duty to report to the CSSF any fact or decision
concerning the UCI and meeting the criteria mentioned hereabove of which it has become
aware while carrying out the audit of the accounting information contained in the annual
report of another undertaking having close links resulting from a control relationship with
the UCI for which it carries out a legal task or while carrying out any other legal task
concerning such other undertakings.
“Close link” resulting from a control relationship shall mean the link which exists between
a parent undertaking and a subsidiary in the cases referred to in Article 77 of the amended
law of 17 June 1992 relating to the annual accounts and the consolidated accounts of
credit institutions or as a result of a relationship of the same type between any individual
or legal entity and an undertaking; any subsidiary undertaking of a subsidiary undertaking
is also considered a subsidiary of the parent undertaking which is at the head of those
undertakings. A situation in which two or more individuals or legal persons are permanently linked to one and the same person by a control relationship shall also be regarded
as constituting a close link between such persons.
In addition, if in the discharge of its duties the auditor ascertains that the information
provided to investors or to the CSSF in the reports or other documents of the UCI does
not truly describe the financial situation and the assets and liabilities of the UCI, it shall be
obliged to inform the CSSF forthwith.
The auditor shall moreover be obliged to provide the CSSF with all information or certificates required by the latter on any matters of which the auditor has or ought to have
knowledge in connection with the discharge of its duties. The same applies if the auditor
ascertains that the assets of the UCI are not or have not been invested according to the
regulations set out by the law or the prospectus.
In return for the duty to report to the CSSF, paragraph (3) also provides that any disclosure
in good faith to the CSSF by the auditor of any fact or decision referred to in paragraph (3)
does not constitute a breach of professional secrecy or of any restriction on disclosure of
information imposed by contract and will not result in liability of any kind of the auditor.
V. Final provisions
216
The provisions of the present circular have to be complied with in their entirety for the
annual accounts of the financial years ending on or after 31 December 2003.
CSSF Circular 03/87 of 21 january 2003 concerning the coming into
effect of the Law of 20 December 2002 relating to undertakings for
Luxembourg, 21 January 2003
To all undertakings for collective investment and to those who act in relation to the operation
and supervision of such undertakings.
CSSF CIRCULAR 03/87
Concerns: Coming into effect of the law of 20 December 2002 relating to undertakings for collective investment.
We would like to draw your attention to the enactment of the law of 20 December 2002 relating
to undertakings for collective investment (Mémorial A - N° 151 of 31 December 2002).
This law of 20 December 2002 implements into Luxembourg law directives 2001/107/EC and
2001/108/EC and brings about a number of changes to the Luxembourg legal framework of
undertakings for collective investment (UCIs).
The purpose of this circular is to present, in summary form, to the professionals of collective
management, the main changes introduced by this law of 20 December 2002 and which relate
to:
I. the definitions set forth in the text of the law
II. the extension of the investment policy of UCIs subject to Part I of the law
III. the rules concerning management companies
IV.the simplified prospectus and the publication of documents of UCIs
V. the transitional provisions.
I. Definitions
Article 1 of the law comprises a number of definitions, most of which have been taken from
directives 2001/107/EC and 2001/108/EC.
The law comprises, inter alia, a definition of the term “transferable securities”.
Pursuant to Article 1, item 26)192, “transferable securities” shall mean:
– shares and other securities equivalent to shares (“shares”),
– bonds and other debt instruments (“bonds”)193,
192 Item 22 in the English translation of the law and item 24 in the German translation of the law.
193 The law, the French version of amended Directive 85/611/EEC and the circular use “bonds” (obligations) as a
defined term whereas the English version of amended Directive 85/611/EEC uses the term “debt securities”.
217
– any other negotiable securities which carry the right to acquire any such transferable
securities by subscription or exchange,
excluding the techniques and instruments referred to in Article 42 of the law.
II. Extension of the investment policy of UCITS subject to part I of the law
Compared to the amended law of 30 March 1988 relating to UCIs, the law extends the
range of assets in which UCITS subject to part I of the law can invest in, and permits,
under certain conditions, the investment in money market instruments, in units of UCITS
and/or other UCIs, in deposits and in derivative financial instruments.
The transferable securities and other liquid financial assets in which UCITS subject to part
I of the law may invest, must meet a certain number of criteria which are set forth in Article
41 (1) of the law.
While extending the eligible investments for UCITS subject to part I, the law adjusts the
specific investment limits applicable to investments in such transferable securities and
other liquid financial assets referred to in Article 41 (1).
The law also permits UCITS subject to part I to derogate, within specified conditions, from
certain investment limits in order to permit them to replicate a recognised index of shares
or bonds.
The detailed rules applicable to the investment policy and the investment restrictions
applicable to UCITS subject to part I are referred to under chapter 5 of the law.
III. Rules regarding management companies
Part IV of the law (chapters 13 and 14), which provides for detailed rules applicable to
management companies, distinguishes between management companies which act as
management company for one or several UCITS complying with the amended directive
85/611/EEC and the other management companies subject to Luxembourg law which do
not act as management company for UCITS complying with the aforesaid directive.
A. Common provisions applicable to all management companies
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The law provides that the activity of a management company to manage at least one
UCI subject to Luxembourg law, requires a prior authorisation to be granted by the
CSSF.
Under the provisions of the law, the CSSF may only grant its authorisation if the
management company has its central administration and registered office in Luxembourg.
The law specifies that the application for authorisation must describe the structure of
the organisation of the management company.
The authorisation is subject to the condition that the management company entrusts
the audit of its annual accounting documents to one or more auditors (réviseurs
d’entreprises), who can justify of an adequate professional experience.
Management companies which exist at the date of entry into force of the law must within
12 months from the date of entry into force of the law comply with the requirement to
entrust the audit of their accounting documents to one or more auditors.
B. Provisions concerning management companies complying with directive 2001/107/EC
Chapter 13 of the law provides for detailed rules applicable to management
companies complying with directive 2001/107/EC. It is applicable to all management
companies which manage at least one UCITS complying with the amended Directive
85/611/EEC. These management companies may also manage UCIs which do not
comply with the amended directive 85/611/EEC.
The law extends the permitted activities of management companies complying with
Directive 2001/107/EC.
The law provides that these management companies may, in addition to the collective
management for UCIs, undertake discretionary management activities for the account
of individual and institutional investors, including pension funds.
The law specifies the conditions for taking up business and the operating conditions
applicable to management companies complying with directive 2001/107/EC.
Article 78 of the law deals with the conditions for taking up business and comprises,
inter alia, the capital requirements applicable to such management companies which
manage one or several UCITS complying with the amended directive 85/611/EEC.
These capital requirements refer to the initial capital and the additional amount of own
funds required if the assets under management exceed 250 million Euro.
For the purpose of the calculation of the amount of own funds, the assets the
management of which is delegated are taken into account, whereas the assets
managed by delegation are not taken into account.
The law provides that the own funds of the management company shall never be less
than the amount prescribed in Annex IV of directive 93/6/EEC.
Article 78, paragraph (1), item b) provides that the persons who effectively conduct
the business of the management company and which must be at least two, must
be of sufficiently good repute and experience also in relation to the type of UCITS
managed.
IV.Simplified prospectus and publication of the documents of UCIs
The law introduces the simplified prospectus which must include, in summary form, the
information necessary for investors to be able to make an informed judgment of the
investment proposed to them and, in particular, of the risks attached thereto.
The requirement to publish a simplified prospectus is however not applicable to UCIs
subject to Part II of the law, and therefore only UCITS subject to Part I of the law must
publish a simplified prospectus, whereas UCIs subject to Part II of the law may, but are
not obliged to publish such a simplified prospectus.
The simplified prospectus is structured and written in such way that it can be easily understood by the average investor. It can be attached to the full prospectus as a removable
part of it.
It is to be noted that the simplified prospectus can be used as a marketing tool designed
to be used in all Member States of the European Union without any alterations except for
its translation.
The content of the simplified prospectus is described in schedule C of annex I of the law.
219
With respect to the publication of documents of UCIs, Article 114 of the law introduces a
new provision pursuant to which the CSSF may publish or arrange the publication of the
documents of UCIs by all means which the CSSF deems appropriate.
The purpose of this text is to avoid possible legal hurdles relating to the publication of UCI
documents in the context of a project commonly referred to as “référentiel de la place”
(reference data base)194 which is intended to form a data base centralising the information
on Luxembourg UCIs.
V. Transitional provisions
The law is applicable as from 1 January 2003.
For reasons relating, inter alia, to the implementation provisions provided for by the two
directives 2001/107/EC and 2001/108/EC, it was decided to adopt a new law on UCIs,
rather than to modify the amended law of 30 March 1988.
To the extent that the two directives 2001/107/EC and 2001/108/EC include transitional provisions which provide for a deadline expiring on 13 February 2007 to permit
UCITS existing on 13 February 2002 and management companies authorised prior to
13 February 2004 to comply with the new provisions, the law comprises in its transitional
and repealing provisions, a number of provisions implementing the transitional provisions
of the directives.
A. Transitional provisions concerning UCIs
The law provides that UCITS subject to Part I of the amended law of 30 March 1988
relating to UCIs, as amended established before 13 February 2002, may elect until
13 February 2007 to remain governed by the amended law of 30 March 1988 or to be
governed by the law of 20 December 2002.
As from 13 February 2007, they will ipso jure be governed by the law of
20 December 2002.
The law provides that the establishment of a new compartment does not affect the
foregoing option. This option must be exercised in respect of the UCITS as a whole in
its entirety, including all its compartments.
UCITS subject to Part I of the law of 30 March 1988 relating to UCIs, as amended
and established between 13 February 2002 and 1 January 2003 may elect until
13 February 2004, to remain governed by the amended law of 30 March 1988 or to be
governed by the law of 20 December 2002.
As from 13 February 2004, they will be governed by the law of 20 December 2002 by
operation of law.
UCITS within the meaning of Article 1 of the amended law of 30 March 1988 relating
to UCIs, excluding those concerned by Article 2 of such same law, and established
between 1 January 2003 and 13 February 2004 may elect to be governed by the
amended law of 30 March 1988 or by the law of 20 December 2002.
As from 13 February 2004, they will ipso jure be governed by the law of 20 December
2002.
194 Référentiel de la place; see also CSSF circular 03/97.
220
UCIs established prior to 1 January 2003 and subject to Part II of the amended law of
30 March 1988 remain governed by the provisions of the amended law of 30 March
1988 relating to UCIs until 13 February 2004. They may however be governed by the
law of 20 December 2002 as from 1st January 2003.
2002.
UCIs established between 1 January 2003 and 13 February 2004 may elect to be
governed by the provisions of the law of 20 December 2002 or by the provisions of the
amended law of 30 March 1988 relating to UCIs.
2002.
All UCIs established as from 13 February 2004 are governed by the law of
20 December 2002, unless they are governed by a special law.
An investment company is deemed to be established as from the date of its incorporation before a notary.
A common fund is deemed established as from the date of execution of its management
regulations or from the date of entering into force of its management regulations if the
management regulations specifically provide for such date.
B. Transitional provisions concerning management companies
Management companies existing on 1 January 2003 are subject, by operation of law,
to the provisions of chapter 14 and are deemed authorised in accordance with Article
91 (1) of the law of 20 December 2002.
To the extent that they manage UCITS governed by the amended directive 85/611/
EEC, such management companies must comply, at the latest by 13 February 2007,
with the provisions of chapter 13 of the law of 20 December 2002.
Management companies authorised between 1 January 2003 and 13 February 2004
which act as management company for UCITS governed by the amended directive
85/611/EEC must comply, at the latest by 13 February 2007, with the provisions of
chapter 13.
In this context, it is important to note that the amended law of 30 March 1988 will
remain in force until 13 February 2007 and that, as a consequence there will be, until
such date, two laws which will, on a parallel basis, regulate matters regarding UCIs.
It is the intention of the CSSF to clarify by means of circulars a number of other items
referred to in the law of 20 December 2002. Accordingly, other CSSF circulars will
provide further clarifications, inter alia, on the following subjects:
– the rules regarding management companies governed by Luxembourg law
– the rules of conduct applicable to professionals of collective management in
Luxembourg
– the risk management methods and valuation methods applicable to transactions
on derivative instruments.
The rules set forth in Circular IML 91/75 will also be amended and adjusted by means
of a new CSSF circular.
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CSSF Circular 03/88 of 22 january 2003 concerning the classification of
undertakings for collective investment subject to the provisions of
the Law of 20 December 2002 relating to undertakings for collective
investment
To all Luxembourg undertakings for collective investment and to those who act in relation to
the operation and supervision of such undertakings.
CSSF CIRCULAR 03/88
Concerns: Classification of undertakings for collective investment subject to the
provisions of the law of 20 December 2002 relating to undertakings for
collective investment.
The purpose of this circular is to clarify the classification of undertakings for collective
investment (UCIs) which are subject to the law of 20 December 2002 which entered into
force on 1 January 2003. The main changes introduced by the law of 20 December 2002 are
described in CSSF circular 03/87.
The amended law of 30 March 1988 relating to UCIs (the law of 30 March 1988) will remain
in force until 13 February 2007 and, as a consequence, until such date two distinct laws will,
on a parallel basis, regulate matters regarding UCIs.
Pursuant to the transitional provisions set forth in the law of 20 December 2002, the following
UCIs established under the law of 30 March 1988 must comply with the new legal provisions by
13 February 2004 at the latest:
– UCITS subject to Part I of the law of 30 March 1988 established between 13 February
2002 and 1 January 2003;
– UCITS within the meaning of Article 1 of the law of 30 March 1988, excluding
those referred to in Article 2 of such law, established between 1 January 2003, and
13 February 2004, which in a first stage had elected to be governed by the law of
30 March 1988;
– UCIs existing on 1 January 2003, subject to Part II of the law of 30 March 1988 which
qualify as UCITS under Part I of the law of 20 December 2002;
– UCIs existing on 1 January 2003, subject to Part II of the law of 30 March 1988 which
qualify as UCIs subject to Part II of the law of 20 December 2002;
– UCIs established between 1 January 2003 and 13 February 2004, which qualify either as
UCITS under Part I of the law of 20 December 2002 or as UCIs under Part II of the law
of 20 December 2002 and which in a first stage elected to be governed by the law of 30
March 1988 (Part II).
All undertakings for collective investment established on and after 13 February 2004 are
subject, by operation of law, to the law of 20 December 2002 and must comply with the provisions thereof as from the date of their establishment.
222
UCITS subject to Part I of the law of 30 March 1988 established prior to 13 February 2002
may elect, until 13 February 2007, either to remain subject to the law of 30 March 1988 or to
be governed by the law of 20 December 2002.
I. General considerations
A UCI shall be deemed to be situated in Luxembourg if the registered office of the
management company of the common fund or of the registered office of the investment
company is situated in Luxembourg.
Depending on their characteristics, Luxembourg UCIs governed by the law of 20 December
2002 will be subject either to Part I or to Part II of such law.
This classification permits the distinction between:
– undertakings within the meaning of Council directive 85/611/EEC of 20 December
1985 on the coordination of laws, regulations and administrative provisions relating
to undertakings for collective investment in transferable securities (UCITS), as
amended;
– the other undertakings which do not fall within the scope of application of directive
85/611/EEC, as amended.
II. Definition of UCIs governed by Part I of the law of 20 December 2002
Part I of the law of 20 December 2002 applies to all UCIs the exclusive object of which is
the investment in transferable securities and/or the other liquid financial assets referred to
in Article 41 (1) of the law.
Considering this aforementioned definition, the criterium which determines whether a UCI
is subject to Part I or Part II of the law of 20 December 2002 is the intended investment
objective. If the UCI invests in transferable securities and/or the other liquid financial
assets referred to in the aforesaid Article 41 (1) of the law of 20 December 2002, it is
subject to Part I save for the exceptions commented in section III. below.
UCITS subject to Part I of the law of 20 December 2002 are of the open-ended type since
the rules to which they are subject provide that they, directly or indirectly, redeem their
units or shares at the request of the investors.
Due attention must be given to the abovementioned transitional provisions of the law of
20th December, 2002 and, in particular, to Article 134 (5) concerning UCIs which exist on
the date of the entry into force of such law and which are capable of becoming UCITS
subject to Part I as a result of the extension of the concept of eligible assets.
Accordingly, a UCI which is presently governed by Part II of the law of 30 March 1988 may
have to submit itself, because of its investment policy, by 13 February 2004 at the latest
to the provisions of Part I of the law of 20 December 2002, unless it is excluded from Part
I pursuant to Article 3 of such law.
III. Definition of UCIs subject to Part II of the law of 20 December 2002
Part II of the law of 20 December 2002 applies to all UCIs the principal object of which
is the investment in securities other than transferable securities and/or the other liquid
financial assets referred to in Article 41 (1) of the law, as well as to all UCITS excluded
from Part I.
223
In its Article 3, the law of 20 December 2002 provides for exceptions to the basic rule
reproduced in section II. above by excluding from the scope of application of Part I certain
categories of UCITS.
The cases of exclusion, which relate to the four categories described below, are identical
to those provided for by the law of 30 March 1988. They were described in detail in
IML circular 91/75. The first three categories described hereafter remain fundamentally
identical to their description in IML circular 91/75. The fourth category has been adjusted
to take account of the extension of the concept of eligible assets of UCITS as a result of
which certain UCIs which were excluded from Part I of the law of 30 March 1988 are no
longer excluded from Part I of the law of 20 December 2002.
UCITS excluded from Part I of the law of 20 December 2002 relate to the four following
categories:
1. UCITS of the closed-ended type.
These UCITS can be defined by distinguishing them from open-ended UCITS which,
directly or indirectly, redeem their units or shares at the request of investors.
The reimbursement to investors after a decision of the UCITS is not tantamount to
a redemption if such reimbursement occurred without any request from investors
pursuant to a redemption right.
If the securities of a UCITS of the closed-ended type are redeemed at the request of
investors after a certain date, such UCITS falls within the scope of application of Part I
of the law from such date onwards, unless it belongs to one of the other categories of
UCITS referred to in paragraphs 2. to 4. hereafter. In case this feature is established
at inception, the prospectus must, from the outset, draw the investors’ attention to that
fact and to the possible consequences arising therefrom, including those relating to
the investment policy.
2. UCITS which raise capital without promoting the sale of their units or shares to the
public within the European Union (“EU”) or any part of it.
The exclusion from Part I of the law does not dispense the UCITS concerned from the
condition of the collection of public savings which all undertakings must comply with
in order to qualify as UCI; it simply prohibits the UCITS concerned to engage in any
promotional activity within the EU as this concept is defined in each Member State.
In Luxembourg, the concept of “promotional activity” refers in particular to the use of
advertisement methods such as the press, radio, television or advertisement circulars.
It does however not refer to offers of subscription which are addressed to a limited,
particularly well-informed circle of investors.
It follows from the above that the UCITS concerned hereby are those which, even
though they are addressed to the public, renounce any promotional activity within the
EU.
3. UCITS the units or shares of which may, under their constitutional documents, only be
sold to the public in countries which are not members of the European Union.
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The exclusion only applies subject to the condition that the management regulations
or the Articles of incorporation of these UCITS expressly provide that the sale of their
units or shares is limited to the public of countries which are not members of the
European Union and of the European Economic Area.
Also covered by this category are UCITS, the units or shares of which are listed on the
Luxembourg Stock Exchange and which market those units or shares solely outside
the European Union and the European Economic Area.
4. Categories of UCITS determined by the CSSF for which the rules laid down in chapter
5 of the law of 20 December 2002 are inappropriate in view of their investment and
borrowing policies.
UCITS covered by this exclusion belong to one of the following categories:
4.1.
UCITS the investment policy of which permits the investment of 20% or more
of their net assets in securities other than in transferable securities and/or other
liquid financial assets referred to in Article 41 (1) of the law of 20 December
2002.
4.2.
UCITS the investment policy of which permits the investment of 20% or more
of their net assets in venture capital. Investment in venture capital shall be
taken to mean investment in securities of companies which have been recently
formed or which are still in the course of development.
4.3.
UCITS the investment policy of which permits the borrowing, on a permanent
basis and for investment purposes, of amounts representing at least 25% of
their net assets.
4.4.
Multiple compartment UCITS, one compartment of which is not subject to
Part I of the law of 20 December 2002 by reason of its investment or borrowing
policy.
225
CSSF Circular 03/97 of 28 february 2003 concerning the publication by
undertakings for collective investment in the reference database
(“référentiel de la place”) of the simplified prospectuses and the
full prospectuses as well as the annual and semi-annual reports
Luxembourg, 28 February 2003
CSSF CIRCULAR 03/97
Concerns: Publication by undertakings for collective investment in the reference
database (“référentiel de la place”) of the simplified prospectuses and
the full prospectuses as well as the annual and semi-annual reports.
The purpose of this circular is to clarify the method of publication of simplified prospectuses
and full prospectuses as well as the annual and semi-annual reports which undertakings for
collective investment (UCIs) must publish for the benefit of their investors pursuant to chapter
17 of the law of 20 December 2002 relating to undertakings for collective investment (the law
of 20 December 2002).
That law provides in its Article 114 that:
(1)UCIs must send their simplified and full prospectuses and any amendments thereto, as
well as the annual and semi-annual reports, to the CSSF.
(2)The CSSF may publish or cause the publication of the aforesaid documents by such
means as it shall consider adequate.
To take into account the evolution of information technology, a reference database has been
put in place by the Centrale de Communication Luxembourg S.A. (CCLux*) in order to create
an infrastructure which permits investors and professionals of the industry to have access,
by electronic means, to all prospectuses and annual and semi-annual reports of Luxembourg
UCIs.
This platform is in line with the new European trends aiming at facilitating the distribution and
the inspection of prospectuses and annual and semi-annual reports by means of electronic
support such as the Internet.
The CSSF considers that this reference database strengthens the transparency of the information relating to UCIs subject to Luxembourg law and facilitates the access to such information for investors.
On the basis of Article 114 (2) of the law of 20 December 2002, the simplified prospectus
and the full prospectus, as well as the annual and semi-annual reports of the UCIs subject to
the aforesaid law must be published in the reference database. This compulsory publication
is not applicable to UCIs subject to the law of 19 July 1991 relating to UCIs the securities of
which are not intended to be placed with the public.
*
226
It is strongly recommended that UCIs subject to the law of 30 March 1988, relating to undertakings for collective investment (the law of 30 March 1988) also comply with this obligation
of publication in the reference database.
The publication of the prospectus must be made as soon as the latter has been approved by
the CSSF. To the extent notified by a UCI to the CSSF, the publication of the prospectus is
postponed until, at the latest, the start date of the distribution of the units of the UCI.
The annual and semi-annual reports must be published within the deadlines set forth in Article
109 (2) of the law of 20 December 2002 and in Article 85 (2) of the law of 30 March 1988.
The CSSF may, on the basis of an adequate justification, grant a derogation in relation to
the obligation to publish the prospectuses and the annual and semi-annual reports in the
reference database.
A separate circular will be issued at the time when the reference database will become operational and will deal with the methods of transmission of the prospectuses and the annual and
semi-annual reports of UCIs to the CSSF and to CCLux*.
*
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CSSF Circular 03/108 of 30 july 2003 concerning luxembourg management
companies subject to chapter 13 of the law of 20 december 2002
relating to undertakings for collective investment as well as luxembourg self-managed investment companies subject to article 27 or
article 40 of the law of 20 december 2002 relating to undertakings
for collective investment
Luxembourg, 30 July 2003
To all UCIs and management companies subject to Luxembourg law
CSSF CIRCULAR 03/108
Concerns:
Luxembourg management companies subject to the provisions of
chapter 13 of the law of 20 December 2002 relating to undertakings for
collective investment as well as self-managed investment companies
subject to the provisions of Article 27 or Article 40 of the law of
20 December 2002 relating to undertakings for collective investment.
The main purpose of this circular is to clarify the way of application of certain Articles of
chapter 13 of the law of 20 December 2002 relating to undertakings for collective investment
and amending the amended law of 12 February 1979 on value added tax (the “law of 20
December 2002”) which introduces a specific regime applicable to management companies
managing UCITS governed by Directive 85/611, as amended (hereafter the “Directive 85/611”).
In addition, the circular specifies the financial information that management companies which
are subject to chapter 13 must communicate to the CSSF.
Chapter 13 of the law of 20 December 2002 is applicable to all management companies
subject to Luxembourg law which manage at least one UCITS authorised in accordance with
Directive 85/611, as well as their branches.
Management companies which are subject to chapter 14 of the law of 20 December 2002
and management companies which manage neither a Luxembourg UCI nor a UCITS, are not
subject to the provisions of this circular.
It is to be noted that pursuant to the transitional provisions of Article 135 of the law of 20
December 2002, management companies which are authorised or which will be authorised
until 13 February 2004 have the option to submit themselves to chapter 13 or to chapter 14
of the law of 20 December 2002. To the extent that they are subject to chapter 14 and that
they manage UCITS governed by Directive 85/611, they must comply with the provisions of
chapter 13 no later than 13 February 2007. Management companies which manage UCITS
and which are authorised after 13 February 2004 are automatically subject to chapter 13 of
the law of 20 December 2002.
In addition, this circular is applicable mutatis mutandis to investment companies subject to
Directive 85/611 as amended by the directive of the European Parliament and Council of
21 January 2002, and which have not designated a management company (Articles 27(2)
and 40), except for items I.4 (shareholding), I.6 (own funds) and II. (prudential supervision of
a management company subject to chapter 13 of the law of 20 December 2002).
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Finally, the transitional provisions of Article 134 applicable to them must also be considered.
I. Conditions for obtaining and maintaining authorisation for management companies
which do not engage in activities other than collective portfolio management as
provided for by Article 77(2).
1. Basic principles
Access to business of management companies within the meaning of chapter 13 of
the law of 20 December 2002 (“management companies”), is subject to prior authorisation by the CSSF (Article 77).
Prior authorisation is also required for the opening by Luxembourg management
companies of agencies in Luxembourg or branches abroad.
The right of establishment and the freedom to provide services are applicable to
Luxembourg branches of management companies managing UCITS and which are
authorised and supervised by the competent authorities of another Member State.
2. Programme of activity
The application for authorisation must be accompanied by a programme of activity as
referred to in Article 78(1)c) which provides, in particular, a description of a plan for
development of the activities. The activity programme comprises information relating
to:
a) the scope of the proposed services for the three next accounting periods
concerning:
- the collective portfolio management (number of UCITS managed directly and
under delegation, laws under which such UCITS have been set up, their net
assets as well as the number and net assets of UCITS, either managed directly
or under delegation, created at the initiative of a company which is not part of
the same group as the management company);
b) the investment policies of the UCITS managed as well as the financial instruments
and markets concerned;
c) the risk management process (Article 42(1)).
3. Head office and infrastructure
The head office of a management company must be situated in Luxembourg. This
requirement implies that a management company may not have in Luxembourg a
registered or statutory office only. This concept must be understood in a broad sense
and comprises in particular the fields of infrastructure and accounting and electronic
data processing systems (Article 78(1)).
a) human infrastructure
The staff of the management company must be permanent and must be adapted to
the contemplated activities. The CSSF must be informed about the number of persons
working for the management company. The staff is, in principle, employed195 by the
company.
195 The French original of the circular uses in this sentence the term “salarié” which implies an employer/employee
relationship between the management company and its staff.
229
The CSSF can grant a derogation from this requirement and can authorise that the
staff, in part or entirely, is either on secondment196 or made available by an entity of the
same group or by a non-affiliated company. In this case, the contract governing this
secondment or availability arrangement must be submitted to the CSSF. In addition,
this contract must comprise rules governing conflicts of interest between the persons
concerned and the entity if the latter is part of the same group.
The CSSF must be informed on the identity of the persons who conduct the business
of the management company. The conduct of the company’s business must be
decided by at least two persons meeting the conditions of reputation and professional
experience as described under item 5 of this circular. The CSSF must be able to
contact directly the persons who conduct the business of the management company.
These persons must be in a position to provide all the information which the CSSF
considers essential for the performance of its supervision. At least one of these
persons must be on site197.
They must not necessarily be employees of the management company the business
of which they conduct, provided that there exists an agreement which precisely defines
their rights and obligations and, if applicable, with whom there exists a hierarchical
connection. It is also not excluded that the persons concerned conduct the business of
several management companies, provided that the CSSF has sufficient evidence that
each of these persons is in a position to accomplish at all times his functions, taking
into account in particular the activities of the management companies concerned.
The principle of independence of the management company from the depositary does
not permit the persons who conduct the business of the management company to be
employed by the custodian of a UCITS which it manages198.
b) technical infrastructure
The CSSF must receive a description of the IT equipment, the information sources
and the software which is being used.
The management company must have sound administrative and accounting procedures, control and safeguard arrangements for electronic data processing and
adequate internal control mechanisms; it must be structured and organised in such a
way as to minimise the risk of UCITS’ or clients’ interests being prejudiced by conflicts
of interest between the management company and its clients, between one of its
clients and another, between one of its clients and a UCITS or between two UCITS
(Article 84(1)). These prudential rules will be specified at a later stage in a circular.
c) preconditions for authorisation of delegation
Management companies are authorised to delegate to third parties, for the purpose of
a more efficient conduct of their business, the power to carry out on their behalf one or
more of their own functions (Article 85(1)).
196 The French original of the circular uses the word “détaché” which implies that the staff must not be employees in
the sense of footnote 148.
197 The French original of the circular uses the terms “sur place”. This implies that the relevant person must usually
work in Luxembourg but can reside either in Luxembourg or in one of its neighbour countries.
198 The French original of the circular refers to “dont elles assurent la gestion” which, from a French grammar point
of view, would imply that this portion of the sentence refers to the persons who conduct the business. In fact the
sentence makes sense only if the portion of this sentence refers to the management company.
230
The management company’s and the depositary’s liability shall not be affected by the
fact that the management company has delegated any functions to third parties.
To obtain an authorisation of delegation from the CSSF, the following preconditions
must be complied with:
- General preconditions to the authorisation of delegation
- The CSSF must be informed in an appropriate manner about the delegation of
functions. To that effect, the management company must submit, in relation to
each UCITS which it manages, to the supervisory authority199 a description with
details of the functions which it intends to delegate, the entities to which the
functions will be delegated as well as the procedures available to the management
company to control the activities of the enterprises200 to which mandates will be
given. This description must comprise all details necessary to permit the CSSF to
verify whether the conditions for delegation are complied with.
- The mandate may not prevent the effectiveness of supervision over the management
company, and in particular, it must not prevent the management company from
acting, or the UCITS from being managed, in the best interest of the investors.
In that context, the delegation must be structured in a manner that the compliance
with the rules of conduct set forth in Article 86 is ensured and can be controlled at
any time.
The rules of conduct will be specified at a later stage in a circular.
- Measures exist which enable the persons who conduct the business of the
management company to monitor effectively at any time the activity of the enterprise to which the mandate is given.
This requirement imposes on the management company to put in place a monitoring
infrastructure which enables its directors201 to have access to the data relating to
the activities performed by the agent or agents in the name and on behalf of the
management company and the UCITS which it manages.
Depending on the delegated functions, the directors will receive on a regular basis,
in relation to each of the UCITS managed by the management company, detailed
reports which enable them to assess in particular:
* that the assets of the UCITS are invested in accordance with its constitutive
documents and the applicable laws;
* that a risk management process exists and is employed which enables the
monitoring and measurement at any time of the risk of the positions and their
contribution to the overall risk profile of the portfolio of the UCITS;
* the monitoring of the marketing policy of the UCITS.
The frequency and the detail of such reports shall be dictated by the characteristics of the UCITS and the risks associated therewith.
199 i.e. the CSSF.
200 The French original of the circular generally uses, in the same manner as amended Directive 85/611/EEC and the
law of 20 December 2002, the term “entreprise” but sometimes also the word “entité”. In the same manner as the
English version of amended Directive 85/611/EEC the term “enterprise” is used in this translation on a consistent
basis.
201 The French original of the circular uses the word “dirigeant”. They are the persons (at least two) referred to in 3.a)
above who are referred to in this section.
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The delegation of certain functions to third parties must not prevent the persons
who conduct the activity of the management company to have access, either on a
real time basis or upon simple request, to the accounting documents relating to the
UCITS.
- The mandate shall not prevent the persons who conduct the business of the
management company to give at any time further instructions to the enterprise to
which functions are delegated and to withdraw the mandate with immediate effect
when this is in the interest of investors.
The content of the delegation agreement must take into account these requirements and provide for the details thereof, comprising the circumstances in which
the contract can be terminated with immediate effect.
- The enterprise to which functions will be delegated must be qualified and capable
of undertaking the functions in question, having regard to the nature of the functions
to be delegated.
In addition to the authorisations which may be required by applicable regulations, the enterprises to which functions have been delegated must bring evidence
that they have appropriate human and technical resources, having regard to the
delegated functions.
- The prospectuses of the UCITS list the functions which the management company
has been permitted to delegate.
The CSSF may require, if the interest of investors so warrants, that the identity
of the enterprises to which functions have been delegated by the management
company are published in the prospectus.
- Preconditions specific to the investment management function
- When the delegation concerns the management of investments, the mandate may
only be given to entities which are authorised or registered for the purpose of asset
management and are subject to prudential supervision.
To that effect, the enterprises to which investment management functions
have been delegated must have the necessary authorisations required under
their national laws and, if applicable, any other laws applicable to the services
provided.
The enterprises to which investment management functions have been delegated
must be submitted in their home state to a permanent supervision performed by a
supervisory authority set up by law in order to ensure the protection of investors.
- The identity of the enterprises to which investment management functions have
been delegated must, in principle, be published in the prospectus of the UCITS
concerned.
- The delegation must be in accordance with investment-allocation criteria periodically laid down by the management company.
Therefore, the delegation agreement shall indicate the investment policy and
the investment restrictions applicable to the UCITS (and each compartment if
the delegation concerns one or several compartments of a UCITS with multiple
compartments202) and, if applicable, specific investment rules (“asset allocation
criteria”) determined by the board of directors. These provisions can be included
202 These are commonly referred to as umbrella funds.
232
in the delegation agreement by means of a reference to the provisions in the
prospectus of the UCITS concerned, without prejudice to specific instructions
which may be given from time to time by the board of directors of the management
company or by the persons who conduct the business of the management
company. In case of an amendment of such rules, the agreement will be amended
in due time to permit the delegates to comply with the new rules immediately when
they come into force.
- Where the mandate concerns the management of investments and is given to
a third country enterprise, cooperation between the CSSF and the supervisory
authority of that country must be ensured.
The CSSF will determine which supervisory authorities meet such condition.
- A mandate with regard to the core function of investment management shall not be
given to the depositary or to any other enterprise whose interests may conflict with
those of the management company or the unitholders.
This provision does not prohibit the delegation of the investment management
function to a company which is part of the same group as the depositary. In such
a situation, the CSSF will authorise the delegation only if it has evidence that
measures have been put in place to protect the interests of the management
company and the unitholders.
4. Shareholding
The CSSF shall not grant authorisation to take up the business of a management
company until it has been informed of the identities of the shareholders or members,
whether direct or indirect, natural or legal persons, that have qualifying holdings and
of the amounts of those holdings (Article 79(1)). The CSSF must be satisfied that
the shareholders who have a qualifying holding must not only be of sufficiently good
repute, but will perform their powers in a manner to ensure the sound and prudent
management of the management company. A qualifying holding means any direct
or indirect holding in a management company which represents 10% or more of
the capital or of the voting rights or which makes it possible to exercise a significant
influence over the management of the management company in which that holding
subsists (Article 1(23))203.
In addition, it is required that the structure of the direct and indirect shareholding
is organised in a manner that the authorities responsible for the prudential supervision of the management company, and, if applicable, the persons with whom the
management company has close links are clearly determined and that such supervision can be undertaken without hindrance (Article 78(2)).
Finally, the management company must inform the CSSF about any change in the
persons that have qualifying holdings or holdings which make it possible to exercise a
significant influence, as soon as it becomes aware thereof (Article 83(1)).
203 In the English translation of the law of 20 December 2002 prepared by the authors of this translation, the term
“qualifying holdings” is defined in Article 1, item 18.
233
5. Good professional repute and professional experience
The directors of the UCITS must be of sufficiently good repute and have sufficient
experience, also in relation to the type of UCITS concerned. To that end, the names of
the directors, and of every person succeeding them in office, must be communicated
forthwith to the CSSF (Article 93(3)). “Directors” shall mean those persons who, under
law or the constitutional documents, represent the UCITS, in this case the members of
the board of directors, or those who effectively determine the conduct of the activities
of the UCITS.
The persons who conduct the business of the management company must also be
of sufficiently good repute and be sufficiently experienced in relation to the type of
UCITS managed by the management company concerned (Article 78(1)b)) in order to
be authorised by the CSSF prior to their appointment.
6. Own funds
The requirements relating to the own funds of the management company are one of
the major changes of the new text. There is now a requirement for an initial capital
of at least 125,000 Euro and an additional amount of own funds must be provided
according to the portfolios under management (Article 78(1)a)).
Irrespective of the amount of these requirements, the own funds of the management
company shall never be less than the amount prescribed in Annex IV of Directive
93/6/EEC204.
In case a management company of UCITS provides, in addition, services of
management of portfolios of investments on a discretionary client-by-client basis,
including those owned by pension funds, in accordance with a mandate given by
investors, the provisions of circular CSSF 00/12 defining the ratios of own funds applicable by virtue of Article 56 of the amended law of 5 April 1993 relating to the financial
sector are applicable.
7. External audit
Management companies must entrust the audit of their annual accounting documents
to one or more réviseurs d’entreprises (external auditors) who can justify having
adequate professional experience (Article 80(1)).
II. Conditions for obtaining and maintaining authorisation for management companies
which engage in activities of collective portfolio management and in the management
of portfolios of investments on a discretionary client-by-client basis as contemplated in Article 77(3).
All the conditions set forth in chapter I remain applicable. In addition, requirements specific
to the activity of portfolio management on a discretionary client-by-client basis are applicable.
204 Investment firms shall be required to hold own funds equivalent to one quarter of their preceding year’s fixed
overheads. The competent authorities may adjust that requirement in the event of a material change in the firm’s
business since the preceding year. Where a firm has not completed a year’s business, including the day it starts
up, the requirement shall be a quarter of the fixed overheads projected in its business plan unless an adjustment
to that plan is required by the authorities.
234
Especially, the activity programme as described in chapter I.2. comprises, in addition,
information on the scope of the proposed services for the next three accounting periods
as regards:
- the management of portfolios of investments on a discretionary client-by-client
basis (number of private clients, institutional clients and pension funds as well as
the assets managed for each type of client);
- if applicable, the proposed non-core services.
In addition, to the extent that the services in which the management companies subject to
this chapter engage are in respect of the management on a discretionary client-by-client
basis the same services as those in which portfolio managers205 falling within the scope
of Article 24 B) of the amended law of 5 April 1993 relating to the financial sector engage,
the same prudential rules are, in principle, also applicable to them.
For example, the two persons who conduct the business of the management company
must be on site. The details of such specific additional requirements will, if necessary, be
specified in a circular at a later stage.
III. Prudential supervision of a management company subject to chapter 13 of the law
of 20 December 2002.
Article 82(2) provides that the prudential supervision of a management company shall be
the responsibility of the CSSF. The management companies, as well as their branches,
must from now on provide the CSSF with financial information which has to be drawn up
on a quarterly basis. This financial information will be used by the CSSF for the purpose
of its prudential supervision of the management companies.
The schedules of financial information which must be remitted periodically to the CSSF
are attached hereto. The information concerned is divided in two parts.
The first part is applicable on a general basis to all management companies of UCITS
and concerns the “Financial situation of the management company” (Table SG 1A), the
“Profit and loss account” (Table SG 1 B) and the “Management of UCIs” (Table SG 1C).
The second part concerns the financial information relating to other possible activities in
which the management company engages (Table SG 2).
All tables have to be drawn up on a quarterly basis. The reference dates of the reports
are the last day of each calendar quarter, i.e. 31 March, 30 June, 30 September and 31
December; the tables must be received by the CSSF by the 20th day of the month which
follows the reference date. The tables have to be submitted to the CSSF for the first time
as at 31 December 2003.
IV.Prudential supervision of a self-managed investment company in transferable
securities (SIAG)206.
Articles 27 and 40 impose on SIAGs compliance with the provisions applicable in relation
to prudential supervision. The SIAGs, comprising their branches, must provide the CSSF
with specific financial information which has to be drawn up on a quarterly basis. This
financial information will be used by the CSSF for the purpose of its prudential supervision
of the SIAGs.
205 gérants de fortunes
206 The French original of the circular uses the term “société d’investissement en valeurs mobilières autogérée” and
the abbreviation “SIAG”.
235
The schedules of financial information which must be remitted periodically to the CSSF are
attached hereto. Such information concerns the “Financial situation of the SIAG” (Table
SIAG 1A) and the “Profit and loss account” (Table SIAG 1B).
The tables must be drawn up on a quarterly basis. The reference dates of the reports are the
last day of each calendar quarter, i.e. 31 March, 30 June, 30 September and 31 December;
the tables must be received by the CSSF by the 20th day of the month which follows the
reference date. The tables have to be submitted to the CSSF for the first time as at
31 December 2003.
236
Appendix 1
Table SG 1A
FINANCIAL SITUATION AS AT …
(in the currency of the capital)
Company:
Person in charge:
Frequency: quarterly
ASSETS
AMOUNT
1.
Subscribed capital unpaid
2.
Incorporation expenses
3.
Fixed assets
3.1. Fixed intangible assets
3.2. Fixed tangible assets
3.3. Financial fixed assets
Units in affiliated undertakings
Loans and advances to affiliated undertakings Participating interests
Loans and advances to undertakings in which the company has
participating interests
Securities held as fixed assets
Others
4.
Current assets
4.1. Cash
4.2. Balances in banks, balances in postal cheques accounts
4.3. Loans and advances
4.4. Transferable securities
4.5. Others
5.
Prepayments and accrued income
6.
Various
7.
Loss for the financial year
Total (1+2+3+4+5+6+7)
LIABILITIES
1.
Equity capital
1.1. Subscribed capital or endowment capital
1.2. Share premium
1.3. Revaluation reserve
1.4. Legal reserve
1.5. Other reserves
1.6. Profit or loss brought forward
2.
Subordinated debts
3.
Provisions for liabilities and charges
3.1. Provisions for pensions and similar commitments
3.2. Provisions for taxes
3.3. Other provisions
4.
Debts
5.
Profit for the financial year
AMOUNT
Total (1+2+3+4+5)
237
Appendix 2
Table SG 1B PROFIT AND LOSS ACCOUNTS AS AT …
Company:
Person in charge:
WORDING
AMOUNT
1. Interests and fees received
+
2. Interests and fees payable
-
3. Other operating income
+
4. Gross profit or gross loss
5. Income from transferable securities
+
a)
income from participating interests
(
)
b)
income from other transferable securities
(
)
c)
income from participating interests or from units in
affiliated undertakings
(
)
6. General administrative expenses
-
6.1. Staff costs
Wages and salaries
(
)
Social security costs
(
)
Social security costs relating to general pensions
(
)
6.2. Other administrative expenses
(
)
7. Value adjustments in respect of:
-
7.1. Intangible and tangible assets
(
)
7.2. Financial fixed assets and transferable securities being
part of the current assets
(
)
7.3 Others
(
)
8. Value re-adjustments
+
9. Provisions for general risks
-
10. Tax on profit on ordinary activities
-
11. Profit or loss on ordinary activities after tax
+/-
12. Extraordinary income
+
13. Extraordinary charges
-
14. Extraordinary profit or loss
+/-
15. Tax on extraordinary profit or loss
-
16. Other taxes not shown under the preceding items
-
17. Profit or loss for the financial year
+/-
238
Appendix 3
Table SG 1C MANAGEMENT OF UCIs AS AT …
Company:
Person in charge:
Portfolios of the UCIs managed
I.
Number
Evaluation value
UCIs managed
FCP Part I
Others
SICAV Part I
Others
Other UCIs
II.
Total
UCIs managed under delegation
Amount
Own funds of the management company
Note:
UCIs managed: concerns the UCIs managed by the management company including portfolios for which it has delegated
the management function but excluding portfolios that it manages under delegation.
UCIs managed under delegation: concerns UCIs managed by the management company under delegation.
239
Appendix 4
Table sg 2 OTHER ACTIVITIES AS AT …
Company:
Person in charge:
1.
Number
Amount
Management of portfolios of investment
Management mandates
Of which: pension funds
Fees received during the quarter
2.
Xxxxxxxxxxxxx
Investment advice
Existing investment advisory agreements
3.
Safekeeping and administration of UCI units
Deposits of UCI units
Xxxxxxxxxxxxx
Note:
1. Management of portfolios of investment
1) The total of the assets under management must correspond to the market value at the time of the drawing-up
of the table.
2) With respect to the fees received during the quarter, the table must indicate the gross amount of the fees
received (management fees, performance fees, etc.) for the management of assets during the quarter for
which the table is drawn up.
2. Investment advice
1) Investment advisory agreements: it concerns agreements made with a client in order to provide him with
investment advice for a determined or undetermined period of time on instruments listed in section B of annex
II of the amended law of 5 April 1993 relating to the financial sector.
2) Amount: one should indicate the average volume during the current accounting year of the portfolio for which
investment advice has been provided which means that there should be calculated at the end of each month
an average of the value of the portfolio of all clients advised during the current accounting year including the
amount of the portfolio at the date of closing of the previous accounting year.
3) Amount of the fees received during the current month: the table must indicate the amount of advisory fees
received during the current quarter until the date as of which the table is drawn up.
3. Safekeeping and administration of UCI units
1) Deposits of UCI units: one should indicate the number of deposits, as well as the evaluation value of these
deposits.
2) Fees received during the quarter: the table must indicate the amount of the fees received in the context of the
deposit service provided for UCI units at the date of the drawing-up of the table.
240
Appendix 5
Table SIAG 1A FINANCIAL SITUATION AS AT …
Company:
Status: o SICAV o Others
Person in charge:
ASSETS
AMOUNT
1.
Incorporation expenses
2.
Fixed asset
2.1
Fixed intangible assets
2.2
Fixed tangible assets
2.3
Financial fixed assets
3.
Current assets
3.1
Portfolio Securities
3.1.1
Shares and other variable-yield securities
3.1.1.1. Shares other than UCI units
3.1.1.2. Shares admitted to listing or dealt in on another
regulated market
3.1.1.3. Shares not admitted to listing
3.1.1.4. Other participating interests
3.1.1.5. UCI units
Bonds and other debt securities
3.1.2
3.1.2.1
3.1.2.2
Short term securities (initial due date: one year or more)
Medium/long term securities (initial due date:
more than one year)
3.1.3
Money market instruments
3.1.4
Warrants and other rights
4.
Financial instruments
4.1. Option contracts
4.1.1. Options purchased
4.1.2. Options sold
4.2. Forward contracts
4.3. Others
5.
Liquid assets
6.
Other assets
Total (1+2+3+4+5+6)
LIABILITIES
1.
Equity capital
2.
Loans
3.
Provisions for liabilities and charges
3.1. Provisions for pensions and similar commitments
3.2. Provisions for taxes
3.3. Other provisions
4.
Debts
5.
Profits for the financial year
AMOUNT
Total (1+2+3+4+5)
241
Appendix 6
Table SIAG 1B PROFIT AND LOSS ACCOUNTS AS AT…
Company:
Status: o SICAV o Others
Person in charge:
AMOUNT
Total income
1.
Dividends
2.
Interest on bonds and other debt securities
3.
Interest from banks
4.
Other income
a)
Fees received
b)
Others
Total charges
1.
Fees
a)
Advisory and/or management fees b)
Depositary bank fees
c)
Other fees
2.
Administration charges
a)
Head office (central administration) charges
b)
Audit and controlling charges
c)
Other administration charges
3.
Taxes
a)
Annual subscription tax
b)
Other taxes
4.
Interests paid
5.
Other charges
Net profit or net loss on investments
6.
Realised net profit or loss
7.
Variation of unrealised net profit or loss
Net profit or net loss on operations
242
CSSF CIRCULAR 03/122 of 19 December 2003 concerning Clarifications on
the simplified prospectus
Concerns: Clarifications on the simplified prospectus.
The purpose of this circular is to provide more detailed information on the simplified prospectus
and in particular on the interpretation of certain elements of information in schedule C attached
to the law of 20 December 2002 relating to undertakings for collective investment (the “law of
20 December 2002”).
The circular’s purpose is notably to describe three elements of information of the simplified
prospectus mentioned in schedule C, namely:
– the UCITS’ objectives, the UCITS’ investment policy and a brief evaluation of the UCITS’
risk profile,
– the historical performance of the UCITS,
– the other possible expenses and fees.
It further sets out the authorisation procedure of the CSSF in relation to the simplified
prospectus.
I. Introduction
Article 109(1) of the law of 20 December 2002 relating to undertakings for collective
investment obliges undertakings for collective investment in transferable securities
(UCITS) subject to Part I of such law to publish a simplified prospectus.
UCITS which remain governed by Part I of the law of 30 March 1988 relating to undertakings for collective investment until 13 February 2007 at the latest, are not obliged by
Luxembourg law to publish a simplified prospectus. However, if any such UCITS intends
to publish a simplified prospectus, it has to comply with the requirements imposed by
annex I, schedule C, for the simplified prospectus of UCITS subject to Part I of the law of
20 December 2002.
Pursuant to Article 112 of the law of 20 December 2002, the key elements of the simplified
prospectus must be kept up to date.
A distinction must be made between:
a) the sporadic updates which must be made upon changes of any key elements of the
full prospectus and/or the management regulations / articles;
b) the periodical updates which must be made at least once a year and which concern
in particular the following elements: the historical performance, the total expense ratio
and the portfolio turnover rate.
243
II. Definition of elements of information of schedule C
a) objectives, investment policy and assessment of the UCITS’ risk profile
In the section short definition of the UCITS objectives, the simplified prospectus
must give a description of the objective the UCITS seeks to achieve. As the case
may be, it must mention the guarantees received from any third parties as well as the
restrictions to such guarantees.
For UCITS, whose objective is to reproduce the composition of a specific equity index
or bond index, the simplified prospectus must comprise, in addition to the aforementioned indications, information which permits the identification of the index or indices
and the degree of tracking sought.
The section investment policy of the UCITS comprises, if this information is relevant,
indications similar to the following:
– the main categories of eligible financial assets,
– information on whether the investment policy of the UCITS concentrates on certain
markets (sectorial, geographical or others) or on certain types of assets (shares,
bonds or others).
The simplified prospectus of UCITS which make use of financial derivative instruments must indicate if this type of instruments is used for investment policy purposes
or for hedging purposes only. The simplified prospectus of UCITS which reproduce an
index must indicate the strategy which is pursued to achieve this objective.
The description of the risk profile of the UCITS is qualitative. In addition to all the
general risks incurred by investors investing in a UCITS, it must describe the specific
risks which the UCITS incurs by reason of the specific investment policy or strategies
it pursues.
In all cases, the simplified prospectus must comprise the following statements:
– the investments of the UCITS are subject to market fluctuations and there is a risk
for the investor to eventually recover an amount lower than the one he invested,
– a reference to the full prospectus for a detailed description of the risks mentioned
in the simplified prospectus.
If the UCITS is established as a UCITS with multiple compartments, such information
must be provided for each compartment.
b) historical performance of the UCITS
The historical performance of the UCITS is represented on a histogram207 showing
the performance for the last three accounting periods. If the UCITS has existed for
less than three years, the histogram presents the situation for the full past years. The
performance must be calculated on the basis of the NAV, taking into account the
reinvestment of dividends.
If the UCITS is managed by reference to a reference index, a “benchmark”208, or if
the fee structure comprises a performance fee depending on a reference index, the
historical performance of the UCITS must be compared to the historical performance
of the reference index by reference to which the UCITS is managed or on the basis of
which the performance fee is calculated.
207 The French version of the circular uses the word histogramme.
208 It can be assumed that this provision is only applicable if the relevant benchmark is published in the UCITS’
prospectus or periodical reports.
244
If the UCITS is established as a UCITS with multiple compartments, such information
must be provided for each compartment.
c) the other possible expenses and fees
The UCITS must indicate the management fee and, as the case may be, the performance fee as well as other possible expenses and fees, distinguishing between those
to be paid by the investor and those to be paid out of the assets of the UCITS.
Furthermore, the UCITS may calculate a total expense ratio. The total expense ratio,
hereafter Total Expense Ratio (TER), is the ratio of the gross amount of the expenses
of the UCITS to its average net assets.
If a UCITS calculates a TER, the rules set forth hereafter must be complied with.
The average net assets must be calculated on the basis of the net assets of the UCITS
each time the NAV is calculated.
The TER must be calculated at least once a year on an ex-post basis, in principle by
reference to the fiscal year of the UCITS.
The TER includes all the expenses levied on the assets of the UCITS such as the
management expenses, performance fees, administration expenses, custodian
expenses, distribution expenses, remuneration of the auditor, remuneration of the
legal advisers, registration charges and duties. The TER does not include subscription
and redemption fees directly paid by the investor.
If a UCITS invests more than 20% of its assets in other investment funds which
publish a TER in accordance with this circular, a synthetic TER corresponding to such
investment must be indicated.
Conversely, if the target funds do not publish a TER in accordance with this circular,
the impossibility to calculate a synthetic TER for such portion of investments must be
mentioned.
The simplified prospectus must indicate if the transaction costs are or are not included
in the TER.
If the UCITS is established as a UCITS with multiple compartments or issues multiple
classes of shares/units, the TER is calculated per compartment and, as the case may
be, per class of shares/units.
The simplified prospectus may indicate the turnover rate of the portfolio on an annual
basis, hereafter portfolio turnover rate. The portfolio turnover rate of a UCITS or, as
the case may be, of a compartment must be calculated as follows:
Turnover = [(Total 1 – Total 2)/M]*100
with:
Total 1 = Total of securities transactions during the relevant period = X + Y
where X = purchases of securities and Y = sales of securities
Total 2 = total of transactions in units/shares of the UCITS during the relevant period = S + T
where S = subscriptions of units/shares of the UCITS and T = redemptions of units/shares of the
UCITS
M = average monthly assets of the UCITS
The information relating to the TER, the portfolio turnover rate and the historical
performances can be reflected in the simplified prospectus or on a sheet annexed to
the simplified prospectus.
245
III. Visa
All UCITS subject to Part I of the law of 20 December 2002 must publish a simplified
prospectus and transmit it to the CSSF in accordance with the Articles 109 and 114 of
such law.
UCITS which publish a simplified prospectus must previously transmit it to the CSSF
(together, as the case may be, with the sheet annexed to the simplified prospectus) as well
as any amendments thereto (and/or to the sheet annexed to the simplified prospectus).
Once the simplified prospectuses have obtained the “nihil obstat” of the CSSF, they are
provided with the CSSF’s visa stamp and are remitted to the person who has introduced
the file.
To that effect, the CSSF must receive five copies of each simplified prospectus in its final
form and presentation. The visa stamp may in no circumstances be used for commercial
purposes.
246
CSSF Circular 04/146 of 17 June 2004 concerning Protection of undertakings for collective investment and their investors against Late
Trading and Market Timing practices
Luxembourg 17 June 2004
To all credit institutions, professionals of the financial sector, Luxembourg undertakings for
collective investment and all parties involved in the operation and supervision of such undertakings.
CSSF Circular 04/146
Concerns:
Protection of undertakings for collective investment and their investors
against Late Trading and Market Timing practices
The purpose of this circular is to protect undertakings for collective investment (UCIs) and
their investors against the Late Trading and Market Timing practices described hereafter.
To that end, it clarifies the protective measures to be adopted by UCIs and certain of their
service providers. These measures take into account the particularities of Luxembourg UCIs
which are frequently invested and distributed through all time zones and the marketing of
which is frequently undertaken by intermediaries subject to the supervision of a foreign authority.
This circular further fixes more general rules of conduct to be complied with by all professionals subject to the supervision of the CSSF.
Finally, it extends the role of the auditor of the UCI, as described in CSSF Circular 02/81, as
regards the verification of the procedures and controls established by the UCI to protect the
UCI against Late Trading and Market Timing practices.
Late Trading is to be understood as the acceptance of a subscription, conversion or
redemption order after the time limit fixed for accepting orders (cut-off time) on the relevant
day and the execution of such order at the price based on the net asset value (NAV) applicable to such same day.
Through Late Trading, an investor may take advantage of being aware of events or information published after the cut-off time, but which events or information are not yet reflected in
the price which will be applied to such investor. This investor is therefore privileged compared
to the other investors who have complied with the official cut-off time. The advantage of this
practice to the investor is increased even more if he is able to combine Late Trading with
Market Timing.
The Late Trading practice is not acceptable as it violates the provisions of the prospectuses
of the UCIs which provide that an order received after the cut-off time is dealt with at a price
based on the next applicable NAV.
247
The acceptance of an order is not to be considered as a Late Trading transaction, where the
intermediary in charge of the marketing of the UCI transmits to the transfer agent of the UCI
after the official cut-off time to still be dealt with at the NAV applicable on such day, if such
order has effectively been issued by the investor before the cut-off time. To limit the risk of
abuse, the transfer agent of the UCI must ensure that such order is transmitted to him within
a reasonable timeframe.
The acceptance of an order dealt with or corrected after the cut-off time by applying the NAV
applicable on such day is also not to be considered as a Late Trading transaction, if such
order has effectively been issued by the investor before the cut-off time.
Market Timing is to be understood as an arbitrage method through which an investor systematically subscribes and redeems or converts units or shares of the same UCI within a short
time period, by taking advantage of time differences and/or imperfections or deficiencies in the
method of determination of the NAV of the UCI.
Opportunities arise for the market timer either if the NAV of the UCI is calculated on the basis
of market prices which are no longer up-to-date (stale prices) or if the UCI is already calculating the NAV when it is still possible to issue orders.
The Market Timing practice is not acceptable as it may affect the performance of the UCI
through an increase of the costs and/or entail a dilution of the profit.
As Late Trading and Market Timing practices are likely to affect the performance of the UCI
and are likely to harm investors, the preventive measures recommended hereafter have to be
applied with great care.
I. Prevention of Late Trading and Market Timing practices
a) Protective measures to be adopted by the UCI and by certain of its service providers
The investor must, in principle, subscribe, redeem or convert the units or shares of a
UCI at an unknown NAV. This implies that the cut-off time must be fixed in a manner to
precede or to be simultaneous to the moment when the NAV, on which the applicable
price is based (“forward pricing”), is calculated. A non-precise cut-off time such as, for
example, “until the close of business” is to be avoided. The prospectus must specifically mention that subscriptions, redemptions and conversions are dealt with at an
unknown NAV and must indicate the cut-off time.
The transfer agent of the UCI shall ensure that subscription, redemption and conversion
orders are received before the cut-off time as set forth in the UCI’s prospectus in order
to process them at the price based on the NAV applicable on that day. In respect of
orders received after such cut-off time, the transfer agent applies the price based on
the next applicable NAV. The transfer agent shall ensure that he receives within a
reasonable time period the orders which have effectively been issued by investors
before the cut-off time but which have been forwarded to the transfer agent by intermediaries in charge of the marketing of the UCI after such time limit only.
In order to be able to ensure the compliance with the cut-off time, the transfer agent of
the UCI must adopt appropriate procedures and undertake to perform the necessary
controls. The transfer agent undertakes either to provide the UCI on an annual basis
with a confirmation from its auditor on its compliance with the cut-off time or to authorise
the auditor of the UCI to perform its own controls on the compliance of the cut-off
time.
248
If intermediaries in charge of the marketing of the UCI have been appointed by the UCI
to ensure the collection of orders and the control of the cut-off time with regard to the
acceptance of the orders, the UCI shall ensure that it obtains from each intermediary
concerned a contractual undertaking pursuant to which the intermediaries undertake
towards the UCI to transmit to the transfer agent of the UCI, for the processing at the
NAV applicable on such day, only such orders which it has received before such cut-off
time.
The cut-off time, the time at which the securities prices which are taken into account
for the calculation of the NAV are fixed209 and the time at which the NAV is calculated
must be combined in a manner so as to minimise any arbitrage possibilities arising
from time differences and/or imperfections/deficiencies in the method of determination
of the NAV of the UCI.
UCIs which, due to their structure, are exposed to Market Timing practices must put
in place adequate measures of protection and/or control to prevent and avoid such
practices. The introduction of appropriate subscription, redemption and conversion
charges, an increased monitoring of dealing transactions and the valuation of the
portfolio securities at “fair value” may constitute possible solutions for such UCIs.
The board of directors of the UCI analyses such solutions with care and will implement
them or make certain that they are implemented.
The UCI shall ensure not to permit transactions which it knows to be, or it has reasons
to believe to be, related to Market Timing and uses its best available means to avoid
such practices.
If there exist formal contractual relationships between the UCI and intermediaries in
charge of its marketing, the UCI shall ensure to obtain from the intermediary concerned
a contractual undertaking from the intermediary not to permit transactions which the
intermediary knows to be, or has reasons to believe to be, related to Market timing.
The prospectus of the UCIs concerned must include a statement indicating that the
UCI does not permit practices related to Market Timing and that the UCI reserves
the right to reject subscription and conversion orders from an investor who the UCI
suspects of using such practices and to take, if appropriate, the necessary measures
to protect the other investors of the UCI.
Particular attention has to be paid to subscription, conversion or redemption orders
from employees of the service providers acting for the UCI or from any person who
holds or is likely to hold privileged information (e.g.: knowledge on the exact composition of the portfolio of the UCI … etc). Accordingly, adequate measures have to be
taken by the service providers of the UCIs to avoid the risk that any such person can
take advantage of his privileged situation either directly or through another person.
b) Rules of conduct to be followed by all professionals subject to the supervision of the
CSSF
The CSSF prohibits any express or tacit agreement which permits certain investors to
undertake Late Trading or Market Timing practices.
The CSSF requires that any professional subject to its supervision refrains from using
Late Trading or Market Timing practices when investing in a UCI or from processing a
subscription or conversion order of units or shares of a UCI which he knows to be, or
he has reasons to believe to be, related to Late Trading or Market Timing.
209 Sometimes referred to as “valuation point”.
249
The CSSF requires that any professional subject to its supervision that detects or
is aware of a case of Late Trading or Market Timing, informs as soon as possible
the CSSF by providing to the latter the necessary information to enable it to make a
judgement on the situation.
II. Protection of the UCI and investors in case of the occurrence of Late Trading and/or
Market Timing transactions
Any person who is guilty of knowingly undertaking or supporting Late Trading or Market
Timing practices as defined by this circular exposes himself to sanctions or, in addition, to
the obligation of repairing the damage caused to the UCI.
III. Additional provisions to CSSF Circular 02/81 on the guidelines concerning the task
of the auditors of UCIs
The auditor of the UCI checks the procedures and controls put in place by the UCI so as
to protect itself from Late Trading practices and describes these in its long form report.
For UCIs which, due to their structure, are likely to be subject to Market Timing practices,
the auditor checks the measures and/or controls put in place by the UCI to protect itself
by the best possible means against such practices and describes such measures and/or
controls in its long form report.
If the auditor of the UCI, during the performance of its duties, becomes aware of a case of
Late Trading or Market Timing, he must indicate it in its long form report.
In case of indemnification of investors harmed by Late Trading or Market Timing practices
during the accounting year, the auditor must give, in the long form report, its opinion
whether investors have been adequately indemnified.
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CSSF CIRCULAR 05/177 of 6 April 2005 concerning the Abolition of any
prior control by the CSSF of advertising material used by persons and
companies supervised by the CSSF; abrogation of point II. of Chapter
L. of IML circular 91/75; abrogation of the two last sentences of point
IV. 5.11 of CSSF circular 2000/15
Luxembourg, 6 April 2005
To all persons and companies supervised by the CSSF
Concerns:
Abolition of any prior control by the CSSF of advertising material used by
persons and companies supervised by the CSSF; abrogation of point II.
of Chapter L. of IML circular 91/75; abrogation of the two last sentences
of point IV. 5.11 of CSSF circular 2000/15.
The present circular abrogates point II. entitled “Advertising Documents” of Chapter L. of
Circular IML 91/75, as well as the two last sentences of point IV, 5.11 of Circular CSSF
2000/15.
From now on, persons and companies subject to the prudential supervision of the Commission
de Surveillance du Secteur Financier (“CSSF”) are no longer compelled to communicate to
the CSSF, for comments, the content of their advertising messages intended for distribution
to their clients or to the public. In particular, advertising material used by persons in charge of
the distribution of units of undertakings for collective investment and their representatives no
longer needs to be submitted to the CSSF for their control, even if this material is not subject
to control by the competent authorities in countries where it is used.
On the basis of cases where the CSSF intervened, it appeared that it was no longer necessary
to maintain such provisions.
Obviously, the persons and companies subject to the supervision of the CSSF must continue
to comply with the rules of conduct of the financial sector both in Luxembourg and abroad,
in refraining from issuing misleading advertising material with regard to the services offered
and by mentioning, where necessary, the particular risks inherent to these services and in
bringing to the client’s attention his own responsibility.
The control of the compliance with the rules of conduct of the financial sector regarding advertisement remains within the competence of the CSSF, which has the authority to require the
withdrawal of any misleading advertisement with regard to the services offered as well as of
any inappropriate communications of information on the Luxembourg legal framework.
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In case of discrepancies between the French and English text, the French text shall
prevail.
CSSF CIRCULAR 05/185 of 24 May 2005 concerning Luxembourg management
companies subject to the provisions of chapter 13 of the law of 20
December 2002 relating to undertakings for collective investment, as
well as self-managed investment companies subject to the provisions
of article 27 or article 40 of the law of 20 December 2002 relating to
undertakings for collective investment
Luxembourg, 24 May 2005
To all UCIs and management companies subject to Luxembourg law
CIRCULAR CSSF 05/185
Concerns:
Luxembourg management companies subject to the provisions of chapter
13 of the law of 20 December 2002 relating to undertakings for collective
investment, as well as self-managed investment companies subject to
the provisions of article 27 or article 40 of the law of 20 December 2002
relating to undertakings for collective investment.
The purpose of this circular is to supplement Circular CSSF 03/108 as regards the conditions
for obtaining and maintaining authorisation for management companies which do not engage
in activities other than collective portfolio management as provided for by article 77(2) of the
law of 20 December 2002 (section I of Circular CSSF 03/108).
It is recalled that in the description of the human infrastructure, which must be available to
a management company, Circular CSSF 03/108 provides that the staff of the management
company must be permanent and adapted to the contemplated activities. In compliance
with the law of 20 December 2002, Circular CSSF 03/108 provides that the conduct of
the management companies’ business must be decided by at least two persons (the
“managers”)210 that the CSSF must be able to contact directly and that must be in a position
to provide all the information which the CSSF considers essential for the performance of its
supervision.
Circular CSSF 03/108 also requires that at least one of these managers must be on site.
On the basis of the experience acquired in the analysis of applications for authorisation, the
CSSF can also authorise a management company subject to chapter 13 of the amended
law of 20 December 2002 if the specific elements of a file enable the CSSF to conclude that
the management company does not have in Luxembourg a registered or statutory office
only. These elements can be multiple and should, inter alia, be inspired by a concern for
compliance with principles of corporate governance and risk controls. Luxembourg resident
210 The French original of the circular uses the word “dirigeants”.
252
board members, the holding of regular board meetings in Luxembourg or the performance
of certain activities in Luxembourg are examples which, individually, are not necessarily
sufficient or, in the presence of other elements, not necessarily required. Each file will be
analysed on a case-by-case basis, considering the specific elements that are submitted to the
CSSF to support the application for authorisation.
In all cases, the managers must have at their disposal all technical and IT equipment
necessary to enable them to assume all the responsibilities and to perform the functions
which are imposed on them by the law of 20 December 2002 and Circular CSSF 03/108. In
particular, it is important that appropriate procedures and processes are put in place to enable
the managers to conduct together the business of the management company.
The regime provided for by this Circular is not applicable to management companies which
engage in activities of collective portfolio management and in the management of portfolios
of investments on a discretionary client-by-client basis as contemplated in article 77(3) of the
law of 20 December 2002 (section II of Circular CSSF 03/108).
This Circular is applicable mutatis mutandis to investment companies subject to Directive
85/611 which have not designated a management company.
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CSSF CIRCULAR 05/186 of 25 May 2005 concerning the Guidelines of the
Committee of European Securities Regulators (CESR) regarding
the application of transitional measures resulting from directives 2001/107/CE and 2001/108/CE (UCITS III) amending directive 85/611/CEE
(UCITS I)
Luxembourg, 25 May 2005
Concerns: Guidelines of the Committee of European Securities Regulators (CESR)
regarding the application of transitional measures resulting from
directives 2001/107/CE and 2001/108/CE (UCITS III) amending directive
85/611/CEE (UCITS I).
The purpose of this circular is to draw the attention of undertakings for collective investment in
transferable securities subject to Part I of the amended law of 20 December 2002 (hereafter
“UCITS”) to the publication of the guidelines of the Committee of European Securities
Regulators (CESR) concerning the application of the transitional provisions of the directives
2001/107/CE and 2001/108/CE (UCITS III) amending directive 85/611/CEE (UCITS I).
This document, which was published by CESR on 3 February 2005 with reference 04/-434b,
can be consulted on the internet site of CESR at the address http://www.cesr-eu.org.
In this context, it can be recalled that directives 2001/107/CE and 2001/108/CE, which had
to be implemented in the legislations of the Member Countries of the European Union by
13 February 2004 at the latest, comprise transitional provisions, also called “grandfathering
provisions”. Under the terms of directives 2001/107/CE and 2001/108/CE, UCITS and
management companies subject to the amended directive 85/611/CEE must comply with the
requirements of the directive by 13 February 2007 at the latest.
Directives 2001/107/CE and 2001/108/CE have been implemented into Luxembourg law by
the law of 20 December 2002 relating to undertakings for collective investment (UCI).
The guidelines of the CESR aim at putting an end to the divergent interpretations of the transitional provisions by the supervisory authorities of the Member States of the European Union.
They relate to the transitional provisions concerning UCITS and management companies,
to the provisions concerning the simplified prospectus and to the scope of the European
passport for management companies and for UCITS.
The guidelines of the CESR fix a series of new deadlines for certain UCITS and for certain
management companies.
These new deadlines imply that, in order to comply with the guidelines of the CESR, certain
UCITS and certain management companies have to apply the rules resulting from directives
2001/107/CE and 2001/108/CE before the date of 13 February 2007.
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The following extracts, which are of particular interest, can be highlighted:
*) A grandfathered management company is allowed to launch UCITS of the UCITS III
type until 30 April 2006 if it employs an appropriate risk-management process. After this
date the management company must meet the requirements of the UCITS III directive.
Management companies which have launched UCITS of the UCITS III type before 30 April
2006 must have received by 30 April 2006 at the latest from the competent authority the
authorisation as management company complying with the requirements of the UCITS III
directive. This should be stated by a special confirmation from the competent supervisory
authority.
*) A grandfathered UCITS I umbrella fund is allowed to launch new UCITS I sub-funds
until 31 December 2005. Grandfathered UCITS I umbrella funds which have launched a
sub-fund since 13 February 2002 must meet the requirements of the UCITS III directive
by 31 December 2005 at the latest.
*) All UCITS (comprising UCITS of the UCITS I type) must have a simplified prospectus as
from 30 September 2005 at the latest.
Concerning the requirement to have a simplified prospectus, it can be noted that it appears
from the provisions of the amended law of 20 December 2002 concerning UCIs and the
provisions of CSSF circular 03/122 concerning clarifications on the simplified prospectus that
UCITS of the UCITS III type must publish a simplified prospectus when they are subject to
Part I of such law.
It can be noted that UCITS of the UCITS I type created before 13 February 2002 and which
have not launched new compartments since 13 February 2002 and management companies
created before 13 February 2004 which only manage UCITS of the UCITS I type which have
not launched new compartments since 13 February 2002 have time until 13 February 2007 to
comply with the directives 2001/107/CE and 2001/108/CE.
All supervisory authorities which are members of CESR have undertaken to apply the guidelines of the CESR.
It should be highlighted that it is highly recommended that the UCITS concerned comply
with the deadlines fixed by the guidelines of the CESR concerning the transitional provisions
resulting from directives 2001/107/CE and 2001/108/CE.
Indeed, the non-compliance with the deadlines fixed by the guidelines of the CESR concerning
the transitional provisions resulting from directives 2001/107/CE and 2001/108/CE may
jeopardise the marketing in other Member Countries of the European Union of the UCITS
and management companies concerned under the European passport.
We request that you take into account the deadlines fixed by the guidelines of the CESR and
to take these into consideration for the purpose of the procedures of conversion of UCITS
and management companies under the regime of Part I and chapter 13, respectively, of the
amended law of 20 December 2002 concerning UCITS.
We recommend that you consult the guidelines of the CESR concerning the transitional provisions of directives 2001/107/CE and 2001/108/CE.
255
CSSF CIRCULAR 06/241 of 5 april 2006 concerning the Concept of risk
capital under the Law of 15 June 2004 relating to the investment
company in risk capital (SICAR)
Luxembourg, 5 April 2006
To all investment companies in risk capital (SICARs)
Re: Concept of risk capital under the Law of 15 June 2004 relating to the
investment company in risk capital (SICAR).
The purpose of this circular is to give a general description of the concept of risk capital under
the law of 15 June 2004 relating to the investment company in risk capital (SICAR), (hereinafter “the SICAR law”), and of the criteria applied by the CSSF to assess the acceptability of
the investment policies proposed for the SICARs.
I. CONCEPT OF RISK CAPITAL
The purpose of the SICAR law is to promote the collection, within a vehicle specialised
in risk capital, of funds from well-informed investors accepting, with full knowledge and in
expectation of a better return, the increased risks most often associated with risk capital,
i.e. lower liquidity, higher price volatility and lower credit quality.
Article 1(2) of the SICAR law specifies the assessment criteria applying to the concept
of risk capital, which is defined as the direct or indirect contribution of funds to entities in
view of their launch, development or listing on a stock exchange.
Generally speaking, risk capital under the SICAR law is characterised by the concurrent
gathering of two elements, namely a high risk and an intention to develop the target
entities. The intention to develop the target entities is deemed to be inherent per se in
the contribution of capital to entities in view of their launch or their listing on a stock
exchange.
Application files submitted to the CSSF shall include a description of both “risk” and
“development” aspects of the SICAR project. The purpose of this section is to further
specify the criteria applied by the CSSF to assess whether an envisaged investment
policy is eligible under the SICAR law.
The parliamentary works specify that the concept of “risk capital” notably refers to
venture capital and private equity financings.
Venture capital usually refers to capital contributed to newly launched undertakings (start
up) or entities active in sectors with high development potential.
The concept of private equity is to be construed in the broad sense. Private equity bears
an inherent risk which is notably the risk due to lack of liquidity. It may be described, as
opposed to listed securities, as an investment in a non-listed private company, often of a
relatively limited size and a significant level of risk.
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In accordance with the legislator’s intention, the SICAR’s primary objective should be to
contribute to the development of the entities in which it invests.
The concept of development is construed in the broad sense as value creation at the
level of the portfolio companies. This value creation can take different forms.
Investments made by SICAR generally represent a contribution in development capital to
portfolio companies. However, a contribution of new capital in portfolio companies is not
required each time. The acquisition on the secondary market of securities representing
risk capital is also eligible.
In order to maximise profits from investments for the SICAR’s shareholders, the SICAR
will often intervene in the management of the portfolio companies via an advisory activity
or a representation in the managing bodies of the portfolio company, thereby aiming to
create value in the latter through restructuring, modernisation, and by promoting any
measures likely to improve the allocation of resources.
An active intervention of the SICAR to create value in the portfolio companies is not
required in every case, as other elements may establish the risk capital characteristics,
such as the financing mode used or the type of participants, or their remuneration.
However, where the SICAR invests into a sole portfolio company, the active management
element is important.
As far as the different forms of investments in risk capital or the objective pursued by
these investments are concerned, the parliamentary works specify that the scope of
the law covers all types of private equity investments. Private equity risk capital investments may notably take the form of transactions of the Buy-offs, Leveraged Buy Outs,
Management Buy Out and Management Buy In type. Venture capital investments may
take the form of Start-up and Early Stage investments. Moreover, the manner in which
the SICAR divests from an entity in which it has invested, be it via an over-the-counter
sale, or via an Initial Public Offering (IPO), is not delimited by the law. The management
of the SICAR will have to determine the most appropriate legal and fiscal way for this
divestment.
Furthermore, no type of financing of the portfolio companies is excluded a priori. In
principle, all financing modes are eligible, be it by way of an equity contribution, bond
issuance, bridge finance or similar financing, mezzanine-type financing, convertible debt,
subject to the financing being a “risk capital” type of contribution.
The SICAR law does not lay down risk diversification with respect to the chosen investments. It is thus perfectly conceivable that certain SICARs restrict their investments to one
or several undertakings active for example in a particularly narrow niche or in extremely
specialised sectors.
Finally, it should be noted that as investment company in risk capital, the SICAR’s declared
intention shall be in general to acquire financial assets in order to sell them with a profit,
as opposed to a holding company which acquires to hold. In this respect, the holding
duration is an important criterion to determine whether an investment is eligible or not.
One may conclude that in practice, several aspects should be considered (number and
type of target entities, their maturity level, development projects, planned holding duration,
etc.) to determine whether an investment policy is eligible under the SICAR law.
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The case of real-estate investments
Whereas the law does not permit SICARs to hold real estate directly, the indirect investment
via entities that hold or invest in real estate assets representing risk capital characteristics
(private equity real estate), as well as the contribution of capital to real estate companies,
is possible.
Application files of SICARs envisaging to invest in the real estate sector shall include a
statement aiming to establish that the planned investments are really risk capital within
the meaning of the SICAR law.
The purpose of private equity real estate investments shall, in any case, be to bring about
a development (i.e. creation of added value) at the level of the underlying real estate
object. The sole fact that real estate objects can present a particularly high risk or are
located in countries with a certain political risk does not in itself suffice to prove a risk
capital characteristic.
This creation of value at the level of the underlying real estate object can be construed in
the broad sense as a change in the existing conditions. It can adopt several forms, such
as the enhancement of the real estate through renovation, renegotiation of contracts,
renewal of tenants, restructuring of the portfolio.
In order to allow the qualification of an investment as private equity real estate as opposed
to simple real estate, it shall moreover be evidenced that the underlying real estate
objects represent a particular risk, above the normal real estate risk on a given market.
Such particular risk may consist, for example, in the fact that the real estate may not
be easily rented out or is located in a disaster-stricken or disadvantaged building zone.
Although not necessarily sufficient in itself, the political risk may also be one of the
elements to consider. Conversely, the price risk resulting from a price explosion on certain
real estate markets is not a sufficient criterion as opposed to the transfer risk or the legal
risk resulting, as the case may be, from the geographical location of the underlying real
estate.
Finally, as already described above, it should also be stressed that in the field of real
estate investment in particular, the purpose of the SICAR as investment company shall
be to buy with a view to sell at a profit. The creation of a SICAR whose policy would be for
example limited to the holding or management, through a SICAR, of family, corporate or
group properties, is not eligible.
Consequently, the “risk capital” criterion with respect to real estate investments is assessed
on the basis of a string of elements, such as:
– Investments with a high appreciation potential owing to the particular risks associated
with the underlying real estate
– Development / value creation projects at the level of the underlying real estate
– High risk level / expected return
– Identity of the managers, nature of their remuneration and selection criteria of the real
estate assets
– Financial participation of the managers / initiators in the project
– Active management of the underlying real estate, holding duration/investment horizon
limited in time
– Generally, absence of regular rental income
– Financing types: often high leverage, mezzanine, distressed, non-performing or CBO
type financing
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By reference to the common financial terminology used in real estate matters, this could
be simplified by saying that an opportunistic type investment strategy is in principle
acceptable. Opportunistic real estate can notably be characterised by the absence of
renting out, the transformation of the premises or the building of new premises.
II. PRUDENTIAL APPROACH
The purpose of this section is to inform on the prudential approach adopted in certain
specific cases.
Indirect investments
In general, the law allows the indirect investment in assets representing risk capital without
imposing any restrictions as to the type or legal form of the intermediary companies.
In particular, the indirect investment via a UCI or another private equity investment vehicle
is acceptable in so far as the investment policy of these vehicles restricts them into
investing in assets that are eligible as risk capital within the meaning of the SICAR law.
The same approach applies to investments in real estate funds.
On the other hand, hedge funds are, generally speaking, not eligible investments for
SICARs, as they do not pursue the objective of creating value at the level of target
companies.
Political risk
The criterion of geographic location of the target entities in itself does not always suffice to
justify the risk capital characteristic. The arguments set forth in the application file, aiming
to prove the risk capital characteristic by showing on the one hand a political risk and in
addition other specific risk characteristics on the other hand, will be analysed on a caseby-case basis.
Investment in companies located in regions exposed to political risk seems possible in
so far as a development which creates value at the level of the target company can be
evidenced. The same applies to real estate matters, where the fact that the underlying
real estate objects are located in countries with a certain political risk does not necessarily
suffice to prove the risk capital characteristics.
Mezzanine loans (primary & secondary market) and distressed debt
Mezzanine financing is an eligible financing tool in so far as the target entity to which funds
have been contributed fulfils the eligibility criteria for risk capital, for example in the case of
a non-listed company. Such is not the case where the mezzanine financing targets a listed
company, unless the financing is made for the purpose of a specific development project,
a delisting for example.
Investments in existing mezzanine securities and/or distressed debt securities also qualify
as private equity investments where the goal pursued is to increase the value of the
investments via a restructuring of the companies concerned.
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Use of derivative instruments
A SICAR may use derivative instruments for hedging purposes or where such transactions are necessary to the realisation of its investment policy. However, investment in
derivative instruments cannot constitute the object of its policy.
Investments in listed securities
The SICAR is a specialised company whose sole purpose shall be to invest in assets
representing risk capital within the meaning of the SICAR law.
The risk capital criterion is not necessarily challenged in the case of investments in listed
securities, for example where securities are listed on a stock exchange that does not meet
the requirements applicable to regulated markets or where securities, although listed on
a regulated market, have been issued by an entity representing risk capital within the
meaning of the SICAR law. Likewise, the investment in certain listed securities can be
eligible in specific cases where it is associated to a particular development project of the
target company or if aimed at the delisting of the securities. Listed small caps for instance
may constitute eligible investments for a SICAR and the listing of these companies does
not necessarily put an end to the investment.
Finally, the investment policy of a SICAR may provide that liquidities pending investment
may be invested temporarily in liquid listed securities not representing risk capital.
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CSSF CIRCULAR 06/267 OF 22 November 2006 CONCERNING THE GUIDeLINES
OF THE Technical specifications regarding the communication to the
CSSF, under the law on prospectuses for securities, of documents
for the approval or for filing and of notices for offers to the public
of units or shares of Luxembourg closed-end UCIs and admissions
of units of shares of Luxembourg closed-end UCIs to trading on a
regulated market
Concerns:
Technical specifications regarding the communication to the CSSF, under
the law on prospectuses for securities, of documents for the approval
or for filing and of notices for offers to the public of units or shares
of Luxembourg closed-end UCIs and admissions of units of shares of
Luxembourg closed-end UCIs to trading on a regulated market.
This circular is addressed to Luxembourg closed-end UCIs whose units or shares are being
offered to the public or admitted to trading on a regulated market within the meaning of the
law of 10 July 2005 on prospectuses for transferable securities (hereinafter “Prospectus law”).
Please refer to the circular CSSF 05/226 of 16 December 2005 for a general presentation of
the Prospectus law. For the definitions, please refer to the Part I.1. entitled “The securities
concerned” of the circular CSSF 05/225 of 16 December 2005. In this context, it is reminded
that a closed-end UCI under the Prospectus law is defined as a UCI for which investors do
not have any repurchase rights in relation to the units concerned. In all other cases, whatever
the number or periodicity of the contemplated repurchases, the UCI is of the open-end type
and not covered by the Prospectus law.
The purpose of this circular is to specify the technical procedure for communications to the
CSSF of:
– documents for approval by the CSSF or filing with the CSSF relating to offers to the
public of units or shares of Luxembourg closed-end UCIs and admission to trading on
a regulated market, which are subject to Community harmonisation under Directive
2003/71/EC, in accordance with Articles 7, 8, 10, 11-16 of chapter 1 of Part II of the
Prospectus law;
– requests for certificates of approval in accordance with Article 19 of chapter 2 of Part
II of the Prospectus law; and
– notices for offers to the public of units or shares of Luxembourg closed-end UCIs
governed by Part II of the Prospectus law and notices for admissions of units or shares
of Luxembourg closed-end UCIs to trading on a regulated market referred to in Part II
of the Prospectus law in accordance with Articles 5 and 6 of Part II of the Prospectus
law.
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This circular does not apply to communications to the CSSF concerning UCIs other than of
the closed-end type.
1. Competencies
The Prospectus law designates the CSSF as the authority competent to ensure implementation of the provisions of Part II on the drawing-up, approval and distribution of the
prospectus to be published when units or shares of Luxembourg closed-end UCIs are
offered to the public and/or admitted to trading on a regulated market, which are subject
to Community harmonisation under Directive 2003/71/EC (Article 22).
In accordance with Articles 7 and 13 of Part II, chapter 1 of the Prospectus law, the CSSF
is the competent authority for the approval of prospectuses and any supplements thereto,
drawn up for public offers of units or shares of Luxembourg closed-end UCIs and/or
admission of units or shares of Luxembourg closed-end UCIs to trading on a regulated
market, which are subject to Community harmonisation under Directive 2003/71/EC, in
the case when Luxembourg is the home Member State. The filing of documents and
notices in accordance with Part II shall also be made with the CSSF.
While the Prospectus law introduces in Luxembourg a new definition of the competencies
with respect to the prospectus approval as defined above, the competencies concerning
the decisions with respect to the admission of units or shares of Luxembourg closed-end
UCIs to trading on a market and/or official listing remain unchanged. Indeed, the decisions
with respect to the admission of units or shares of Luxembourg closed-end UCIs to a
market and/or official listing continue to fall within the remit of the relevant market operator
and are taken in accordance with the provisions laid down in the rules governing the
functioning of this operator (currently in Luxembourg: the Rules and Regulations of the
Luxembourg Stock Exchange), it being understood that compliance of the underlying
documents with the regulations regarding prospectuses is one of the requirements to be
fulfilled.
2. Applications for approval
Before making an official submission in accordance with Article 7 of the Prospectus law
(hereinafter “Official Submission”), the Luxembourg closed-end UCI must be approved
by the CSSF. To this end, the Luxembourg closed-end UCI shall submit an application
file to the CSSF. As soon as the CSSF has given its verbal approval, the Luxembourg
closed-end UCI may make an Official Submission.
3. Submission of documents to be approved
The CSSF receives the documents submitted in the context of scrutiny of applications for
prospectus approval.
The Official Submission to the CSSF can be validly made by an issuer, an offeror or by
a person asking for the admission to trading on a regulated market or a person acting on
behalf of one of these persons (the “Déposant(s)”) through the following means:
– via the e-file communication platform at http://www.e-file.lu for Déposants who have
an e-file connection; and
– via e-mail to [email protected] if the Déposant does not have the necessary
e-file connection.
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If a Déposant uses other means of communication, such as filing of paper copies, the
latter must enclose an electronic support (CD, DVD, PC floppy disk). The files shall be
submitted to the CSSF by mail to the address 110, route d’Arlon, L-2991 Luxembourg.
The files can be sent in PDF or DOC (MS-Word) format.
The documents officially submitted shall enclose the following information:
– a list stating the exact designation of all the documents comprised in the submission;
– the object of the submission (indicating the Part and, where applicable, the chapter of
the Prospectus law under which the approval is requested and the Member State(s)
in which an offer to the public is planned, as well as the regulated market(s) on which
the admission to trading is requested);
– the contact data of the Déposant and the contact person for the file (name, postal
address, e-mail and telephone number);
– the contact data of the issuer on behalf of whom the documents are filed (name, postal
address, e-mail and telephone number);
– the contact data of the person commissioned to receive, on behalf of the issuer, all
the notifications (name, function, relation with the issuer, postal address, e-mail and
telephone number);
– the contact data of the person commissioned by the issuer to confirm that the version
submitted for final approval and publication is the final version of the prospectus
(name, postal address, e-mail and telephone number); and
– the timetable of the transaction and the requested date of approval.
Any reference made hereabove to the issuer is to be understood, where applicable, as
reference to the offeror or to the person asking for the admission of units or shares of
Luxembourg closed-end UCIs to trading on a regulated market.
The Official Submission is confirmed by electronic acknowledgment of receipt:
– through the e-file process, if the submission has been made via e-file;
– to the address stated by the Déposant if the filing has been made through
[email protected].
4. Enforcement of the time limits for scrutiny of an application for offers of units or
shares of Luxembourg closed-end UCIs to the public and admission of units or
shares of Luxembourg closed-end UCIs to trading on a regulated market
The time limit laid down in Article 7 paragraph 2 of the Prospectus law runs from the
business day following that of the Official Submission of a file.
If, at the time of receipt and/or processing of the file, the file is not complete or additional
information is needed, the CSSF informs the Déposant, either via e-file or e-mail, that the
file is incomplete in accordance with Article 7 paragraph 5. In that case, the time limits
only run from the business day that follows the day on which the requested information
has been provided by the Déposant in accordance with the above provisions of the
Prospectus law.
Given the application of principles of administrative law, the decision regarding the approval
of the prospectus can still be validly notified after the expiry of the above mentioned time
limit. This enables the issuer to request the CSSF to approve the prospectus on a date,
which, due to the timetable of the transaction, falls beyond the prescribed time limits
provided in the Prospectus law as regards the notification of the decision of approval.
263
The same principles apply to the applications for approval of supplements to the prospectus
in accordance with Article 13 paragraph 1, for which the maximum time limit for approval
is 7 days.
5. Treatment of applications for approval and approval
The CSSF communicates the approval either via e-file or e-mail to the address stated
to this end by the Déposant at the Official Submission. The CSSF confirms the approval
in writing to the postal address of the issuer, the offeror or the person asking for the
admission.
6. Submissions of requests for certificates of approval
In accordance with Article 19 of chapter 2 of Part II of the Prospectus law, the requests
for certificates of approval for the purpose of notification by the CSSF to one or several
competent authorities of the host Member States shall be sent according to the same
procedures as those referred to in point 3 above. This request shall be sent together with
the draft prospectus or separately. This request shall include the following information and
documents:
– indication of the host Member State for which the notification shall be prepared;
– indication of the date on which the notification is requested;
– as the case may be, the translation of the summary produced under the responsibility
of the issuer or person responsible for drawing up the prospectus.
The same procedure shall apply for any supplement to the prospectus, and, as the case
may be, the summary.
7. Filing of documents that are not subject to approval
The filing of documents that are not subject to approval shall be made in accordance with
the same procedures as those referred to in point 3 above. The documents concerned are
the following:
– the registration document, insofar as its approval is not sought, which shall be expressly
mentioned (Article 11); and
– the annual document as defined in Article 14.
8. Notices for offers to the public and admission to trading on regulated market
The notices for offers to the public of units or shares of Luxembourg closed-end UCIs and
notifices for admissions of units or shares of Luxembourg closed-end UCIs to trading on a
regulated market referred to in Part II of the Prospectus law in accordance with Articles 5
and 6 of Part II of the Prospectus law shall be made in accordance with the same procedures as those referred to in point 3 above.
Every notice shall include the following information and documents:
– the object of the notice (indication of the nature and timetable of the transaction
planned in Luxembourg);
– the name and address of the person issuing the notice, of the issuer for whom the
notice is made, as well as the contact data of the contact person(s).
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The Official Submission made in relation to an application for approval of a prospectus
(or the filing of final terms, respectively) is simultaneously considered as a notice, i.e. the
persons who made an Official Submission in accordance with point 3 above, do not also
have to submit a notice in accordance with this point 8.
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prevail.
CSSF Circular 06/272 OF 21 DECEMBER 2006 CONCERNING THE Technical
specifications regarding the communication to the CSSF, under the
law on prospectuses for securities, of documents for the approval
or for filing and of notices for offers to the public of securities
issued by SICARs and admissions of securities issued by SICARs to
trading on a regulated market
Re:
Technical specifications regarding the communication to the CSSF, under
the law on prospectuses for securities, of documents for the approval or
for filing and of notices for offers to the public of securities issued by
SICARs and admissions of securities issued by SICARs to trading on a
regulated market
This circular addresses Luxembourg investment companies in risk capital within the meaning
of the law of 15 June 2004 relating to the Investment company in risk capital (SICAR), whose
securities are being offered to the public or admitted to trading on a regulated market within
the meaning of the law of 10 July 2005 on prospectuses for securities (hereinafter “Prospectus
Law”). Please refer to circular CSSF 05/226 of 16 December 2005 for a general presentation
of the Prospectus Law. Definitions are available in part I.1. entitled “The securities concerned”
of circular CSSF 05/225 of 16 December 2005.
The purpose of this circular is to specify the technical procedure for communications to the
CSSF of:
• documents for approval by the CSSF or filing with the CSSF relating to offers of
securities issued by SICARs to the public and admissions of securities issued by
SICARs to trading on a regulated market, which are subject to Community harmonisation under Directive 2003/71/EC, in accordance with articles 7, 8, 10, 11-16 of
Chapter 1 of Part II of the Prospectus Law;
• requests for certificates of approval in accordance with article 19 of Chapter 2 of Part
II of the Prospectus Law; and
• notices for offers to the public of securities issued by SICARs governed by Part II of the
Prospectus Law and notices for admissions of securities issued by SICARs to trading
on a regulated market referred to in Part II of the Prospectus Law in accordance with
articles 5 and 6 of Part II of the Prospectus Law.
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1. Powers
The Prospectus Law designated the CSSF as the authority competent to ensure implementation of the provisions of Part II on the drawing-up, approval and distribution of the
prospectus to be published when securities issued by SICARs are offered to the public
and/or admitted to trading on a regulated market, which are subject to Community harmonisation under Directive 2003/71/EC (article 22).
In accordance with articles 7 and 13 of Part II, Chapter 1 of the Prospectus Law, the
CSSF is the competent authority for the approval of prospectuses and any supplements
thereto, drawn up for offers of securities issued by SICARs to the public and/or admission
of securities issued by SICARs to trading on a regulated market, which are subject to
Community harmonisation under Directive 2003/71/EC, when Luxembourg is the home
Member State. The filing of documents and notices in accordance with Part II shall also
be made with the CSSF.
While the Prospectus Law introduces in Luxembourg a new definition of the powers as
regards the prospectus approval, the powers regarding the decisions with respect to the
admission of securities issued by SICARs to trading on a market and/or official listing
remain unchanged. Indeed, the decisions with respect to the admission of securities
issued by SICARs to a market and/or official listing continue to fall within the remit of the
relevant market operator and are taken in accordance with the provisions laid down in the
rules governing the functioning of this operator (currently in Luxembourg: the Rules and
Regulations of the Luxembourg Stock Exchange), it being understood that compliance
of the underlying documents with the Prospectus Law is one of the requirements to be
fulfilled.
2. Applications for approval
Before making an official submission under article 7 of the Prospectus Law (hereinafter
“Official Submission”), the SICAR must be approved by the CSSF. To this end, the SICAR
shall submit an application file to the CSSF. As soon as the CSSF has given its verbal
approval, the SICAR may make an Official Submission.
3. Submission of documents to be approved
The CSSF receives the documents submitted in the context of scrutiny of applications for
prospectus approval.
The Official Submission with the CSSF can be validly made by an issuer, an offeror or by
a person asking for the admission to trading on a regulated market or a person acting on
behalf of one of these persons (the “Déposant(s)”) through the following means:
• via the e-file communication platform at http://www.e-file.lu for Déposants who have
an e-file connection; and
• if the Déposant does not have the necessary e-file connection as yet, via e-mail to
[email protected].
If a Déposant uses other means of communication, such as filing of paper copies, the
latter must enclose an electronic support (CD, DVD, PC floppy disk). The files shall be
submitted to the CSSF by post (110, route d’Arlon, L-2991 Luxembourg). The files can be
sent in PDF or DOC (MS-Word) format.
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The documents officially submitted shall enclose the following information:
• a list stating the exact designation of all the documents comprised in the submission;
• the object of the submission (indicating the Part and, where applicable, the Chapter of
the Prospectus Law under which the approval is requested and the Member State(s)
in which an offer to the public is planned, as well as the regulated market(s) on which
the admission to trading is requested);
• the name, postal address, e-mail and telephone number of the Déposant and the
contact person for the file;
• the name, postal address, e-mail and telephone number of the issuer on behalf of
whom the documents have been filed;
• the name, function, relation with the issuer, postal address, e-mail and telephone
number of the person commissioned to receive, on behalf of the issuer, all the notifications;
• the name, postal address, e-mail and telephone number of the person commissioned
by the issuer to receive the invoice and pay the fee (taxe) (see point 6 below);
• the name, postal address, e-mail and telephone number of the person commissioned
by the issuer to confirm that the version submitted for final approval and publication is
the final version of the prospectus; and
• the timetable of the transaction and the requested date of approval.
Any reference made hereabove to the issuer is to be understood, where applicable, as
reference to the offeror or to the person asking for the admission of securities issued by
SICARs to trading on a regulated market.
The Official Submission is confirmed by electronic acknowledgement of receipt:
• through the e-file process, if the submission has been made via e-file,
• to the address stated by the Déposant if the filing has been made through
[email protected].
4. Enforcement of the time limits for scrutiny of an application for offers of securities
issued by SICARS to the public and admission of securities issued by SICARs to
trading on a regulated market
The time limit laid down in article 7(2) of the Prospectus Law runs from the working day
following that of the Official Submission of a file.
If, at the time of the receipt and/or processing of the file, the file is not complete or additional
information is needed, CSSF informs the Déposant, either via e-file or e-mail, that the file
is incomplete in accordance with article 7(5). In that case, the time limits only run from the
working day that follows the day on which the requested information has been provided
by the Déposant in accordance with the above provisions of the Prospectus Law.
Given the application of principles of administrative law, the decision regarding the approval
of the prospectus can still be validly notified after the expiry of the above-mentioned time
limit. This notably enables the issuer to request the CSSF to approve the prospectus on a
date, which, due to the timetable of the transaction, falls beyond the prescribed time limits
provided in the Prospectus Law as regards the notification of the decision of approval.
The same principles apply to the applications for approval of supplements to the prospectus
in accordance with article 13(1) for which the maximum time limit for approval is 7 days.
268
5. Handling of applications for approval and approval
The CSSF communicates the approval either via e-file or e-mail to the address stated to
this end by the Déposant at the Official Submission, and confirms the approval in writing
to the postal address of the issuer, offeror or person asking for the admission.
6. Submissions of requests for certificates of approval
In accordance with article 19 of Chapter 2 of Part II of the Prospectus Law, the requests
for certificates of approval for the purpose of notification by the CSSF to one or several
competent authorities of the host Member States shall be submitted according to the
same procedures as those referred to in point 3 above. This request shall be sent together
with the draft prospectus or separately. The applications shall include the following information and documents:
• indication of the host Member State for which the notification shall be prepared;
• indication of the date on which the notification is requested;
• where applicable, the translation of the summary produced under the responsibility of
the issuer or person responsible for drawing up the prospectus.
The same procedure shall apply for any supplement to the prospectus, and, where applicable, the summary.
7. Filing of documents that are not subject to approval
The filing of documents that are not subject to approval shall be made according to the
same procedures as those referred to in point 3 above. The documents concerned are the
following:
• the registration document, insofar as its approval is not sought, which shall be expressly
mentioned (article 11); and
• the annual document as defined in article 14.
8. Notices for offers to the public and admission to trading on a regulated market
The notices for offers to the public of securities issued by SICARs and notices for admissions of securities issued by SICARs to trading on a regulated market referred to in Part
II of the Prospectus Law in accordance with articles 5 and 6 of Part II of the Prospectus
Law shall be made in accordance with the same procedures as those referred to in point
3 above.
Every notice shall include the following information and documents:
• the object of the notice (nature and timetable of the transaction planned in Luxembourg);
• the name and address of the person issuing the notice, of the issuer for whom the
notice is made, as well as the name, address and telephone number of the contact
person(s).
The Official Submission made in relation to an application for the approval of a prospectus
(or the filing of final terms, respectively) is simultaneously considered as a notice, i.e. the
persons who made an Official Submission in accordance with point 3 above, do not have
to also submit a notice in accordance with this point 8.
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CSSF Circular 07/277 OF 9 January 2007 CONCERNING THE new notification
procedure in accordance with the guidelines of the Committee of
European Securities Regulators (CESR) concerning the simplification
of the UCITS notification procedure
CSSF Circular 07/277
Concerns: The new notification procedure in accordance with the guidelines of the
Committee of European Securities Regulators (CESR) concerning the
simplification of the UCITS notification procedure.
The purpose of this circular is to draw the attention of UCITS subject to Part I of the law of
30 March 1988 relating to UCIs or to Part I of the law of 20 December 2002 relating to UCIs
to the new notification procedure in accordance with the guidelines of the Committee of
European Securities Regulators (CESR) concerning the simplification of the UCITS notification procedure.
This document, published by CESR on 29 June 2006 with the reference CESR/06-120b, is
available on CESR website at http://www.cesr.eu.
The purpose of CESR’s guidelines is to present a common approach to the administration,
by host authorities, of the notification procedures, as disclosed in Article 46 of the Directive
85/611/EEC, as amended. The objective of the guidelines is to bring more simplicity, transparency and certainty to the procedure of notification and to accelerate the processing of the
file.
The intention of this circular is also to state more precisely the approach adopted by the
CSSF as regards European passports for UCITS following the adoption of the new CESR
guidelines.
A. The following sections of the document CESR/06-120b, relating to the notification
procedure of UCITS and to the modifications and updates of UCITS, can be pointed
out:
1. Notification procedure
a) With regard to the notification procedure, the UCITS has to provide a certain number
of documents to the host State authority. The document CESR/06-120b introduces
a standardised attestation letter of the home State authority (Annex I of the CESR
document) and a standardised notification letter (Annex II of the CESR document)
which shall be submitted to the host State authority.
270
The UCITS shall, among other things, provide the documents listed in Annex II to the
CESR document to the host State authority. A detailed list is enclosed in Annex 1 of
this circular.
b) The host authorities shall not request certification by the home State authority of the
documents listed in Annex II of the CESR document and which have to be provided
with the notification letter. These authorities shall accept that the notifying UCITS
or a third party duly empowered by the UCITS self-certifies the documents. This
certification must confirm that the documents attached to the notification letter are
the most recent ones that have been issued or approved by the home State authority
(“self-certification”).
c) A supervisory authority shall issue an attestation letter in accordance with the standard
model disclosed in Annex I of the CESR document. For the notification procedure with
the other Member State authorities, a true copy of such original attestation letter,
certified by the UCITS or a third party duly empowered by the UCITS, shall be used.
2. Modifications and updates
a) The UCITS shall request from its supervisory authority the issue of a new attestation
solely in the case where the information on the UCITS provided in the original attestation issued by the supervisory authority has been modified. These modifications are,
inter alia, the change of the management company or the creation of a new sub-fund
in an existing UCITS.
b) The UCITS shall keep all their documents up-to-date. Therefore, all modifications to
the constitutional documents or management rules and the Articles of incorporation,
as well as any creation of new units/share classes and the new (full and simplified)
prospectuses shall be transmitted to the host State authority by the UCITS. The same
rule applies to the latest published annual reports and any subsequent half-yearly
reports. Submission of these documents has to be made without delay after the
documents have been made available for the first time in the home Member State.
All the documents which do not constitute modifications of the information included in
the original attestation of the supervisory authority are certified by the UCITS or a third
party duly empowered by the UCITS (“self-certification”).
B. Practice adopted by the CSSF regarding the European passport for UCITS
I. Luxembourg UCITS that market their units/shares in another EU Member State
UCITS that consider marketing their units/shares in another EU Member State shall
submit to the host State authority all the documents listed in Annex 1 to this circular, and,
as the case may be, any other specific documents required by the host State authority.
UCITS that market their units/shares in another EU Member State should take into consideration the following points:
1. Attestation letter
The CSSF provides every UCITS with an attestation as set out in Annex I of the CESR
document, together with a letter confirming its registration on the official list. The CSSF’s
attestation letter for UCITS will be issued in the official languages of German and French.
Furthermore, an attestation letter in English will be provided to the UCITS. On request, the
CSSF provides the attestation letter in electronic form.
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The attestation letter discloses all UCITS sub-funds approved by the CSSF. The sub-funds
listed in the attestation letter shall be the same as those mentioned in the full prospectus
of the UCITS.
A new attestation may be requested from the CSSF by the UCITS only in the case of the
modification of the information on the UCITS provided in the original attestation issued by
the CSSF, such as a change of management company or the creation of a new sub-fund
in an existing UCITS.
In any other cases, the procedure of self-certification mentioned in point A.2.b) above
applies.
2. Notification letter
UCITS shall use the standardised notification letter attached in Annex II of the CESR
document when considering to market their units/shares in another EU Member State.
A sample of the notification letter is available in French, German and English on the
CSSF website http://www.cssf.lu, under section “Marketing of UCITS > Marketing of units/
shares of Luxembourg UCITS in the EU”.
Nevertheless, the CSSF advises UCITS to visit the Internet websites of the host Member
State authorities for any further information.
3. Visa of prospectuses
Luxembourg UCITS shall submit three copies of their (full and simplified) prospectuses in
their final form and presentation to the CSSF. One example, bearing the Visa stamp, will
be returned to the person that has submitted the file.
With respect to the notification procedure with the host State authorities, the UCITS shall,
pursuant to point A.1.b) above, attach to the notification letter a true copy of the visastamped prospectus, certified by the UCITS or a third person duly empowered by the
UCITS.
4. Electronic filing
The CSSF accepts that the applicants submit their requests for attestation and their
documents electronically to the address [email protected]. Also, the applicants that have
access to the e-file connection may also submit their application or documents via the
e-file communication platform at http://www.e-file.lu.
II. Foreign UCITS established in another EU Member State that consider marketing
their units/shares in Luxembourg
1) With regard to the notification procedure, the UCITS are required to provide the CSSF
with the documents listed in Annex 2 of this circular.
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In addition, the UCITS shall submit specific information that relates to the marketing
of units/shares in Luxembourg to the CSSF. To this end, the UCITS shall use the
form disclosed in Annex 3. This form can be downloaded from the CSSF’s website at
http://www.cssf.lu, under section “Marketing of UCITS” > Marketing of units/shares of
European UCITS in Luxembourg”.
2) Only the sub-funds that the UCITS considers marketing actively in Luxembourg must
be mentioned in the notification letter to be submitted to the CSSF by an umbrella
UCITS. A sample notification letter is available in one of the three languages French,
German and English on the CSSF’s website at the same address and section as
mentioned above.
3) The UCITS or a third party duly empowered by the UCITS may self-certify the
documents listed in Annex 2 of this circular and that must be attached to the notification letter. This certificate confirms that the documents that have been attached to
the notification letter are the most recent ones that have been issued or approved by
the home State authority. For the notification procedure, a true copy of the original
attestation letter in French, German or English certified by the UCITS or a third party
duly empowered by the UCTIS, shall be submitted to the CSSF.
The UCITS shall submit a new attestation to the CSSF solely where the information on
the UCITS provided in the original attestation issued by the supervisory authority has
been amended. These modifications are, for example, the change of management
company or the creation of new sub-funds in an existing UCITS.
The required documents may be filed with the CSSF electronically to [email protected].
Furthermore, applicants that have access to the e-file connection may also submit
their documents via the e-file communication platform at http://www.e-file.lu.
4) The CSSF informs the UCITS of any missing information or documents within one
week after receiving the file. Within one week after the notification is deemed to be
complete, the CSSF informs the UCITS that the marketing of units/shares may start
immediately.
In the case where an umbrella UCITS markets sub-funds in Luxembourg and considers
marketing new or additional sub-funds in Luxembourg, the CSSF applies the same
procedure as that described in the previous paragraph.
C. National marketing rules and other specific national regulations
According to the document CESR/06-120b, the EU Member States are requested to
publish their national marketing rules in a standardised form specified in Annex III of the
document in force.
The rules applicable in Luxembourg are available on the CSSF’s website at
http://:www.cssf.lu, under section “Marketing of UCITS > Marketing of units/shares of
European UCITS in Luxembourg”.
For any additional questions on the marketing of units/shares of UCITS in Luxembourg,
please contact Mr Jean-Paul Heger (tel.: +352 26 25 1 527, e-mail: [email protected]).
This circular comes into force with immediate effect.
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Appendix 1.
List of documents that a UCITS marketing its units/shares in the European Union must
provide to the host State authority
The UCITS shall provide the host State authority with the documents listed in Annex II of the
CESR document, i.e.:
– the attestation letter granted by the home State authority drafted according to the model
letter in Annex I of the CESR document;
– the notification letter drafted according to the model in Annex II of the CESR document;
the notification letter may be submitted to the host authority in a language common in the
sphere of finance or in the official language(s) of the host Member State provided that this
is not against the national rules and regulations of the host State;
– the latest version of the management regulations and Articles of incorporation of the
investment company;
– the latest version of the full and simplified prospectuses;
– the latest published annual report and any subsequent half-yearly report and, as regards
umbrella funds, the latest versions of the annual report and the half-yearly report covering
all sub-funds;
– details of the arrangements made for the marketing of the units/shares of the UCITS in the
host Member State.
The documents listed above, except for the attestation, must be attached to the notification
letter in their original version as well as in a translated version in the official language(s) of the
host State. The host State may also allow the use of a non-official language.
The attestation letter is submitted in its original version, together, where applicable, with an
English version.
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Appendix 2.
List of documents that foreign UCITS established in another EU Member State must
submit to the CSSF
The foreign UCITS established in another EU Member State that considers marketing its
units/shares in Luxembourg shall submit to the CSSF the documents listed in Annex II of the
CESR document, i.e.:
– the attestation letter granted by the home Member State authority drafted according to the
model letter in Annex I of the CESR document;
– the notification letter drafted according to the model in Annex II of the CESR document;
the notification letter may be submitted to the CSSF in French, German or English and can
be downloaded from the CSSF’s website at http://www.cssf.lu, under section “Marketing
of UCITS > Marketing of units/shares of European UCITS in Luxembourg”;
– the latest version of the management regulations and Articles of incorporation of the
investment company;
– the latest version of the full and simplified prospectuses;
– the latest published annual report and any subsequent half-yearly report and, as regards
umbrella funds, the latest versions of the annual report and the half-yearly report covering
all sub-funds;
– details of the arrangements made for the marketing of the units/shares of the UCITS in
Luxembourg.
In addition, the foreign UCITS fill in the form in Annex 3 of this circular and submit it to the
CSSF. The form is available for download on the CSSF website at the same address and
section as mentioned above.
The documents listed above shall be attached to the notification letter in French, German or
English.
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Appendix 3.
Specific information on the marketing in Luxembourg of units/shares of a UCITS established in another Member State of the European Union
1)
Name of the UCITS
2)
Home Member State
3)
Registered office
4) Name and address of the financial
service (paying agent) in Luxembourg
5) Name and address of the primary
contact in Luxembourg in charge
of the notification to the CSSF
6) Name of the person(s) empowered
by mandate to certify documents
on behalf of the UCITS
Name, first name, position, date and signature:
...................................................................
...................................................................
...................................................................
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prevail.
CSSF CIRCULAR 07/283 OF 28 february 2007 CONCERNING THE Entry into
force of the law of 13 February 2007 relating to specialised investment
funds
To all persons and undertakings under the supervision of the CSSF
Circular CSSF 07/283
Re: Entry into force of the law of 13 February 2007 relating to specialised
investment funds
This circular purposes to draw your attention to the entry into force of the law of 13 February
2007 relating to specialised investment funds as published in the Mémorial A − No. 13 of 13
February 2007.
The law of 13 February 2007 relating to specialised investment funds repeals the law of 19
July 1991 concerning undertakings for collective investment the securities of which are not
intended to be placed with the public.
This circular presents a summary of the main elements of the legal framework introduced by
the new law.
I. General provisions and scope
For the purpose of the law of 13 February 2007, specialised investment funds shall be any
undertakings for collective investment situated in Luxembourg:
– the exclusive object of which is the collective investment of their funds in assets in
order to spread the investment risks and to ensure for the investors the benefit of the
results of the management of their assets, and
– the securities of which are reserved to one or several well-informed investors, and
– the constitutive documents or offering documents of which provide that they are
subject to the provisions of the said law.
Specialised investment funds governed by the new law may be constituted under the
legal form of a common fund (“fonds commun de placement” (FCP-SIF)), an investment
company with variable capital (“société d’investissement à capital variable” (SICAV-SIF))
or a legal form other than the preceding. The detailed provisions governing the different
forms of specialised investment funds are laid down in Chapters 2, 3 and 4 of the law.
The central administration of a specialised investment fund shall be located in Luxembourg.
277
II. Concept of well-informed investor
Under the terms of the law of 13 February 2007, the securities of a specialised investment
fund shall be reserved to one or several well-informed investors.
According to the law, a well-informed investor shall be an institutional investor, a professional investor or any other investor who meets the following conditions:
a) he has confirmed in writing that he adheres to the status of well-informed investor,
and
(b) (i) he invests a minimum of 125,000 Euro in the specialised investment fund, or
(ii) he has been the subject of an assessment made by a credit institution within
the meaning of Directive 2006/48/EC, by an investment firm within the meaning
of Directive 2004/39/EC or by a management company within the meaning of
Directive 2001/107/EC certifying his expertise, his experience and his knowledge
in adequately apprising an investment in the specialised investment fund.
III. Authorisation and supervision
Specialised investment funds are subject to the authorisation and supervision of the
CSSF.
The authorisation of a specialised investment fund is subject to the approval by the CSSF
of the constitutive documents and of the choice of the depository.
The directors of the specialised investment fund and of the depository must be of good
repute and have sufficient experience, also in relation to the type of investment fund
concerned.
Are to be considered as directors within the meaning of the law, the members of the board
of directors in the case of public limited companies and cooperatives in the form of a public
limited company, the general partners in the case of partnerships limited by shares, the
manager(s) in the case of limited companies, the members of the board of directors or the
managers of the management company in the case of common funds (“fonds communs
de placement”).
The law does not provide for an authorisation prior to the start of activities of a specialised
investment fund. Nevertheless, the law requires that the application requests for registration on the list must be filed with the CSSF within the month following the formation or
creation of the specialised investment fund.
IV. Offering document and annual report
The law requires the establishment of an offering document and of an annual report for
each financial year.
The offering document must include the information necessary for investors to be in a
position to make a well-informed judgment on the investment proposed to them.
The annual report must include the information set out in the schedule annexed to the
law.
The detailed provisions applicable to the offering documents and annual reports of a
specialised investment fund are specified under Chapter 7 of the law.
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V. Transitional provisions
The law entered into force on 13 February 2007.
Due to the abrogation of the law of 19 July 1991 concerning undertakings for collective
investment the securities of which are not intended to be placed with the public, article 76
of the law of 13 February 2007 provides that the undertakings subject to the law of 19 July
1991 are governed ipso jure by the new law.
For these undertakings, all references in the articles of incorporation and sales documents
to the law of 19 July 1991 shall be read as references to the law of 13 February 2007.
279
CSSF CIRCULAR 07/308 OF 2 August 2007 CONCERNING THE Rules of
conduct to be adopted by undertakings for collective investment
in transferable securities with respect to the use of a method for
the management of financial risks, as well as the use of derivative
financial instruments.
Luxembourg, 2 August 2007
To all Luxembourg undertakings for collective investment in transferable securities («UCITS»)
and to those involved in the operation and supervision of such undertakings.
Concerns:
Rules of conduct to be adopted by undertakings for collective investment
in transferable securities with respect to the use of a method for the
management of financial risks, as well as the use of derivative financial
instruments.
The purpose of this circular is to notify undertakings for collective investment in transferable
securities (hereinafter referred to as «UCITS»), subject to Part I of the amended law of 20
December 2002 (hereinafter referred to as the «2002 Law»), of additional information with
respect to the use of a method for the management of financial risks, within the meaning of
Article 42 (1) of the 2002 Law, as well as the use of derivative financial instruments, within the
meaning of Article 41 (1) g) of this same law.
I. General provisions
The principal reason why UCITS must devote greater efforts and means to risk measurement
and control is that the 2002 Law has expanded (as compared to the law dated March 30,
1988) the list of financial instruments in which UCITS may invest. In addition to bank deposits,
money market instruments, units of UCITS and units of UCIs, UCITS may, within the scope
of their investment policy, use derivative financial instruments. This may involve derivative
financial instruments dealt in on a regulated market of the type set forth in points a), b) and c)
of Article 41 (1) of the 2002 Law, and derivative financial instruments dealt in over-the-counter
(“OTC”), provided that the underlying consists of:
– instruments covered by Article 41, Paragraph (1),
– financial indices,
– interest rates,
– foreign exchange rates or
– currencies.
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A UCITS may avail itself of derivative financial instruments within the scope of the techniques
and instruments which are mentioned in Article 42 (2), and which relate to transferable
securities and money market instruments. These transactions must also comply with the
provisions of Article 41 (1) g), Article 42 and Article 43. Derivative financial instruments
used pursuant to Article 41 (1) g) are however not automatically subject to the requirements
associated with the efficient portfolio management referred to in Article 42 (2).
To prevent UCITS from being exposed to excessive financial risks, in particular through derivative financial instruments, the 2002 Law imposes on UCITS to employ a «Risk Management»
structure, as well as a detailed financial risk limitation system.
By means of this circular, the Commission aims at providing UCITS with rules of conduct to be
followed at the time of the implementation of such a «Risk Management» structure. Although
the business activities of UCITS are often exposed to a multitude of risks, this circular is
limited to the financial risks directly covered in the 2002 Law, namely the global exposure, the
counterparty risk and the concentration risk. Moreover, the circular’s purpose is to clarify the
requirements with respect to the coverage of derivative financial instruments, a corollary to
Article 52 of the 2002 Law, as well as the obligation to perform a daily valuation of the OTC
derivative financial instruments arising from Articles 41 (1) g) and 42 (1) of this law.
The other risks (operational risk, settlement risk, legal risk, etc.) which are not directly covered
in this circular, but which may cause losses to UCITS, must be the subject of adequate supervision at the UCITS level.
This circular shall, in point II, deal with the organizational requirements, as well as the Risk
Management’s field of operation as regards the above-mentioned financial risks before dealing
with, in greater detail in Point III, the limitations of the risks in question. It shall finish, in point IV,
with the coverage rules and the valuation of the OTC derivative financial instruments.
II. Implementation of a risk management process
II.1. Organizational principles
Article 42 (1) of the 2002 Law requires that UCITS implement a risk management method that
enables them to monitor and measure at any time, the risk of the positions and their contribution to the overall risk profile.
The Commission expects that non-sophisticated UCITS, as defined hereafter, measure and
control financial risks related to investments at least on a bi-monthly basis. For sophisticated
UCITS, such frequency is daily.
By derogation to the foregoing, and subject to an adequate justification, other frequencies for
measurement and control may be utilised in particular cases with the prior approval of the
CSSF.
UCITS pursue more or less risky investment strategies, so that a distinction has to be made
between sophisticated UCITS and non-sophisticated UCITS.
A sophisticated UCITS, as defined in point III, must entrust to a risk management unit
(hereinafter referred to as «Risk Management»), which is independent of the units in charge
of making portfolio management decisions, the task of identifying, measure, monitor and
control the risks associated with the portfolio’s positions.
The following qualitative criteria must be fulfilled in order to allow the Risk Management unit
to satisfy the Commission’s expectations in this regard:
– In order to accomplish its assigned missions, as described in this circular, Risk Management
must have a sufficient number of qualified personnel with the necessary knowledge.
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– Risk Management must have the necessary tools (IT and others) for accomplishing the
missions described in this circular211.
– The persons who conduct the business of the management company, respectively of the
self-managed investment company (hereinafter referred to as “SIAG”), must be actively
associated with the risk management and control process. They are notably in charge of
approving the adoption of the method of risk management and control.
– Risk Management must answer directly to the persons who conduct the business, who
must be regularly kept informed of Risk Management’s work and the risks run by the
UCITS by means of risk monitoring reports. It is up to the persons who conduct the
business to take appropriate measures on the basis of the data reported.
– The Board of Directors of management companies and investment companies are responsible for ensuring that Risk Management complies with applicable legal and regulatory
requirements and for ensuring that the mechanisms which have been implemented
operate correctly.
These organisational rules must also be complied with by UCITS classified as non-sophisticated UCITS, but which make use of the approach of the internal model, which is explained
in greater detail in Point III.
The Commission allows management companies and SIAGs to delegate a portion or all of
the risk management and control process to a third party acknowledged to be specialised in
this type of activity. Notwithstanding this delegation, the minimum requirements formulated
in this circular must be complied with by this third party, and it must be ascertained that the
UCITS receives the information required for the risk evaluation regularly, in order to allow it to
take the measures which are required and to permit implementation of its own independent
check. This delegation does not, in any way, discharge the management company or, respectively, the SIAG of its responsibility of ensuring an adequate follow-up of the UCITS’ risks.
For a non-sophisticated UCITS, as defined in Point III (and applying the commitment
approach with respect to the determination of the global exposure), the organizational
structure of Risk Management does not have to be as developed and substantive as that of
sophisticated UCITS. It is for this reason that the Commission gives these UCITS the option
of organizing the function in a different manner as is indicated above. Despite this flexibility,
the Commission will not allow such a UCITS to delegate the Risk Management function to the
unit in charge of portfolio management decisions («Front Office»). In order to guarantee some
independence, a third party, independent from the UCITS, could be assigned the responsibility of taking over all missions incumbent on Risk Management.
The Commission reserves the right, in consideration of the investment strategy used and the
risks associated thereto, to require non-sophisticated UCITS to comply with the qualitative
criteria formulated with respect to sophisticated UCITS.
II.2. Scope of activities of Risk Management
In compliance with this circular’s scope, Risk Management must cover the global exposure, the
counterparty risk, as well as the concentration risk associated with all the portfolio’s positions.
In this context, special attention must be paid, along with stringent monitoring, to transactions
with derivative financial instruments, given the specific risks (leverage effect, high volatility of
market prices, complexity of instruments, etc.) associated with this category of instruments.
211 The French original of the circular uses the word “dirigeant” and refers to the persons (at least two) who conduct
the business of the management company (referred to in Article 78 (1) b) of the law of 20 December 2002) or the
SIAG (referred to in Article 27 (1) of the law of 20 December 2002).
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At the very least, the Commission expects that the work listed below be part of Risk Management’s scope of activities:
– determination and monitoring of the global exposure (see Point III.1.),
– determination and monitoring of the counterparty risk associated with OTC derivative
financial instruments (see Point III.2.),
– check and follow-up of the minimum requirements associated with the determination of
the global exposure and the counterparty risk (see Points III.1., III.2., Appendix 1 or 2),
– determination of and/or monitoring of the use of concentration limits (see Point III.3.),
– monitoring and control of coverage rules (see Point IV.1.),
– determination and/or control, if applicable, of the valuations of the OTC derivative financial
instruments (see Point IV.2.),
– establishment of the risk monitoring reports for the persons who conduct the business of
the management company, respectively of the SIAG.
Depending on the risk profile noted, the Commission may impose more strict measures.
III. Limitation of risks applicable to UCITS investments
The 2002 Law defines a certain number of limitations with respect to the investments which
can be made by UCITS; these are meant to ensure that the UCITS is not exposed to
unreasonable risks which might imperil its continuity and, consequently, the principle of the
investors’ protection. The limitations shall be briefly introduced at this level, before being
further detailed later in this circular:
– In compliance with Article 42 (3), “A UCITS shall ensure that its global exposure relating to
derivative instruments does not exceed the total net value of its portfolio. The exposure is
calculated taking into account the current value of the underlying assets, the counterparty
risk, future market movements and the time available to liquidate the positions”.
In its application of this Article, the Commission deems that the global exposure of UCITS
may at most be doubled by the use of derivative financial instruments. The UCITS’ total
commitment is thus limited to 200%. The implications of this limitation are explained more
explicitly in Point III.1. Given that the counterparty risk associated with OTC derivative
financial instruments is specifically limited for a given entity by the provisions of Article 43,
the Commission restricts the concept of global exposure solely to the market risk.
To this may be added the possibility for UCITS to borrow up to 10% of its net assets, as
long as these are temporary borrowings and that such borrowings may not be used for
investment purposes.
– Pursuant to Article 43 (1), “The risk exposure to a counterparty of the UCITS in an OTC
derivative transaction may not exceed 10% of its assets when the counterparty is a credit
institution referred to in Article 41, paragraph (1) f), or 5% of its assets in other cases”.
Point III.2. shall deal with the rules with respect to the determination of the counterparty
risk in greater detail.
– Pursuant to Article 42 (3), a UCITS may invest in derivative financial instruments, provided
that the exposure to the underlying assets does not exceed in aggregate the investment
limits laid down in Article 43. The Commission also extends this limitation to the units of
UCIs and UCITS referred to in Article 46. The purpose of these limits is to restrict the
exposure which the UCITS may take with respect to a given issuer or fund, i.e. concentration risk. The requirements in that regard shall be discussed in Point III.3.
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III.1. Limitation of the market risk
III.1.1. Classification of UCITS on the basis of their risk profile.
The Commission allows UCITS to adapt the method of calculation of their global exposure to
the risk profile resulting from their investment policy and to the Risk Management’s level of
sophistication.
More specifically, the Commission expects each UCITS to conduct a self-assessment of
its risk profile and to classify itself, on the basis of this analysis, either as a non-sophisticated UCITS or as a sophisticated UCITS. This classification will require the approval of the
persons who conduct the business and the board of directors. The assessment process must
be documented and must be kept available for the Commission.
The following elements aim at supplying UCITS with the guidelines to consider in the classification process:
– A sophisticated UCITS is a UCITS using, for an important part, derivative financial instruments and/or making use of more complex strategies or instruments.
– A non-sophisticated UCITS is a UCITS with less and less complex positions on derivative financial instruments or with derivative financial instruments used solely for hedging
purposes.
A UCITS that wants to change its risk profile must inform the Commission in advance in
order to obtain the latter’s consent. Depending on the scope of the risk profile change (for
example: new types of derivative financial instruments, etc.), the UCITS’ prospectus must, if
appropriate, be adapted accordingly.
III.1.2. Determination of the global exposure: non-sophisticated UCITS
In the case of non-sophisticated UCITS, the global exposure related solely to positions
on derivative financial instruments (including those embedded in transferable securities or
money market instruments) must, in principle, be determined on the basis of the Commitment
Approach.
The approach using the internal model (see III.1.3.), which applies to all UCITS positions, may
also be used by the UCITS, as long as there is compliance with the related requirements.
III.1.2.1. Commitment Approach
On the basis of this approach, the positions on derivative financial instruments must be
converted into equivalent positions on the underlying assets.
The UCITS’ total commitment to derivative financial instruments, limited to 100% of the
portfolio’s total net value, is then quantified as the sum, as an absolute value, of the individual
commitments, after consideration of the possible effects of netting and coverage, as described
in Point III.1.2.2.
Appendix 1 details the calculation method of the commitment for the derivative financial
instruments most commonly used by UCITS, although this list does not aim to be exhaustive.
In the case of derivative financial instruments which are not on this list, the Commission
expects the UCITS to inform it of the calculation method applied.
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If UCITS are authorized to avail themselves of repurchase transactions or the lending/
borrowing of securities in order to generate additional leverage through reinvestment of
collateral, these transactions must be taken into consideration for the determination of the
global exposure. Any reinvestment of collateral in financial assets that yield a return greater
than the risk-free rates must be taken into consideration by this quantification.
As an exception to what is set forth above, and on the condition that there is adequate
justification, an approach which differs from the commitment approach may be used by
a non-sophisticated UCITS (example: “add-on approach”, sensitivity approach), with the
Commission’s prior approval. An approach of this kind must be based on a level of prudence
similar to that of the commitment approach in the determination of the global exposure.
III.1.2.2. Netting and position coverage process
When applying the commitment approach, UCITS may proceed with the following netting
processes:
– netting between buying and selling positions on derivative financial instruments with
identical underlying assets (reference rates, reference assets, etc.), regardless of the
contracts’ due date (example: long position on purchase option and short position on
purchase option of the same underlying asset, etc.);
– netting between derivative financial instruments and assets held directly by a UCITS, on
the condition that the two positions deal with the same underling asset (example: long
position on the XYZ share and short position on the purchase option for the XYZ share,
etc.);
To this is to be added the possibility of not taking into account the derivative financial instruments whose function is to partially or totally cover the portfolio positions against a fluctuation
of the market risk212. This ability is strictly reserved for cases in which there is an undeniable
and manifest risk reduction effect, i.e. the cash prices of the position or positions and the
position on the derivative financial instrument are moving in opposite directions and that the
asset or assets to be covered and the derivative financial instruments’ underlying assets
show an adequate similarity (i.e. adequate symmetry of the assets, term, currencies) (strong
correlation).
The netting may only be done for the amounts of equivalent commitments, either in terms
of market value or in terms of risk (example: duration), and it may not result in the UCITS
neglecting obvious and material risks.
The netting process in question must be accompanied by an adequate follow-up by Risk
Management.
III.1.3. Determination of the global exposure: sophisticated UCITS
III.1.3.1. General principle
The Commission requires all UCITS pursuing a sophisticated investment strategy to use
an approach based on the internal model, taking into consideration all the sources of global
exposure (general and specific market risks213), which might lead to a significant change in
the portfolio’s value.
By internal model, the Commission refers to a model of the Value-at-Risk («VaR») type,
which must comply with the requirements listed below.
212 General or specific market risk, as defined in Appendix 2.
213 As defined in Appendix 2.
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The purpose of a VaR model is the quantification of the maximum potential loss which might
be generated by a UCITS portfolio in normal market conditions. This loss is estimated on
the basis of a given time period and a certain confidence interval. UCITS must complete
this approach with stress tests, as described in Appendix 2, in order to quantify the risks
associated with possible abnormal market movements. These tests evaluate the reactions of
the portfolio’s value to extreme financial or economic events at a given point in time.
Nevertheless, other risk quantification methods complying with the conditions listed in this
document may, possibly, be deemed acceptable by the Commission. If the VaR does not
appear appropriate for a UCITS by reason of the nature of the risks to which it is exposed,
the Commission expects that the UCITS adopts other methods of measuring risks. In all such
cases, the prior consent from the Commission is required.
III.1.3.2. Limits applicable to the market risk
The investment policy pursued by a UCITS is determinant for the method of limitation of the
global exposure. In all cases, the process of determining the method of limitation must be
documented and kept available for the Commission. Two situations may be distinguished:
a) Relative VaR limitation
For the purposes of the limitation of the global exposure, the Commission is requesting that
UCITS ensure that the global exposure associated with the total portfolio’s positions, calculated by means of the VaR, does not exceed two times the VaR of a reference portfolio of the
same market value as the UCITS. This management limit is applicable to all UCITS for which
it is possible or appropriate to define a reference portfolio.
The reference portfolio must be determined by the UCITS, taking into account both the funds’
investment policy, as set forth in the prospectus, and the portfolio’s actual composition. It
constitutes, in principle, a true picture of the «benchmark»214, by reference to which the
UCITS will compare the performance of its investments and which does not include positions
on derivative financial instruments.
The UCITS must ensure that this reference portfolio complies with the provisions of the 2002
Law.
The process of the determination of the reference portfolio has to be done in the context of
appropriate procedures and must be closely overseen by Risk Management. Investment
managers may take the initiative of proposing a reference portfolio which they feel to be the
most appropriate for the funds’ investment policy. However, Risk Management must analyse
this proposal and formulate an opinion for the persons who conduct the business of the
management company, respectively of the SIAG, with respect to the appropriateness of the
proposed portfolio.
b) Absolute VaR limitation
Those UCITS which are unable or for which it is not appropriate to determine a reference
portfolio (example: an «absolute return» type UCITS) must determine an absolute VaR
on all of the portfolio’s positions. The Commission expects that a UCITS, on the basis of
the analysis of the investment policy and the given risk profile, fixes a maximum VaR; this
management limit may not exceed the threshold of 20%.
214 In principle, an external index.
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When the reasons put forth by the UCITS have been deemed acceptable by the Commission,
the latter may exceptionally allow the UCITS to use a different management limit if it is
convinced that the principle of investor protection is not endangered by the granting of such
a derogation.
III.1.3.3. Criteria governing the use of a VaR model by UCITS
The use of an internal model, as described above, is subject to the Commission’s prior
approval. In order to be able to be considered an acceptable model, all the criteria set forth in
Appendix 2 must be complied with.
III.2. Limitation of the counterparty risk
III.2.1. Maximum limit per entity / group
In compliance with Article 43 (1) of the 2002 Law, the risk exposure to a counterparty of a
UCITS in an OTC derivative transaction may not exceed 10% of its assets, when the counterparty is a credit institution referred to in Article 41, paragraph (1), point f), or 5% of its assets
in other cases.
There can be excluded from the calculation of the use of counterparty risk limitations, all
transactions on derivative financial instruments executed on a market the clearing house of
which complies with the following three conditions:
– backing by an appropriate completion guarantee;
– daily valuation of the market values of the positions on derivative financial instruments;
and
– making margin calls at least once a day.
The counterparty risk is thus reduced, in principle, to OTC derivative financial instruments.
III.2.2. Counterparty status
Pursuant to Article 41 (1), g), counterparties to OTC derivative transactions must be institutions subject to prudential supervision and belonging to the categories approved by the
Commission. In addition, they must be specialised in this type of transaction.
III.2.3. Determination of the counterparty risk
III.2.3.1. Calculation principles
In order to determine the counterparty risk relating to OTC derivative financial instruments,
UCITS must apply the method, set forth in 3 stages, described below. The Commission
may, subject to appropriate elements of justification, allow UCITS to use another method. A
derogation of this nature is subject to the Commission’s prior approval.
– 1st stage:
For each contract, the UCITS must determine the current replacement cost by carrying out a
valuation at market price. Only the contracts with positive replacement cost will be selected
for stage 1. The rules to be observed during the valuation process of OTC derivative financial
instruments are specified in Point IV.2.
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– 2nd stage:
In order to reflect the risk which might be incurred later (potential future credit risk), the
amount of the principal notional or the underlying asset of all the contracts is multiplied by the
following percentages («add-on factor»):
Residual
term
One year or less
More than one
year and less
than five years
More than
five years
Interest
rate
contracts
Exchange
rate
contracts
Ownership
title contracts
Other
eligible
contracts
0% 1% 6% 10%
0.5% 5% 8% 12%
1.5% 7.5% 10% 15%
Those derivative financial instruments which cannot be entered in one of the first three
categories of this table, with the exception of credit derivatives, the details of which are set
forth below, are automatically included in the «Other eligible contracts» category.
For credit derivatives of the total return swap and credit default swap type, the percentage to
be taken into account with regard to the future potential risk is equal to 10%, regardless of
the contract’s residual term. However, for credit default swap contracts where the UCITS acts
as a protection seller, the percentage in question may be set at 0% unless the credit default
swap contract comprises a provision of closeout upon insolvency. In the latter case, the
amount to be taken into account for the add-on factor will be limited to the premium/ interest
to be received, i.e. unpaid premium at the time of the calculation.
– 3rd stage:
The sum of the current replacement cost and the potential future credit risk is multiplied by a
weighting factor of 20% for credit institutions and investment enterprises of EU origin or those
recognised from third countries. A 50% weighting factor is to be applied in all other cases.
The counterparty risk for each entity, respectively group, is then calculated by adding the sum
of the risks of all contracts entered into.
III.2.3.2. Techniques for mitigating counterparty risk
a) Netting of exposures vis-à-vis a given counterparty
UCITS are allowed to net their positions on OTC derivative financial instruments vis-à-vis a
given counterparty, as long as the netting procedures comply with the conditions set in Part
7 of Annex III of Directive 2006/48/EC, and that they are based on legally binding agreements.
b) Financial collateral given as guarantees
UCITS are allowed to take into consideration collateral in order to mitigate the counterparty
risk, to the extent that this collateral:
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– is valued at market price, at a calculation frequency at least equal to the calculation
frequency of the NAV of the UCITS in question;
– presents limited risks, is adequately diversified, is liquid, and does not present a significant, positive correlation with the counterparty’s credit status;
– is held by a third party trustee, which has no link with the supplier, or is legally protected
from the consequences of a default by a related party;
– can be realised entirely at any time by the UCITS, i.e. the UCITS must be entitled to assert
its rights over the collateral at any time.
The Commission allows UCITS, in compliance with the provisions set forth above, to make
use of the following financial collateral to reduce the counterparty risk:
– cash deposits and financial instruments equivalent to cash;
– debt instruments with an external credit rating at least equivalent to “investment grade”;
– shares and convertible bonds which are comprised in a main index.
The UCITS may disregard the counterparty risk on the condition that the value of the collateral,
valued at market price, taking into account appropriate discounts, exceeds the value of the
amount exposed to risk.
For the valuation of the collateral presenting a significant risk of value fluctuation, UCITS must
apply prudent discount rates. In this context it is to be noted that collateral in the form of cash
deposits in a currency other than the currency of exposure must also be the subject of an
adjustment for risk of currency mismatch. On an indicative basis, the Commission considers
that an adjustment of 10% is appropriate.
Still on an indicative basis, the Commission considers that an adjustment of approximately
20%, respectively 15%, is appropriate for shares or convertible bonds which are comprised in
a main index, respectively debt securities issued by a non-governmental issuer rated BBB.
Collateral received by the counterparty to the OTC derivative financial instrument is likely to
expose the UCITS to a credit risk with respect to the trustee of the collateral. If such a risk
exists, the Commission requires that UCITS take such risk into account in the context of the
limitations on deposits provided for by Article 43 (1) of the 2002 Law.
Moreover, the Commission expects that the UCITS back, by means of appropriate procedures and controls, the other risks which result from the use of counterparty risk mitigation
techniques (legal, operational, etc. risks).
III.2.4. Risk concentration limits
The counterparty risk on a same entity or group must be added to the issuer risk resulting
from the fund’s exposure on transferable securities, money market instruments and deposits
with respect to this same entity or group, in compliance with the provisions of Article 43 of
the 2002 Law. The sum of the exposures shall not exceed 20% per entity, respectively per
group.
III.3. Limitation of the concentration risk
III.3.1. General principle
Pursuant to Article 42 (3), the Commission deems that UCITS may invest in derivative
financial instruments provided that the exposure to the underlying assets does not exceed
in aggregate the investment limits set in Article 43. The Commission extends this limitation
to units of UCIs and UCITS referred to in Article 46. This provision only affects, in principle,
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those derivative financial instruments whose underlying assets entail an issuer risk, thus,
those based on an ownership deed or a debt security.
In accordance with the calculation method of the commitment applicable to non-sophisticated
UCITS (point III.1.2.), the derivative financial instruments are to be converted into equivalent
positions on the underlying assets. The method used to convert the derivative financial
instruments into equivalent positions on the underlying assets must be adapted to the type
of instrument involved and must be in line with the guidelines provided in Appendix 1. As
indicated in point II.1.2., in the case of derivative financial instruments for which the calculation method has not been detailed in Appendix 1, UCITS are responsible for informing the
Commission on the method applied.
If the conversion method of derivative financial instruments into their equivalent underlying
positions proves to be inappropriate or technically not feasible because of the complexity of
the derivative financial instrument in question, an approach based on the maximum potential
loss linked to this derivative financial instrument may be used. This maximum potential loss
is then considered as the threshold for the estimate of the maximum loss which the UCITS is
at risk to incur on this position.
The derivative financial instruments embedded in transferable securities or money market
instruments must, for the purpose of this point, be isolated, using the methods described in
this point and taken into account in the determination of the use of concentration risk limits.
As is the case for the market risk determination, UCITS may benefit from possible netting
effects before determining the use of the concentration limits per entity, respectively per
group (see point III.1.2.2.).
III.3.2. Specific provisions
In compliance with Article 42 (3), UCITS may exclude from the calculation of the concentration limits, those derivative financial instruments based on an index:
– the composition of which is sufficiently diversified,
– which represents an adequate benchmark for the market to which it refers,
– which is published in an appropriate manner.
It should be noted that, generally, in the case of the application of this provision, management
or investment companies should not use derivative financial instruments based on an index
which they have composed themselves with the intention of circumventing the concentration
limits set forth in Article 43 of the 2002 Law.
IV. Other provisions regulating the use of derivative financial instruments
IV.1. Coverage rules applicable to derivative financial instruments
Generally, UCITS should be, at any given time, capable of meeting the obligations incurred
by transactions involving derivative financial instruments and which give rise, for UCITS, to
delivery as well as payment obligations.
In the case of contracts which provide, automatically or at the counterparty’s choice, for the
physical delivery of the underlying financial instrument on the due date or the exercise date,
and insofar as physical delivery is a normal practice in the case of the instrument in question,
UCITS must:
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– hold in their portfolio the underlying financial instrument as cover, or
– in case the UCITS deems that the underlying financial instrument is sufficiently liquid, it
may hold as coverage other liquid assets (including liquidities) on the condition that these
assets (after applying appropriate safeguards, i.e. discounts), held in sufficient quantities,
may be used at any time to acquire the underlying financial instrument which is to be
delivered.
In respect of contracts which provide for cash payment, automatically or at the UCITS’
discretion, the latter must hold enough liquid assets (after the application of appropriate
safeguard measures, i.e. discounts, etc.) to allow it to make the contractually required
payments (example: margin calls, interest payments, contractual cash payments, etc.). Given
the number of different situations which might arise, the Commission leaves it up to the
UCITS to determine itself the method by which it will determine the coverage level of the
contracts which are payable in cash. This method must, in any event, allow the UCITS to
meet, at any time, all payment obligations.
Liquid assets, as defined by the Commission, besides cash, are liquid debt securities or other
liquid assets (investment grade debt instruments, shares comprised in a main index, etc.)
which can be converted into cash on very short notice at a price corresponding closely to the
current valuation of the financial instrument on its market.
It is thus up to Risk Management to regularly check whether the coverage available to UCITS,
either in the form of the underlying financial instrument or in the form of liquid assets as
described above, exist in sufficient quantity to meet future obligations.
IV.2. Valuation of OTC derivative financial instruments
Pursuant to Articles 41 (1) g) and 42 (1), OTC derivative financial instruments must be
subjected to a precise valuation, verifiable on a daily and independent basis by the UCITS.
UCITS must be able to determine, with reasonable accuracy, the «fair value» of the OTC
derivative financial instruments for their entire life span. «Fair value» is defined as the amount
for which an asset may be exchanged or a liability settled, between knowledgeable, willing
parties, in an arm’s length transaction.
The reference to a reliable and verifiable valuation is meant to be understood as a reference
to a valuation made by the UCITS, which corresponds to the fair value, which is not only
based on market prices supplied by the counterparty and which complies with the following
criteria:
– the valuation is based on a current market value, which was established in a reliable
manner for the instrument, or, if no such value is available, on a valuation model using an
appropriate and recognized methodology;
– the verification of the valuation shall be done by one of the following entities:
– an appropriate third party, independent of the counterparty to the OTC derivative
instrument, which will proceed with the verification at an appropriate frequency and
pursuant to methods allowing the UCITS to check it;
– a unit of the UCITS which is independent of the department overseeing asset
management and which is appropriately equipped for this purpose. The UCITS may,
if applicable, make use of valuation tools, respectively data, provided by a third party
subject to ensuring that they are appropriate prior to making use of them in the valuation
process. Valuation models provided by a party linked to the UCITS (example: dealing
room through which the UCITS settles its derivative transactions) and which have not
been reviewed by the UCITS, is not acceptable.
291
In the event that there is no valuation of this nature for a given product, UCITS may not make
use of it, even if the investment policy expressly allows it.
IV.3. Description of risks
UCITS, which use derivative financial instruments for purposes other than coverage, should
include in their prospectus an appropriate description of the risks resulting from the use of
this type of instrument, which description can include an indication of the level of leverage or
market risk.
V. Information to be provided to the Commission
Pursuant to Article 42 (1) of the 2002 Law, the Commission requires that each management
company and SIAG provides to it a certain amount of information relating to the risk
measurement and control process, as well as the use of derivative financial instruments and
the associated risks.
Thus, each management company and SIAG must provide to the Commission clear and
precise documentation with respect to the Risk Management process which was implemented pursuant to the rules and principles formulated in this circular. In particular, they must
ensure that such documentation covers, at any given time, all UCITS (including the compartments of UCITS) for which they are responsible. Before the launch of a new UCITS (including
a compartment), the management company, or the SIAG, must ensure the appropriateness
of the Risk Management process with respect to this new product. If this is not the case
(example: lack of coverage of a given product by the VaR), the necessary adjustments must
be made and incorporated into the above-mentioned documentation. The updated version
must be sent to the Commission.
This documentation must show possible delegations which have been made in the context of
Risk Management, in which case the procedure must comprise a clear and precise description
of the risk management process implemented by the delegatee, as well as the monitoring
done by the management company or the SIAG.
Management companies and SIAGs already approved by the CSSF, must proceed with
an internal self-evaluation in order to determine the possible variances to the provisions
of this circular. These possible variances must be dealt with and an updated version (in
«track changes» mode) of the above-mentioned documentation must then be sent to the
Commission.
The Risk Management procedure must, at a minimum, include the following information (if
applicable):
V. 1. Implementation of a risk management process
– organization of the Risk Management department (flow chart, number of people, past
experience of the people in charge, allocation of responsibilities, IT tools, etc.)
– list of the UCITS to which the above-mentioned procedure is applicable, while indicating
for each UCITS (and compartment), if the UCITS is a sophisticated or non- sophisticated
UCITS, as well as the associated global exposure calculation method (including the
maximum limit set in the event that there is an absolute VaR limitation); this list may be in
the form of a table, such as the one supplied below:
292
UCITS UCITS 1 Risk
profile
N-S or S
(**)
N-S
Market
Limit (*)
Reference
risk
Portfolio
calculation
Commitment
100%
N.A.
Exposure/
Market
risk
40%
UCITS 2 –
S
Relative VaR
200%
MSCI World 3% Ref. Portf.
compartment
5% UCITS
1
➔166%
UCITS 2 –
Others
UCITS 3
N-S
Commitment
100%
N.A.
71%
S
Absolute VaR
20%
N.A.
11%
(*) in the case of an absolute VaR limitation; by default 100% in the case of the use of the
commitment approach or 200% in the case of a relative VaR;
(**) N-S ➔ non-sophisticated; S ➔ sophisticated
V.2. Determination and monitoring of global exposure
a) Commitment approach
– list of the derivative financial instruments for which the commitment approach is used,
while specifying the calculation method for each instrument (with an illustrative numbered
example for each product);
– details of the implementation of the other requirements listed in this circular (Appendix 1);
– details with respect to the netting and coverage policies;
b) Internal model approach
– list of financial instruments (cash and derivatives) for which the global exposure is
quantified using an internal model;
– description of the internal model (type of methodology215, «third party vendor model»,
model which has already been approved216, etc.) and details on the implementation of the
requirements laid down in this circular (III.1.3., Appendix 2) such as:
– process for determination of the reference portfolio and internal evaluation of the
adequacy of this portfolio («relative VaR limitation» case)
– process for setting the management limit for the «absolute VaR limitation» case;
– …
215 Variances-Covariances, Historic Simulation or Monte-Carlo.
216 The UCITS must indicate whether the model was approved by a supervisory authority (example: UCITS using
the internal model which is used by a credit institution and which was approved by a supervisory authority for the
calculation of regulatory own funds requirements, etc.)
293
c) All approaches combined
– global exposure monitoring procedures and procedures for the purpose of avoiding limits
to be exceeded (“escalation procedures, …”);
– other risk indicators calculated for the purposes of monitoring and controling the global
exposure (duration, beta, exposure per rating, etc.);
– details on the drawing up of reportings on risk monitoring (frequency, addressees, content,
etc.); attach the “main” reporting.
V.3.Determination and monitoring of the counterparty risk associated with OTC
derivative financial instruments
– selection and approval process of a given counterparty;
– confirmation with respect to the calculation method of the counterparty risk;
– use or not of netting and collateral agreements with indication of the type of collateral
accepted and the processing of the residual risk on the collateral (third party trustee);
– details on the drawing up of reportings of the risk monitoring (frequency, addressees,
content, etc.); attach the “main” reporting.
– other risk indicators calculated for the purpose of monitoring and controlling counterparty
risk.
V.4. Determination and/or monitoring of the concentration risk
– allocation of tasks at the UCITS level and, in particular, that of Risk Management in the
determination and/or monitoring of the concentration risk;
– details on the drawing up of reportings of the risk monitoring (frequency, addressees,
content, etc.); attach the “main” reporting.
V.5. Valuation of the OTC derivative financial instruments
– description of the valuation process of OTC derivative financial instruments (position /
department in charge, tools, controls made, etc.).
V.6. Monitoring and control of coverage rules
– description of the monitoring and control process of the coverage rules and specification,
in particular, of the role of Risk Management;
– details on the determination of the coverage associated with derivative financial instruments.
VI. Repealing provisions
This circular repeals CSSF circular 05/176 and enters into force immediately.
294
Appendices
Appendix 1: Determination of the commitments associated with derivative financial
instruments
1. Calculation principles
The purpose of this Appendix is to lay down, for a certain number of derivative financial instruments, the method used for the calculation of the commitment to be taken into account for the
limitation of the global exposure for non-sophisticated UCITS. With respect to the derivative
financial instruments which are not covered below, the UCITS must inform the Commission
of the method applied.
Share option
market value of the underlying asset, adjusted by the
option’s delta
number of contracts x number of shares x underlying price
x delta
Bond option
option’s delta
number of contracts x face value x underlying price x delta
Warrant
option’s delta
In respect of buying positions on options and warrants, the UCITS may refer to the market
value of the contracts (adjusted premium) for the purpose of the limitations set forth in point
III. 1.2.
UCITS (example: UCITS with limited exposure to options) may use a delta equivalent to 1 for
determining commitments arising from options and warrants.
In the case of optional contracts for which the delta method is not appropriate, given the
risk profile, respectively, the «payoff» function, UCITS will not be able to use the calculation
method set forth above (example: digital options, barrier options). An approach based on the
maximum potential loss could, in this case, be applied. In all cases, the Commission expects
the UCITS to inform it of the method used.
Index future
market value of the contract or the underlying asset
number of contracts x value of 1 point x index level
Bond future
market value of the contract or the underlying asset
number of contracts x notional of the future contract x
market value of the future
or
number of contracts x notional x market price of the cheapest
bond to be delivered, adjusted by the conversion factor.
Forward exchange
principal of the contract
Interest rate swap
295
Credit default swaps
protection buyer: sum of the premiums to be paid during
the entire life of the contract
protection seller: contract’s notional value.
Total rate of return swap protection buyer and seller: contract’s notional value
The determination of the commitment for a protection buying position through a TRORS on
the basis of a contract’s notional value is only acceptable in those cases where the buyer
does not hold the underlying asset in the portfolio.
A performance swap, the purpose of which is to swap the global return of a financial asset
held in portfolio by the UCITS for the global return of another financial asset may not be
taken into consideration for the purposes of the calculation of commitments when the swap in
question does no longer subject the UCITS to a market risk of the asset held and it does not
include either leverage clauses nor other additional risks as compared to a pure and simple
holding of the other financial asset, of which the UCITS will receive the return. This reasoning
can be extended to cases in which the performance swap involves several assets or even
the entire portfolio.
Currency swaps
As an exception to what is set forth above, and on the condition that there is adequate
justification, an approach which differs from the commitment approach may be used by
a non-sophisticated UCITS (example: “add-on approach”, sensitivity approach), with the
Commission’s prior approval. An approach of this kind must be based on a level of prudence
similar to that of the commitment approach in the determination of the global exposure.
2. Qualitative criteria
2.1. Risk Management
Risk Management is responsible for ensuring that the calculation of the global exposure
relating to the various derivative instruments dealt with by the UCITS is in compliance with
the calculation principles formulated above.
Further information on the organizational requirements may be found above under point II of
this circular.
2.2. Documentation of the approach
The calculation approach must be the subject of appropriate documentation (calculation of
the commitment per product).
296
Appendix 2: Criteria governing the use of an internal model
1. Quantitative criteria
1.1. VaR calculation standards
The calculation of the Value-at-Risk must be done according to the following calculation
standards:
– unilateral confidence interval of 99%;
– holding period equivalent to 1 month (20 days);
– effective observation period (history) of risk factors of at least 1 year (250 days) unless a
shorter observation period is justified by a significant increase in price volatility;
– quarterly data update;
– daily calculation, in principle.
In principle, UCITS must apply an instant price choc equivalent to a 20 days price variation
and a confidence interval of 99%.
A UCITS that wishes, for a well-justified reason, to use a confidence interval or a holding
period which differ from those indicated above (example: calculation coherency within a
group, parameters which are better suited to the relevant portfolio’s risk profile, etc.) may do
so, subject to obtaining the Commission’s prior approval.
However, UCITS having the benefit of a derogation of this kind must, for market risk limitation
reasons, translate their VaR figure to a VaR equivalent to 99% confidence interval and 1
month holding period. This conversion can be done under the hypothesis of a normal distribution with identical and independent distribution of risk factors returns.
For example, for the conversion of the holding period, this hypothesis implies the use of multiplication by the square root of time.
For example, in order to convert a VaR with a holding period of 10 days into a VaR based on a
holding period of 1 month (20 days), everything else being equal, one would have to multiply
the VaR figure by the factor of √ 20
.
10
In the same manner, to convert a VaR figure with a confidence interval of 95% into an equivalent number with a confidence interval of 99%, one would go through the quantiles of normal
.
distribution and multiply the VaR figure by the factor of 2,3263
1,6449
The Commission would like to draw the UCITS’ attention on the fact that the method of calculation of a VaR equivalent to 99% confidence interval and one month holding period described
above is based on simplifying hypothesis which are far from being always observed in reality.
Consequently, the Commission expects that the UCITS applies such equivalent VaR with
caution and makes use, if appropriate, of a more conservative method or determines directly
the VaR on the basis of the parameters of 99% and one month holding period (instant choc)
when it becomes obvious that the indicated method (square root of time, quantiles of normal
distribution) results in an underestimate of the risk for the standard calculations determined at
the beginning of this point (i.e. 99%, one month).
297
1.2. Coverage of risk
The sources of market risks which the VaR model (or equivalent model) must cover may be
broken down as follows:
– general market risk
– specific market risk.
The general market risk is defined as the risk of a price fluctuation (of the debt security or the
ownership title, or, in the case of a financial derivative instrument, the latter’s value) caused
by the market’s general trend.
The specific risk covers two types of risks:
– the idiosyncratic risk is the risk of a price fluctuation which is the result of factors associated
with the issuer of the debt security or the ownership title, or, in the case of a financial
derivative instrument, with the issuer of the underlying instrument.
In order to take the idiosyncratic risk into account, the VaR model could, for example, call
on risk factors such as daily fluctuations of the prices of individual products (example:
prices of ownership titles), or use spread curves as a comparison to curves of the market
reference rates.
– The event risk (or risk dictated by the circumstances) is the risk that the value of a debt
security or an ownership title will vary suddenly as the result of an event with particular
significance to the issuer of the security in question. The event risk covers, for example,
the migration risk for interest rate products or the risk of significant fluctuations or jumps
in share prices.
For the application purposes of this point, the Commission expects that the VaR model used
by the UCITS in order to demonstrate its exposure to market risk takes into account, as a
minimum, general risk and idiosyncratic risk.
UCITS which can show the Commission that the idiosyncratic risk constitutes a negligible risk
component within the context of their investment policy may waive the obligation of covering
this risk through the model. UCITS which, for example, within the scope of their investment
strategy, make use of credit derivatives may not take advantage of this waiver.
As an exception to the foregoing, the Commission expects that the UCITS which are extensively subject to event and/or default risks (example: exotic instruments, credit derivatives, etc.) take this sufficiently into account when determining market risk. If the proposed
VaR model should prove inadequate, the Commission reserves the right to require stricter
measures for such UCITS.
1.3. Accuracy and completeness of the risk assessment
The UCITS must be able to show the Commission that the internal model assesses the
risk with reasonable accuracy. More specifically, the model must adequately cover all the
risks associated with portfolio positions and, in particular, the specific risks associated with
derivative financial instruments. It must be able to adequately catch all significant price risks
with respect to option positions or assimilated positions.
All the risk factors which have a non-negligible influence on the fluctuation of the portfolio’s
value must thus be covered by the model. The model must be able to catch a sufficient
number of risk factors which will depend on the investments which the UCITS will make in
various markets (interest rate, exchange, ownership title, spread, etc.).
298
Before using the model for the first time, Risk Management must validate the model.
Moreover, UCITS must implement procedures which will guarantee that the model in question
covers all the portfolio positions at a given point in time.
1.4. Backtesting of the VaR model’s results
UCITS must oversee the reliability and efficiency of their model (i.e. risk estimate predication
capacity), using a backtesting program. The backtesting must supply a comparison, for each
business day, between the quantification of the value-at-risk on a day calculated by the
UCITS model on the basis of the positions at the end of the day and the fluctuation over a
day of the portfolio’s value at the end of the following working day. UCITS must undertake the
backtesting program at least on a quarterly basis, subject to always performing retroactively
the aforesaid comparison for each business day.
The Commission encourages the UCITS to implement backtesting checks, basing themselves
either on the effective fluctuations (“dirty backtesting”) or the hypothetical fluctuations (“clean
backtesting”) of the portfolio’s value and to take the appropriate steps to improve their
backtesting program, if its is deemed to be insufficient.
The backtesting checks on the hypothetical fluctuations of the portfolio’s value are based on
a comparison between the portfolio’s value at the end of the day and its value, its positions
unchanged, at the end of the following day.
The UCITS must follow up on cases in which the VaR predicted by the model is less than the
value noted after backtesting. There is thus an excess when the fluctuation of the portfolio’s
value over one day is greater than the VaR’s quantification on a corresponding day, calculated by the model.
Once a year, UCITS are obliged to inform the Commission of the number of instances of
excess noted upon applying the backtesting program.
In the event that numerous overshootings reveal that the model is not sufficiently reliable,
that is to say, that the number of overages is greater than the number which was predicted by
the confidence interval selected for the calculation of the VaR, the Commission, after having
informed the UCITS, reserves the right to impose appropriate measures in order to ensure
that the model is quickly improved, or, if need be, to disallow the use of the model for the
purpose of determining market risk.
1.5. Stress tests
The Commission requires that sophisticated UCITS follow up on the risk of the occurrence of
extreme variations of the risk factors to which UCITS might be exposed through their investments by implementing a rigorous program of stress tests. The program should cover all the
risk factors having a non-negligible influence on the portfolio’s value and should also deal with
correlation changes between risk factors.
The scenarios defined by Risk Management must be adapted to the nature of the portfolio’s
positions and risks, and therefore any fundamental change in the investment strategy should
be accompanied by a recalibration of the crisis scenarios.
The calculations’ results must be analyzed by Risk Management and should, if need be, lead
to amended measures for the purpose of adjusting the UCITS’ risk situation.
The stress test calculations should be done with a frequency which is in line with the UCITS’
risk profile, but, at a minimum, once per month.
299
2. Qualitative criteria
In order to be able to determine its global exposure though the use of a VaR model, UCITS
must be able to show compliance with the following criteria:
2.1. Risk management
Risk Management is responsible for ensuring that the model is continuously adapted to the
portfolio’s type and structure and should, before its first use, undergo initial validation. Further
details about the organizational requirements in this regard may be found above in point II of
this circular.
2.2. VaR model documentation and procedures
The model must be the subject of appropriate documentation (model methodology, mathematical hypotheses and bases, data used, backtesting, etc.) and procedural supervision.
300
prevail.
CSSF CIRCULAR 07/309 OF 3 August 2007 CONCERNING THE risk-spreading in
the context of specialised investment funds (“SIF”)
To all specialised investment funds
Circular CSSF 07/309
Re: Risk-spreading in the context of specialised investment funds (“SIF”)
Dear Sir, Madam,
Article 1 of the law of 13 February 2007 on SIFs provides that for the purpose of that law,
specialised investment funds shall be any undertakings for collective investment situated in
Luxembourg:
• the exclusive object of which is the collective investment of their funds in assets in order
to spread the investment risks and to ensure for the investors the benefit of the results of
the management of their assets, and
• the securities of which are reserved to one or several well-informed investors, and
• the constitutive or offering documents of which provide that they are subject to the provisions of that law.
The law of 13 February 2007 thus provides that the collective investment of funds must be
made in assets “in order to spread the investment risks”. The law and the comments to the
articles (contained in the Parliamentary documents) do not include any additional provisions
to define or interpret the notion of risk-spreading.
Compared with the law of 1991 concerning undertakings for collective investment the
securities of which are not intended to be placed with the public, the law of 13 February
2007 extends the concept of eligible investors to include institutional investors, professional
investors and other “well-informed investors”, in accordance with the criteria further specified
in article 2 of that law. This means that SIFs are open to “sophisticated” natural persons. The
legislator thereby created a simplified regulatory framework for SIFs.
Similarly, the CSSF considers that the concept of risk-spreading can be interpreted in a
flexible way.
All investors in specialised investment funds being institutional, professional or other wellinformed investors, they are supposed to have sufficient experience to judge themselves the
concept of risk-spreading and the information they need to form their opinion. Those investors
do not require the same level of protection than investors in UCIs governed by the law of 20
December 2002.
Pursuant to article 53 of the law of 13 February 2007, the offering document must include
the information necessary for investors to be in a position to make a well-informed judgment
301
on the investment proposed to them. The CSSF considers that the offering document must
include quantifiable restrictions evidencing the fulfilment of the principle of risk-spreading.
In general, the CSSF considers that the risk-spreading principle is complied with where the
investment restrictions of a SIF adhere to the following guidelines:
1. In principle, a SIF may not invest more than 30% of its assets or commitments to subscribe securities of the same type issued by the same issuer. This restriction does not
apply to:
– investments in securities issued or guaranteed by an OECD Member State or its
regional or local authorities or by EU, regional or global supranational institutions and
bodies;
– investments in target UCIs that are subject to risk-spreading requirements at least
comparable to those applicable to SIFs.
For the purpose of the application of this restriction, every sub-fund of a target umbrella
UCI is to be considered as a separate issuer provided that the principle of segregation
of liabilities among the various sub-funds vis-à-vis third parties is ensured.
2. Short sales may not in principle result in the SIF holding a short position in securities of
the same type issued by the same issuer representing more than 30% of its assets.
3. When using financial derivative instruments, the SIF must ensure, via appropriate diversification of the underlying assets, a similar level of risk-spreading. Similarly, the counterparty risk in an OTC transaction must, where applicable, be limited having regard to the
quality and qualification of the counterparty.
In principle, these guidelines apply to all SIFs. The CSSF may grant exemptions upon appropriate justification. Moreover, in case of specific investment policies, the CSSF may require
the SIF to comply with additional investment restrictions.
The SIF initiator shall submit to the CSSF the necessary information and documents to
enable the CSSF to verify whether the guidelines above are observed.
302
prevail.
CSSF CIRCULAR 07/310 OF 3 august 2007 concerning the Financial information to be provided by specialised investment funds (“SIFs”)
To all specialised investment funds
Re:
Financial information to be provided by specialised investment
funds (“SIFs”)
Dear Sir, Madam,
Pursuant to article 58 of the law of 13 February 2007 on specialised investment funds,
Luxembourg specialised investment funds (“SIFs”) are invited to produce and submit henceforth to the CSSF a set of financial information on a monthly and yearly basis, respectively.
This financial information will be used by the CSSF for statistical purposes and for the
purposes of supervising the SIFs concerned.
The financial information required under this circular concerns the same data as that required
by the CSSF from undertakings for collective investment under circular IML 97/136.
The instructions below provide the SIFs concerned with details on how to draw up and submit
the financial information required.
1. Content of monthly and yearly financial information
The monthly and yearly financial information of SIFs must be drawn up according to
tables O 1.1., O 4.1. and O 4.2. that are appended to this circular as Annexes A, B and
C respectively. These Annexes also provide definitions and comments relating to the
relevant sections of the tables.
2. Collection of data included in tables O 1.1., O 4.1. and O 4.2.
The Centrale de Communications Luxembourg S.A. (“CCLux”) is responsible for collecting
the information included in tables O 1.1., O 4.1. and O 4.2. by electronic means and to
transmit it to the CSSF.
The central administrations of the SIFs concerned by this data collection shall transmit
the required information in the formats defined by CCLux, either directly or by using the
software provided by CCLux.
303
In order to secure the data transmission, the data can be encrypted on its way from the
issue by central administrations to their arrival at the CSSF. If not, CCLux* will encrypt
them for their transmission to the CSSF.
CCLux* will communicate data input instructions to every central administration.
3. Reference date
Monthly financial information
In principle, the last day of every month shall be considered as reference date for drawing
up the monthly financial information to be communicated by SIFs.
However, this rule is not mandatory for SIFs that compute their net asset value at least on
a weekly basis. For this latter category of SIFs, the reference date can be that of the last
calculation day of the monthly net asset value.
The same derogation applies to SIFs that compute their net asset value per unit or share
at least on a monthly basis if the calculation day of that value is either in the last week
of the reference month, or in the first week of the following month. In that case, financial
information to be communicated must be based on the data available at the date of calculation that is closest to the last day of the month.
SIFs that do not calculate the net asset value per unit or share on a monthly basis may
base their monthly communications on the last net asset value available.
This also holds for SIFs whose final net asset value per unit or share is not available within
the 20 days time limit. Those SIFs shall communicate the final net asset value per unit or
share as soon as available.
Yearly financial information
The closing day of the balance sheet is the reference date for the drawing up of yearly
financial information to be communicated by the SIFs.
4. Reporting deadlines
SIFs must report monthly and yearly financial information to CCLux* within 10 days and 6
months of the reference date, respectively217.
5. Reporting currency
The monthly and yearly tables must state, in the space provided for that purpose the
currency in which the numerical information they include is expressed. That currency
must be the same as the currency used to publish the net asset value. The amounts shall
be expressed in whole numbers, except for those to be filled in lines 120, 130 and 520 of
the monthly table, which shall be stated, where necessary, as decimals.
217 As amended by Circular CSSF 08/348
*
Centrale de Communications Luxembourg S.A. (CCLux) changed its name to Finesti S.A. on 28 January 2009
304
6. Umbrella SIFs
Monthly and yearly financial information shall be drawn up separately for every sub-fund.
The monthly and yearly tables must state, in the space provided for that purpose, the
currency in which the numerical information they include is expressed. That currency
must be the same as the currency used to publish the net asset value of the sub- fund.
Consolidated reporting for the entire SIF is not required.
7. Identification number
The CSSF will allocate an identification number to every SIF and, where applicable, to
every SIF sub-fund. The CSSF will inform every SIF separately of these numbers which
must be stated in the monthly and yearly tables in the space provided for that purpose.
8. Period covered
The period covered must be stated in the yearly tables, in the space provided for that
purpose. This period, which must be identical to that covered by the annual report, must
be expressed as a number of months (in principle 12 months), and, where applicable, as
a number of days, if the whole period does not cover entire months. In such cases, the
number of entire months and the number of residual days shall be stated.
9. Name of the employee
In every table, the name of the employee responsible for preparing the table concerned,
as well as the telephone number at which he or she may be reached by the CSSF if
necessary, must be stated in the space provided for that purpose.
10.Date as at which the first monthly and yearly financial information must be
drawn up
Monthly and yearly information using tables O 1.1., O 4.1. and O 4.2. shall be drawn up
for the first time as at 31 July 2007.
305
Appendix A
Name of the SIF: ...................................................
Name of the sub-fund: ...........................................
Identification number of the SIF: ...........................
Identification number of the sub-fund: ...................
Reference month: ...............................
Currency: .............
TABLE O 1.1.
(Monthly table)
Code
Item
Amount
I. INDICATIONS RELATING TO THE MONTH-END NET ASSET VALUE
110
120
(...)
130
(...)
200
Total net asset value
Net asset value per unit or share
(to be shown separately for each class/type of unit or share)
Variation in per cent (+ or -) between the value shown at 120 compared to the
value calculated at the end of the preceding month
II. PERCENTAGE VALUE OF THE PORTFOLIO COMPARED TO TOTAL NET
ASSETS AT MONTH-END
...................
...................
(................)
...................
(................)
...................
III. INFORMATION ON THE NUMBER OF UNITS OR SHARES ISSUED
AND REDEEMED DURING THE MONTH OF REFERENCE
310
320
330
Net proceeds from units or shares issued
Payments made in settlement of redemptions
Net units or shares issued (or redeemed) (310 - 320 = 330)
...................
...................
...................
IV. INFORMATION ON INVESTMENT INCOME DURING THE MONTH OF
REFERENCE
410
420
430
440
Dividends
Interest on bonds and other debt securities
Bank interest
Other income
...................
...................
...................
...................
V. INFORMATION ON DISTRIBUTIONS MADE DURING THE MONTH OF REFERENCE
510
(...)
520
(...)
Total distributions made
Amount per unit or share
Name of the employee: .........................................
Tel.: .......................................................................
306
...................
(................)
...................
(................)
DEFINITIONS AND COMMENTARIES IN RESPECT OF THE ITEMS INCLUDED IN THE
MONTHLY TABLE O 1.1. TO BE DRAWN UP BY SPECIALISED INVESTMENT FUNDS
(“SIF”)
The definitions and commentaries are as follows:
I. INFORMATION ON THE MONTH-END NET ASSET VALUE
110 - Total net asset value (in units of the currency used)
This line shall state the total net asset value at the end of the month of reference.
120 - Net asset value per unit or share
This line shall state the net asset value per unit or share in the currency used. If there are
several classes/types of units or shares, the line is to be repeated for each different class/
type with an indication of the class/type in question.
130 - Variation in per cent (+ or -) between the value shown at 120 compared to the value
calculated at the end of the preceding month
This line shall state the percentage increase or decrease in the value shown at 120
compared to the corresponding figure for the preceding month. If there are several
classes/types of units or shares, the line is to be repeated for each different class/type
with an indication of the class/type in question.
II. PERCENTAGE VALUE OF THE PORTFOLIO IN RELATION TO TOTAL NET ASSETS
AT MONTH-END
Line 200 shall state the percentage value of the investments in which it is the SIF’s policy
to invest in relation to its net assets.
III. INFORMATION ON THE AMOUNT OF UNITS OR SHARES ISSUED AND REDEEMED
DURING THE MONTH OF REFERENCE
310 - Net proceeds from units or shares issued
This line shall state the net proceeds from units or shares issued during the month.
320 - Payments made in settlement of redemptions
This line shall state the payments made in settlement of redemptions during the month.
330 - Net units or shares issued (or redeemed) (310 - 320 = 330)
Line 330 is obtained by deducting line 320 from line 310.
IV.INFORMATION ON INVESTMENT INCOME DURING THE MONTH OF REFERENCE
The amounts to be shown in lines 410, 420, 430 and 440 are the amounts relating to
the month of reference; they are not the cumulative amounts including income in respect
of the preceding months of the financial year. Moreover, amounts are to be shown net of
taxes.
307
410 - Dividends
Line 410 shall state the amount of dividends in respect of shares and other participating
securities at their ex-dividend date.
420 - Interest on bonds and other debt securities
Line 420 shall state the amount of interest income in respect of bonds and other debt
securities such as money market instruments whatever their maturity. This amount
consists of interest due in respect of the month and interest accrued during the month.
430 - Bank interest
Line 430 shall state the amount of interest income in respect of bank deposits and other
interest-bearing accounts. This amount consists of interest due in respect of the month
and interest accrued during the month.
440 - Other income
Line 440 shall state all income other than that shown on lines 410, 420 and 430, such as
rental income, commission income and other income.
V. INFORMATION ON DISTRIBUTIONS MADE DURING THE MONTH OF REFERENCE
510 - Total distributions made
Line 510 shall state total distributions made (including interim dividends) the ex-dividend
date of which falls within the month of reference, whether they be cash dividends or
dividends in the form of bonus shares or units. If there are several classes/types of units
or shares, the line is to be repeated for each different class/type with an indication of the
class/type in question.
520 - Amount per unit or share
Line 520 shall state the amount of distributions made per unit or share. If there are several
classes/types of units or shares, the line is to be repeated for each different class/type
with an indication of the class/type in question.
308
Appendix B
Name of the SIF: ...................................................
Year-end: . ..........................................
Period ................... Currency: .............
TABLE O 4.1.
(Annual table)
Code
Item
Amount
I. STATEMENT OF NET ASSETS
1000
1100
1110
1111
1112
1113
1114
1115
1120
1121
1122
1130
1140
1200
1210
1211
1212
1220
1230
1300
1310
1311
1312
1320
1400
1410
1420
1500
1510
1520
TOTAL ASSETS
SECURITIES PORTFOLIO
Shares and other variable-yield securities
Shares, excluding UCI/SIF units
Listed shares or shares traded on another regulated market
Unquoted shares
Other participating interest
UCI/SIF units
Bonds and other debt securities
Short-term securities (initial maturity: up to one year)
Medium/long-term securities (initial maturity: more than one year)
Money market instruments (residual maturity: more than one year)
Warrants and other rights
FINANCIAL INSTRUMENTS
Options contracts
Options purchased
Options sold
Forward contracts
Others
LIQUID ASSETS
Cash at bank
in Luxembourg
abroad
Other liquid assets
FIXED ASSETS
Real estate
Formation expenses
OTHER ASSETS
Precious metals
Others
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
309
Code
Item
2000
2100
2200
TOTAL LIABILITIES
BORROWINGS
OTHER LIABILITIES
....................
....................
....................
Amount
3000
NET ASSETS AT THE END OF THE FINANCIAL YEAR
....................
II. STATEMENT OF OPERATIONS
4000
4100
4200
4300
4400
4410
4420
4430
TOTAL INCOME
DIVIDENDS
INTEREST ON BONDS AND OTHER DEBT SECURITIES
BANK INTEREST
OTHER INCOME
Rental income
Commission income
Others
....................
....................
....................
....................
....................
....................
....................
5000
5100
5110
5120
5130
5200
5210
5220
5230
5300
5310
5320
5400
5500
TOTAL CHARGES
COMMISSIONS RECEIVED
Advisory and/or management commission
Depositary bank commission
Other commission
ADMINISTRATIVE EXPENSES
Central administration costs
Audit and inspection costs
Other administrative expenses
TAXES
Subscription tax
Other taxes
INTEREST PAYABLE
OTHER CHARGES
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
....................
6000
NET INVESTMENT INCOME
....................
7100
7200
7000
NET REALISED GAINS/LOSSES
CHANGE IN NET UNREALISED GAINS/LOSSES
PROFIT OR LOSS ON OPERATIONS
....................
....................
....................
III. CHANGES IN NET ASSETS
3001
NET ASSETS AT THE BEGINNING OF THE YEAR
....................
7000
8000
8100
8200
9000
9100
3000
PROFIT AND LOSS ON OPERATIONS
NET SHARES OR UNITS ISSUED (OR REDEEMED)
Net proceeds from units or shares issued
Payments made in settlement of redemptions
DISTRIBUTIONS
of which: reinvested dividends
NET ASSETS AT THE END OF THE FINANCIAL YEAR
....................
....................
....................
....................
....................
....................
....................
IV. CHANGES IN THE PORTFOLIO
9500
TOTAL PURCHASES OF TRANSFERABLE SECURITIES AND OTHER INVESTMENTS
....................
9600
TOTAL SALES OF TRANSFERABLE SECURITIES AND OTHER INVESTMENTS
....................
310
Code
Item
ISO
V. BREAKDOWN OF THE SECURITIES PORTFOLIO AND LIQUID ASSETS OTHER
THAN CASH AT BANK
....................
VI. COUNTRY IN WHICH THE SIF IS MARKETED
....................
ISO
Amount
Tel.: .......................................................................
Validation of the annual table O 4.1.
1100 + 1200 + 1300 + 1400 + 1500 = 1000
1110 + 1120 + 1130 + 1140 = 1100
1111 + 1114 + 1115 = 1110
1112 + 1113 = 1111
1121 + 1122 = 1120
1210 + 1220 + 1230 = 1200
1211 + 1212 = 1210
1310 + 1320 = 1300
1311 + 1312 = 1310
1410 + 1420 = 1400
1510 + 1520 = 1500
2100 + 2200 = 2000
1000 - 2000 = 3000
4100 + 4200 + 4300 + 4400 = 4000
4410 + 4420 + 4430 = 4400
5100 + 5200 + 5300 + 5400 + 5500 = 5000
5110 + 5120 + 5130 = 5100
5210 + 5220 + 5230 = 5200
5310 + 5320 = 5300
311
4000 - 5000 = 6000
6000 + 7100 + 7200 = 7000
8100 - 8200 = 8000
3001 + 7000 + 8000 - 9000 = 3000
DEFINITIONS AND COMMENTARIES IN RESPECT OF ITEMS INCLUDED IN THE
ANNUAL TABLE O 4.1. TO BE DRAWN UP BY SPECIALISED INVESTMENT FUNDS
(“SIF”)
I. STATEMENT OF NET ASSETS
1000 - TOTAL ASSETS
Line 1000 shall state the total of lines 1100, 1200, 1300, 1400 and 1500.
1100 - SECURITIES PORTFOLIO
Line 1100 shall state the total amount of securities held by the specialised investment
funds in their portfolios at their valued amount and shall be broken down into:
1100 - Shares and other variable-yield securities
1120 - Bonds and other debt securities
1130 - Money market instruments
1140 - Warrants and other rights
Line 1110 shall state the total of lines 1111, 1114 and 1115
1111 - Shares, excluding UCI/SIF units
the total amount of shares excluding units in UCIs/SIFs and must be broken
down into shares listed on a stock market or traded on another regulated
market (line 1112) and unquoted shares (line 1113)
1114 - Other participating interests
1115 - UCI/SIF units
participating securities other than shares
units/shares in other open- and closed-end undertakings for collective
investment and/or SIFs.
312
Line 1120 shall state the total of lines 1121 and 1122.
1121 - Short-term securities (initial maturity: up to one year)
1122 - Medium/long-term securities (initial maturity: more than one year)
debt securities with an original maturity of one year or less
debt securities with an original maturity of more than one year
Line 1130 shall state the amount of money market instruments held. Such instruments
shall consist of money market instruments of which the remaining maturity is more than
12 months.
Line 1140 shall state the amount of warrants that have the characteristics of securities.
Such instruments shall consist of warrants that confer the right to acquire securities. Line
1140 shall also state subscription rights and entitlements.
1200 - FINANCIAL INSTRUMENTS
Line 1200 shall be broken down as follows:
1210 - Options contracts
1220 - Futures contracts
1230 - Others
1211 - Options purchased
1212 - Options sold
total premiums paid for the purchase of option contracts
total guarantee deposits made in respect of the sale of options contracts
Line 1220 shall state the total of guarantee deposits made in respect of futures
contracts.
Line 1230 shall state all other financial instruments such as warrants other than those
stated in line 1140 (e.g. stock index warrants, currency warrants, etc.)
1300 - LIQUID ASSETS
Line 1300 shall state the total amount of sight and term deposits and other liquid asset
and must be broken down as follows:
1310 - Cash at bank
1311 - in Luxembourg
1312 - abroad
1320 - Other liquid assets
includes, in particular, money market instruments whose residual maturity is
equal or less than 12 months
313
1400 - FIXED ASSETS
Line 1400 shall state the total amount of fixed assets and must be broken down as
follows:
1410 - Real estate
includes the buildings held in the name of the SIF, participating interest in real
estate companies (as well as loans to such companies) whose sole object and
goal is the acquisition, development and sale, as well as rental and farm rental,
and rights to the long-term use of real estate such as surface rights, emphyteutic rights and options on real estate assets
1420 - Formation expenses
must state the unamortised amount of formation expenses
1500 - OTHER ASSETS
Line 1500 shall indicate the total amount of all assets other than those stated in lines
1100, 1200, 1300 and 1400 and must be broken down as follows:
1510 - Precious metals
1520 - Others
shall state the value of precious metals held
shall cover the assets other than those included in line 1510
2000 - TOTAL LIABILITIES
2100 - BORROWINGS
Line 2100 shall state the balance of the borrowings contracted.
2200 - OTHER LIABILITIES
Line 2200 shall indicate the total amount of liabilities other than borrowings.
3000 - NET ASSETS AT THE END OF THE FINANCIAL YEAR
Line 3000 shall state the amount of net assets at the end of the financial year and shall be
obtained by deducting line 2000 - TOTAL LIABILITIES from line 1000 - TOTAL ASSETS
II. STATEMENT OF OPERATIONS
4000 - TOTAL INCOME
Line 4000 shall state the total of lines 4100, 4200, 4300 and 4400.
4100 - DIVIDENDS
Line 4100 shall state the total amount of dividends, net of tax, in respect of shares
and other participating securities and whose ex-dividend date falls in the course of the
financial year.
314
4200 - INTEREST ON BONDS AND OTHER DEBT SECURITIES
Line 4200 shall state the total amount of interest, net of tax, receivable during the financial
year in respect of bonds and other debt securities such as money market instruments
whatever their maturity. This amount consists of interest due in respect of the financial
year and interest accrued during the financial year.
4300 - BANK INTEREST
Line 4300 shall state the total amount of interest income in respect of the financial year on
bank deposits and other interest-bearing accounts. This amount consists of interest due
in respect of the financial year and interest accrued during the financial year.
4400 - OTHER INCOME
Line 4400 shall state the total amount of income other than dividends and interest as
defined in the three preceding lines and must be broken down as follows:
4410 - Rental income
rental income receivable in respect of buildings owned and let
4420 - Commissions received
commissions received during the financial year (e.g. the SIF’s share of issuance
fees, repurchase fees and/or conversion fees)
4430 - Others
all income other than the income state in lines 4410 and 4420
5000 - TOTAL CHARGES
Line 5000 shall state the total of lines 5100, 5200, 5300, 5400 and 5500.
5100 - COMMISSION RECEIVED
Line 5100 shall state the total amount of the different commissions received during the
financial year and must be broken down as follows:
5110 - Advisory and/or management commission
all the advisory and management commission, including performance fees
5120 - Depositary bank commission
must include the depositary bank commission
5130 - Other commission
must include all commission other than those defined in the two preceding
lines
5200 - ADMINISTRATIVE EXPENSES
Line 5200 shall state the total amount of the different expenses incurred in connection
with the day-to-day administration of the SIF and must be broken down as follows:
5210 - Central administration costs
costs relating to the services provided by the SIF’s central administration
315
5220 - Audit and inspection costs
shall include all costs incurred in respect of audit and inspection services
provided by the external auditor
5230 - Other administrative expenses
shall state all the administrative costs other than those referred to in the two
preceding lines
5300 - TAXES
Line 5300 shall state the total amount of the taxes and levies paid during the financial year
and must be broken down as follows:
5310 - Subscription tax
shall state the total amount of the subscription tax payable
5320 - Other taxes
all other taxes
5400 - INTEREST PAYABLE
Line 5400 shall indicate the total amount of interest paid on borrowings and bank
overdrafts.
5500 - OTHER CHARGES
Line 5500 shall state the total amount of all charges other than those defined in lines
5100, 5200, 5300 and 5400.
6000 - NET INVESTMENT INCOME
Line 6000 is obtained by deducting line 5000 from line 4000.
7000 - PROFIT OR LOSS ON OPERATIONS
Line 7000 - PROFIT OR LOSS ON OPERATIONS is obtained by adding together lines
6000, 7100 and 7200.
Line 7100 - NET REALISED GAINS/LOSSES shall state the positive (gain) or negative
(loss) balance obtained by setting off against each other realised gains or losses on the
sale of securities included in the portfolio, as well as on the sale of other assets, including
foreign exchange gains/losses.
Line 7200 - CHANGE ON NET UNREALISED GAINS/LOSSES shall state the increase or
decrease in the net unrealised gain or loss on investments in the course of the financial
year.
316
III. CHANGES IN NET ASSETS
3001 - NET ASSETS AT THE BEGINNING OF THE YEAR
Line 3001 states the amount of net assets at the beginning of the financial year.
7000 - PROFIT OR LOSS ON OPERATIONS
Line 7000 from heading II. shall be stated again here.
8000 - NET SHARES OR UNITS ISSUED (OR REDEEMED)
Line 8000 shall be obtained by deducting the amount of line 8200 from the amount of line
8100:
8100 - Net proceeds from units or shares issued
shall include the total amount of net proceeds from units or shares issued in
the course of the financial year
8200 - Payments made in settlement of redemptions
shall state the total amount of payments made in settlement of redemptions
during the financial year
9000 - DISTRIBUTIONS
Line 9000 shall state total distributions made (including interim dividends) of which
the ex-dividend date falls within the financial year, whether they be cash dividends or
dividends in the form of bonus shares or units.
Line 9100 shall state the total amount of dividend reinvested in SIFs out of cash
dividends.
3000 - NET ASSETS AT THE END OF THE FINANCIAL YEAR
Line 3000 is obtained by adding the amounts of lines 3001, 7000 and 8000, and by
deducting line 9000.
IV.CHANGES IN THE PORTFOLIO
9500 - TOTAL PURCHASES OF TRANSFERABLE SECURITIES AND OTHER INVESTMENTS
Line 9500 shall state the cumulative amount of all purchases of transferable securities
and other investment made during the financial year.
9600 - TOTAL SALESOF TRANSFERABLE SECURITIES AND OTHER INVESTMENTS
Line 9600 shall state the cumulative amount of all sales of transferable securities and
other investment made during the financial year.
317
V. BREAKDOWN OF THE SECURITIES PORTFOLIO AND LIQUID ASSETS OTHER
THAN CASH AT BANK
A specific list shall include the different items of the securities portfolio (lines 1110 to 1140),
as well as line 1320 (“Other liquid assets”), that must be broken down according to the
country of residence of the issuer; this country is to be identified using the two-character
ISO code shown in the appendix to this circular.
Real estate assets held by a SIF which are stated in line 1410 must be broken down
according to the country in which the real estate is situated using the same ISO codes.
VI.COUNTRY IN WHICH THE SIF IS MARKETED
318
A specific list shall include the main countries in which units or shares of the SIF (to be
classified based on ISO codes) are marketed with an estimate of the percentage of shares
or units invested in each country.
ANNEX C
Name of the SIF: ...................................................
Year-end: . ..........................................
Period ................... Currency: .............
TABLE O 4.2.
FORWARD TRANSACTIONS AND OPTIONS
(Annual table)
Code
Item
Amount
I. COMMITMENTS AT THE YEAR-END ARISING IN RESPECT OF TRANSACTIONS
ENTERED INTO FOR PURPOSES OTHER THAN HEDGING
100
101
102
103
Total commitments arising in respect of forward transactions and options
Commitments in respect of forward contracts
Commitments in respect of options contracts
Commitments in respect of swap contracts
...................
...................
...................
...................
II. PREMIUMS RECEIVED AND PAID IN RESPECT OF OPTIONS CONTRACTS IN
THE COURSE OF THE FINANCIAL YEAR
201
202
Total premiums received in respect of options sold
Total premiums paid in respect of options purchased
...................
...................
Tel.: .......................................................................
Validation of annual table O 4.2.
101 + 102 + 103 = 100
319
DEFINITIONS AND COMMENTARIES IN RESPECT OF ITEMS INCLUDED IN THE
ANNUAL TABLE CONCERNING FORWARD TRANSACTIONS AND OPTIONS ENTERED
INTO BY SIFS (TABLE O 4.2.) TO BE DRAWN UP BY SPECIALISED INVESTMENT
FUNDS
I. COMMITMENTS AT THE YEAR-END ARISING IN RESPECT OF TRANSACTIONS
ENTERED INTO FOR PURPOSES OTHER THAN HEDGING
The various items to be included in this section concern the commitments arising out of
forward contracts, options contracts and swap contracts in respect of all types of financial
instruments entered into for purposes other than hedging. Thus, this section does
not include transactions entered into for the purpose of covering risks associated with
movements in stock markets, nor transactions entered into for the purposes of covering
movements in interest rates, nor transactions entered into for the purpose of covering
foreign exchange risks to which SIFs are exposed in the management of their assets.
100 - Total commitments arising in respect of forward transactions and options
Line 100 shall state the total of lines 101, 102 and 103. The commitments to be stated in
each line shall be the commitments arising as at the end of the financial year.
101 - Commitments in respect of forward contracts
Line 101 shall state the commitments in respect of forward purchase and sales contracts,
expressed as the sales value of the net positions in respect of contracts of which the
underlying financial instruments are identical (after setting off long and short positions),
without taking into account the respective maturities.
102 - Commitments in respect of options contracts
Line 102 shall state the commitment arising in respect of put and call options purchased
and sold as the sum of the exercise price of the options included in the net short positions
in respect of the same underlying asset, without taking account of the respective
maturities.
Call options sold in respect of securities for which the SIF holds adequate coverage do
not enter into account for the purposes of calculating the commitment referred to above.
The SIF is deemed to hold adequate coverage if it holds either the underlying securities
or equivalent call options or other instruments that are likely to ensure adequate coverage
of the commitments arising in respect of the contracts concerned, such as warrants.
103 - Commitments in respect of swap contracts
Line 103 shall state the commitment arising from swap contracts, expressed as the net
commitment resulting from the revaluation of such contracts, after setting off cash inflows
and outflows.
320
II. PREMIUMS RECEIVED AND PAID IN RESPECT OF OPTIONS CONTRACTS IN THE
COURSE OF THE FINANCIAL YEAR
201 - Total premiums received in respect of options sold
Line 201 shall state the total premiums received in the course of the financial year in
respect of options contracts sold.
202 - Total premiums received in respect of options purchased
Line 202 shall state the total premiums received during the financial year in respect of
options contracts purchased.
List of country codes
(in alphabetical order)
AF Afghanistan
BO Bolivia
AL
DZ Algeria
BA Bosnia and Herzegovina
AS American Samoa
BW Botswana
CR Costa Rica
VI
BV Bouvet Island
HR Croatia
BR Brazil
CU Cuba
IO
CY Cyprus
Albania
American Virgin
Islands
AD Andorra
AO Angola
British Indian Ocean
Territory
CD Congo, Democratic
Republic of the
CK Cook Islands
CZ Czech Republic
VG British Virgin Islands
DK Denmark
AQ Antarctica
BN Brunei
DJ
AG Antigua and Barbuda
BG Bulgaria
DM Dominica
AR Argentina
BF Burkina Faso
DO Dominican Republic
AM Armenia
BI
AN Dutch West Indies
AW Aruba
KH Cambodia
TP East Timor
AU Australia
CM Cameroon
EC Ecuador
AT Austria
CA Canada
EG Egypt
AZ Azerbaijan
CV Cape Verde Islands
SV El Salvador
BS Bahamas
KY Cayman Islands
GQ Equatorial Guinea
BH Bahrain
CF Central African Republic
ER Eritrea
AI
Anguilla
BD Bangladesh
BB Barbados
BY Belarus
BE Belgium
BZ Belize
BJ
Benin
BM Bermuda
BT Bhutan
Burundi
TD Chad
CL Chile
CN China
CX Christmas Island
CC Cocos Islands
CO Colombia
KM Comoro Islands
CG Congo
Djibouti
EE Estonia
ET Ethiopia
FO Faeroe Islands
FK Falkland Islands
FJ
Fiji
FI
Finland
FR France
GF French Guiania
321
PF French Polynesia
JE
TF
JO Jordan
NR Nauru
KZ Kazakhstan
NP Nepal
GA Gabon
KE Kenya
NL Netherlands
GM Gambia
KG Kirghizia
NC New Caledonia
GE Georgia
KI
NZ New Zealand
DE Germany
KW Kuwait
NI
GH Ghana
LA
Laos
NE Niger
GI
French Southern
Territories
Gibraltar
Jersey
Kiribati
NA Namibia
Nicaragua
LV
Latvia
NG Nigeria
GR Greece
LB
Lebanon
NU Niue
GL Greenland
LS
Lesotho
NF Norfolk Island
GD Grenada
LR Liberia
KP North Korea
GP Guadeloupe
LY
Libya
GU Guam
LI
Liechtenstein
MP Northern Mariana
Islands
GT Guatemala
LT
Lithuania
NO Norway
GG Guernsey
LU Luxembourg
OM Oman
GN Guinea
MO Macao
PK Pakistan
GW Guinea-Bissau
MK Macedonia
PW Palau
HT Haiti
MG Madagascar
PS Palestina
HM Heard Island and
McDonald Islands
MW Malawi
PA Panama
MY Malaysia
PZ Panama Canal Zone
MV Maldives
PG Papua New Guinea
ML Mali
PY Paraguay
MT Malta
PE Peru
MH Marshall Islands
PH Philippines
MQ Martinique
PN Pitcairn
MR Mauritania
PL Poland
MU Mauritius
PT Portugal
YT Mayotte
PR Puerto Rico
MX Mexico
QA Qatar
FM Micronesia
RE Réunion
HN Honduras
HK Hong Kong
HU Hungary
IS
Iceland
IN
India
ID
Indonesia
XL
International Organisations (LU head
office)
XM International Organisations (non- LU
head office)
Iran
UM Minor American
Islands
RO Romania
IR
IQ
Iraq
MD Moldova
RW Rwanda
IE
Ireland
MC Monaco
SH Saint Helena
IM
Isle of Man
MN Mongolia
KN Saint Kitts and Nevis
IL
Israel
ME Montenegro
LC Saint Lucia
IT
Italy
MS Montserrat
CI
Ivory Coast
MA Morocco
PM Saint Pierre and
Miquelon
JM Jamaica
MZ Mozambique
VC Saint Vincent
JP
MM Myanmar
SM San Marino
322
Japan
RU Russia
ST São Tomé and
Principe
SR Surinam
TV Tuvalu
SJ
UG Uganda
SA Saudi Arabia
Svalbard and Jan
Mayen
UA Ukraine
SN Senegal
SZ Swaziland
RS Serbia
SE Sweden
AE United Arab
Emirates
CS Serbia and
Montenegro
CH Switzerland
GB United Kingdom
SY Syria
US United States
SC Seychelles
TW Taiwan
UY Uruguay
SL Sierra Leone
TJ
Tajikistan
UZ Uzbekistan
SG Singapore
TZ
Tanzania
VU Vanuatu
SK Slovak Republic
TH Thailand
VA Vatican
SI TL
VE Venezuela
Slovenia
Timor-Leste
SB Solomon Islands
TG Togo
VN Vietnam
SO Somalia
TK Tokelau
WF Wallis and Futuna
ZA South Africa
TO Tonga
EH Western Sahara
GS South Georgia and
Sandwich
TT
WS Western Samoa
KR South Korea
ES Spain
LK Sri Lanka
SD Sudan
Trinidad and Tobago
TN Tunisia
YE Yemen
TR Turkey
ZM Zambia
TM Turkmenistan
ZW Zimbabwe
TC Turks and Caicos
Islands
323
CSSF CIRCULAR 08/339 OF 19 February 2008 relating to the Guidelines of
the Committee of European Securities Regulators (CESR) concerning
eligible assets for investment by UCITS
To all Luxembourg undertakings for collective investment and to all those that take part in the
functioning and control of these undertakings
Re:
Guidelines of the Committee of European Securities Regulators (CESR)
concerning eligible assets for investment by UCITS
This circular draws the attention of UCITS subject to Part I of the amended Law of 20 December
2002 relating to undertakings for collective investment to the publication of the following
guidelines published by the Committee of European Securities Regulators (“CESR”):
1) CESR’s guidelines concerning eligible assets for investment by UCITS – March 2007,
Ref.: CESR/07-044. The document has been updated by Circular CSSF 08/380.
2) CESR’s guidelines concerning eligible assets for investment by UCITS – The classification of hedge fund indices as financial indices – July 2007, ref.: CESR/07-434.
These documents are appended to this circular, and are moreover available on the CESR
website: http://www.cesr.eu.
CESR’s guidelines should be read in conjunction with the provisions of Commission Directive
2007/16/EC of 19 March 2007 implementing Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective
investment in transferable securities (UCITS), as amended, as regards the clarification of
certain definitions.
Directive 2007/16/EC purports to clarify certain definitions of Directive 85/611/EEC, as
amended, concerning eligible assets for investment by UCITS in order to ensure uniform
application of this Directive throughout the European Union.
Directive 2007/16/EC has been transposed into Luxembourg law through Grand-ducal
regulation of 8 February 2008 concerning certain definitions of the amended law of 20
December 2002 relating to undertakings for collective investment. This regulation has been
published in Mémorial A – No 19 of 19 February 2008.
In relation to the provisions of Directive 2007/16/EC and Grand-ducal regulation of 8 February
2008, the guidelines issued by CESR in the document “CESR’s guidelines concerning eligible
assets for investment in UCITS” provide additional clarifications relating to eligible assets for
investment by UCITS covered by Directive 85/611/EEC, as amended.
324
For example, point 23 of “CESR’s guidelines concerning eligible assets for investment by
UCITS” provides further details in relation to Article 10 of Directive 2007/16/EC on transferable securities and money market instruments embedding derivatives. It is important to
note in this context that UCITS are responsible for assessing, where applicable, whether
these transferable securities and money market instruments embed or do not embed a
derivative.
Special attention should be paid to point 26 of “CESR’s guidelines concerning eligible assets
for investment by UCITS” which provides further details on the first two indents of Article
41(1)e) of the amended Law of 20 December 2002 relating to undertakings for collective
investment.
More specifically, the above document defines in particular the factors that can be used to
assess whether the supervision to which a collective investment undertaking must be subject
is equivalent in order to qualify as an eligible undertaking for collective investment in the
context of the investment policy of a UCITS.
The guidelines issued by CESR in the document “CESR’s guidelines concerning eligible
assets for investment by UCITS – The classification of hedge fund indices as financial
indices” provide further specific details on the eligibility of hedge fund indices as underlying instruments of a financial derivative instrument. Moreover, this document specifies that
UCITS seeking exposure to a hedge fund index must undertake appropriate due diligence.
This includes the obligation for the UCITS to assess the quality of the hedge fund index.
All supervisory authorities members of CESR committed to apply these CESR guidelines.
UCITS shall thus take into account these guidelines when assessing whether a specific
financial instrument can be considered as an eligible asset for investment within the meaning
of the relevant provisions of the amended Law of 20 December 2002, as further specified in
Grand-ducal regulation of 8 February 2008.
The guidelines issued by CESR are applicable as from the entry into force of Grand-ducal
regulation of 8 February 2008.
UCITS existing at the time of the implementation of the guidelines issued by CESR benefit
from an extension until 23 July 2008 at the latest to comply with these guidelines.
Appendices:
Appendix I:
CESR’s guidelines concerning eligible assets for investment by UCITS – March
2007, Ref.: CESR/07-044
Appendix II: CESR’s guidelines concerning eligible assets for investment by UCITS
– The classification of hedge fund indices as financial indices – July 2007,
Ref.: CESR/07-434
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CSSF CIRCULAR 08/356 OF 4 June 2008 CONCERNING THE Rules applicable to
undertakings for collective investment when they employ certain
techniques and instruments relating to transferable securities and
money market instruments
Luxembourg, 4 June 2008
To all Luxembourg undertakings for collective investment (“UCIs”) subject to the amended
law of 20 December 2002 relating to undertakings for collective investment and to those who
act in relation to the operation and supervision of such undertakings
Concerns: Rules applicable to undertakings for collective investment when they
employ certain techniques and instruments relating to transferable
securities and money market instruments.
The purpose of this circular is to clarify the conditions and limits under which an undertaking for
collective investment in transferable securities (“UCITS”) is authorised to employ techniques
and instruments relating to transferable securities and to money market instruments. The
techniques and instruments covered by this circular are securities lending transactions, sale
with right of repurchase transactions218 and reverse repurchase transactions/repurchase
transactions219.
The conditions and limits stated hereafter apply, in principle, also to other undertakings for
collective investment (“UCIs”).
These techniques and instruments must be used for the purpose of efficient portfolio
management, which supposes that they must fulfil the following criteria:
a) they are economically appropriate in that they are realised in a cost-effective way;
b) they are entered into for one or more of the following specific aims
(i) reduction of risk;
(ii) reduction of cost;
(iii)generation of additional capital or income for the UCITS with a level of risk which is
consistent with the risk profile of the UCITS and the risk diversification rules applicable
to it;
c) their risks are adequately captured by the risk management process of the UCITS.
218 The French original of the circular uses the term “opérations à réméré”
219 The French original of the circular uses the term “opérations de prise/mise en pension”
326
In no case may the use of these operations by the UCITS result in a change of its investment
objectives as laid down in its management regulations/its constitutional documents, its
prospectus, or result in additional risk higher than its risk profile as described in its sales
documents.
When a UCITS wants to make use of the techniques and instruments described hereafter,
it must mention this specifically in its prospectus. The prospectus must indicate the different
types of transactions considered and clarify the purpose of these transactions as well as the
conditions at and limits within which they are conducted. If the UCITS intends to reinvest cash
received as a guarantee220 as a result of its transactions, the UCITS’ prospectus must specify
the conditions and limits applicable to these reinvestments. If need be, the prospectus must
contain a description of the risks inherent to the envisaged operations.
The UCITS must make sure that the principles of corporate governance comprise provisions,
as regards the transactions referred to in this circular, for a period during which is held an
annual shareholders’ meeting of the issuing company of the securities lent or temporarily
sold.
I. Techniques and instruments that may be used by UCITS
The techniques and instruments that may be used by UCITS are more fully described
hereafter.
A. Securities lending transactions
A UCITS may enter into securities lending transactions provided it complies with the following
rules:
1. Rules intended to ensure the proper completion of the securities lending transactions
– The UCITS may lend the securities included in its portfolio to a borrower either directly or
through a standardised lending system organised by a recognised clearing institution or
through a lending system organised by a financial institution subject to prudential supervision rules considered by the CSSF as equivalent to those prescribed by Community law
and specialised in this type of transactions.
In all cases, the counterparty to the securities lending agreement (i.e. the borrower) must
be subject to prudential supervision rules considered by the CSSF as equivalent to those
prescribed by Community law. In case the aforementioned financial institution acts on its
own account, it is to be considered as counterparty in the securities lending agreement.
If the UCITS lends its securities to entities that are linked to the UCITS by common
management or control, specific attention has to be paid to the conflicts of interest which
may result therefrom.
– The UCITS must receive, previously or simultaneously to the transfer of the securities
lent, a guarantee which complies with the requirements expressed under section II b)
of this circular. At maturity of the securities lending transaction, the guarantee will be
remitted simultaneously or subsequently to the restitution of the securities lent.
220 See footnote 224. below
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In case of a standardised securities lending system organised by a recognized clearing
institution or in case of a lending system organised by a financial institution subject to
prudential supervision rules considered by the CSSF as equivalent to those prescribed
by Community law and specialised in this type of transactions, securities lent may be
transferred before the receipt of the guarantee if the intermediary in question assures the
proper completion of the transaction. Such intermediary may, instead of the borrower,
provide to the UCITS a guarantee in compliance with the requirements expressed under
section II b) hereafter.
2. Limits to securities lending transactions
The UCITS must ensure that the volume of the securities lending transactions is kept at an
appropriate level or that it is entitled to request the return of the securities lent in a manner
that enables it, at all times, to meet its redemption obligations and that these transactions
do not jeopardise the management of the UCITS’ assets in accordance with its investment
policy.
3. Periodical information of the public
In its financial reports, the UCITS must disclose the global valuation of the securities lent on
the date of reference of these reports.
B. Sale with right of repurchase transactions
a) Purchase of securities with a repurchase option221
Acting as buyer, the UCITS may agree to purchase securities with a repurchase option.
These transactions consist of the purchase of securities with a clause reserving for the seller
(counterparty) the right to repurchase the securities sold from the UCITS at a price and time
agreed between the two parties at the time when the contract is entered into.
Its involvement in such transactions is, however, subject to the following rules:
1. Rules intended to ensure the proper completion of the purchase with a repurchase option
transactions
The UCITS may enter into these transactions only if the counterparties to these transactions
are subject to prudential supervision rules considered by the CSSF as equivalent to those
prescribed by Community law.
2. Limits applicable to the purchase with a repurchase option transactions
During the duration of a purchase with a repurchase option agreement, the UCITS may not
sell the securities which are the subject of the contract, before the counterparty has exercised
its option or until the deadline for the repurchase has expired, unless the UCITS has other
means of coverage.
The UCITS must ensure to maintain the value of the purchase with repurchase option transactions at a level such that it is able, at all times, to meet its redemption obligations towards
unitholders/shareholders.
221 The French original of the circular uses the term “Achat de titres à réméré”
328
Securities that are the subject of purchase with a repurchase option transaction are limited
to:
i) short-term bank certificates or money market instruments such as defined within
the 2007/16/EC Directive of 19 March 2007 implementing Council Directive
85/611/EEC on the coordination of laws, regulations and administrative provisions relating
to certain UCITS as regards the clarification of certain definitions,
ii) bonds issued or guaranteed by a Member State of the OECD or by their local public
authorities or by supranational institutions and undertakings with EU, regional or worldwide scope,
iii) shares or units issued by money market UCIs calculating a daily net asset value and
being assigned a rating of AAA or its equivalent,
iv) bonds issued by non-governmental issuers offering an adequate liquidity,
v) shares quoted or negotiated on a regulated market of a European Union Member State or
on a stock exchange of a Member State of the OECD, on the condition that these shares
are included in a main index.
The securities purchased with a repurchase option must be in accordance with the UCITS’
investment policy and must, together with the other securities that the UCITS holds in its
portfolio, globally comply with the UCITS’ investment restrictions.
In its financial reports, the UCITS must provide separate information on securities purchased
with a repurchase option, disclosing the total amount of the open transactions on the date of
reference of these reports.
b) Sale of securities with a repurchase option222
Acting as the seller, the UCITS may agree to sell securities with a repurchase option. These
transactions consist of the sale of securities with a clause reserving for the UCITS the right to
repurchase the securities from the purchaser (counterparty) at a price and at a time agreed
between the two parties at the time when the contract is entered into.
1. Rules intended to ensure the proper completion of the sale with repurchase option transactions
are subject to prudential supervision rules considered by the CSSF as equivalent to that
222 The French original of the circular uses the term “Vente de titres à réméré”
329
2. Limits applicable to the sale with repurchase option transactions
The UCITS must ensure that, at maturity of the repurchase option, it holds sufficient assets
to be able to settle, if applicable, the amount agreed for the restitution of the securities to the
UCITS.
In its financial reports, the UCITS must provide separate information on securities sold with
a repurchase option, disclosing the total amount of the open transactions on the date of
C. Reverse repurchase and repurchase agreement transactions
a) Reverse repurchase agreement transactions223
The UCITS may enter into reverse repurchase agreement transactions, which consist of a
forward transaction at the maturity of which the seller (counterparty) has the obligation to
repurchase the asset sold and the UCITS the obligation to return the asset received under
the transaction.
1. Rules intended to ensure the proper completion of the reverse repurchase agreement
transactions
2. Limits applicable to reverse repurchase agreement transactions
During the duration of the reverse repurchase agreement, the UCITS may not sell or pledge/
give as security the securities purchased through this contract, except if the UCITS has other
means of coverage.
The UCITS must take care to ensure that the value of the reverse repurchase agreement
transactions is kept at a level such that it is able, at all times, to meet its redemption obligations towards unitholders/shareholders.
Securities that may be purchased in reverse repurchase agreements are limited to:
i) short-term bank certificates or money market instruments such as defined within the
2007/16/EC Directive of 19 March 2007 implementing Council Directive 85/611/EEC
on the coordination of laws, regulations and administrative provisions relating to certain
UCITS as regards the clarification of certain definitions,
iv) bonds issued by non-governmental issuers offering an adequate liquidity,
223 The French original of the circular uses the term “Opérations de prise en pension”
330
(v) shares quoted or negotiated on a regulated market of a European Union Member State or
on a stock exchange of a Member State of the OECD, on the condition that these shares
are included within a main index.
The securities purchased through a reverse repurchase agreement transaction must conform
to the UCITS’ investment policy and must, together with the other securities that the UCITS
holds in its portfolio, globally respect the UCITS’ investment restrictions.
In its financial reports, the UCITS must provide separate information on securities purchased
under reverse repurchase agreements, disclosing the total amount of the open transactions
on the date of reference of these reports.
b) Repurchase agreement transactions224
The UCITS may enter into repurchase agreement transactions, which consist of a forward
transaction at the maturity of which the UCITS has the obligation to repurchase the asset
sold and the buyer (the counterparty) the obligation to return the asset received under the
transaction.
1. Rules intended to ensure the proper completion of the repurchase agreement transactions
2. Limits applicable to repurchase agreement transactions
The UCITS must ensure that, at maturity of the agreement, it has sufficient assets to be able
to settle the amount agreed with the counterparty for the restitution to the UCITS.
The UCITS must take care to ensure that the volume of the repurchase agreement transactions is kept at a level such that it is able, at all times, to meet its redemption obligations
towards unitholders/shareholders.
In its financial reports, the UCITS must provide separate information on securities sold under
repurchase agreements, disclosing the total amount of the open transactions on the date of
224 The French original of the circular uses the term “Opérations de mise en pension”
331
II. Limitation of the counterparty risk and receipt of an appropriate guarantee225
a) Limitation of the counterparty risk
For each securities lending transaction, the UCITS must receive, in accordance with the
fourth paragraph of section I. A. 1) of this circular, a guarantee the value of which is, during
the lifetime of the lending agreement, at least equivalent to 90% of the global valuation
(interests, dividends and other eventual rights included) of the securities lent.
The risk exposure to a single counterparty of the UCITS arising from one or more securities
lending transactions, sale with right of repurchase transactions and/or reverse repurchase/
repurchase transactions may not exceed 10% of its assets when the counterparty is a credit
institution referred to in article 41, paragraph (1) (f) of the law of 20 December 2002 or 5% of
its assets in other cases.
UCITS may take into account a guarantee conforming to the requirements set out under
section II b) below in order to reduce the counterparty risk in sale with right of repurchase
transactions and/or reverse repurchase and repurchase transactions.
b) Receipt of an appropriate guarantee
The UCITS must proceed on a daily basis to the valuation of the guarantee received.
The agreement concluded between the UCITS and the counterparty must include provisions
to the effect that the counterparty must provide additional guarantees at very short term in
case the value of the guarantee already granted appears to be insufficient in comparison with
the amount to be covered. Furthermore, the aforementioned agreement must, if appropriate,
provide for safety margins that take into consideration exchange risks or market risks inherent
to the assets accepted as guarantee.
The guarantee must normally take the form of:
i) liquid assets,
liquid assets include not only cash and short-term bank certificates, but also money
market instruments such as defined within the 2007/16/EC Directive of 19 March 2007
implementing Council Directive 85/611/EEC on the coordination of laws, regulations and
administrative provisions relating to certain UCITS as regards the clarification of certain
definitions. A letter of credit or a guarantee at first-demand given by a first class credit
institution not affiliated to the counterparty are considered as equivalent to liquid assets,
iv) shares or units issued by UCITS investing mainly in bonds/shares mentioned in (v) and
(vi) below,
v) bonds issued or guaranteed by first class issuers offering an adequate liquidity, or
vi) shares admitted to or dealt in on a regulated market of a Member State of the European
Union or on a stock exchange of a Member State of the OECD, on the condition that these
shares are included in a main index.
225 The French original of the circular uses the term “sûreté”. The term “guarantee” used in this translation is to be
understood as “collateral” where appropriate.
332
The guarantee given under any form other than cash or shares/units of a UCI/UCITS must be
issued by an entity not affiliated to the counterparty.
The guarantee given in the form of cash may expose the UCITS to a credit risk vis-à-vis
the trustee of this guarantee. If such risk exists, the UCITS must take it into consideration
for the purpose of the limits on deposits prescribed by article 43 (1) of the amended law of
20 December 2002 concerning undertakings for collective investment. As a principle, the
guarantee given must not be safekept by the counterparty, except if it is legally protected from
consequences of default of the latter.
The guarantee given in a form other than cash must not be safekept by the counterparty,
except if it is adequately segregated from the latter’s own assets.
The UCITS must make sure that it is able to claim its rights on the guarantee in case of
the occurrence of an event requiring the execution thereof. Therefore, the guarantee must
be available at all times, either directly or through the intermediary of a first class financial
institution or a wholly-owned subsidiary of this institution, in such a manner that the UCITS is
able to appropriate or realise the assets given as guarantee, without delay, if the counterparty
does not comply with its obligation to return the securities.
Also, the UCITS must make sure that its contractual rights relating to the relevant transactions permit, in case of a liquidation, of a reorganisation226 or in any other situation of equal
ranking227, to discharge its obligation to return the assets received as a guarantee, if and to
the extent that the restitution cannot be undertaken on the terms initially agreed.
During the duration of the agreement the guarantee cannot be sold or given as a security or
pledged, except when the UCITS has other means of coverage.
III. Reinvestment of cash provided as a guarantee
If the guarantee was given in the form of cash, such cash may be reinvested by the UCITS
in:
a) shares or units in money market UCIs calculating a daily net asset value and being
assigned a rating of AAA or its equivalent,
b) short-term bank deposits,
c) money market instruments as defined in Directive 2007/16/EC of 19 March 2007,
d) short-term bonds issued or guaranteed by a Member State of the European Union,
Switzerland, Canada, Japan or the United States or by their local authorities or by supranational institutions and undertakings with EU, regional or world-wide scope,
e) bonds issued or guaranteed by first class issuers offering an adequate liquidity, and
f) reverse repurchase agreement transactions according to the provisions described under
section I (C) a) of this circular.
Financial assets other than bank deposits and units or shares of UCIs acquired by means of
reinvestment of cash received as a guarantee, must be issued by an entity not affiliated to
the counterparty.
Financial assets other than bank deposits must not be safekept by the counterparty, except
if they are segregated in an appropriate manner from the latter’s own assets. Bank deposits
must in principle not be safekept by the counterparty, unless they are legally protected from
consequences of default of the latter.
226 The French original of the circular uses the term “mesure d’assainissement”.
227 The French original of the circular uses the term “toute autre situation de concours”.
333
Financial assets may not be pledged/given as a guarantee, except when the UCITS has sufficient liquid assets enabling it to return the guarantee by a cash payment.
Short-term bank deposits, money market instruments and bonds referred to in (b) through
(d) above must be eligible investments within the meaning of Article 41 (1) of the law of 20
December 2002.
The reinvestment of cash received as a guarantee is not subject to the diversification rules
generally applicable to UCITS, provided however, that the UCITS must avoid an excessive
concentration of its reinvestments, both at issuer level and at instrument level. Reinvestments
in assets referred to in (a) and (d) above are exempt from this requirement.
If the short-term bank deposits referred to in (b) are likely to expose the UCITS to a credit risk
vis-à-vis the trustee, the UCITS must take this into consideration for the purpose of the limits
on deposits prescribed by article 43 (1) of the amended law of 20 December 2002 concerning
undertakings for collective investment.
The reinvestment must, in particular if it creates a leverage effect, be taken into account for
the calculation of the UCITS’ global exposure. Any reinvestment of a guarantee provided
in the form of cash in financial assets providing a return in excess of the risk free rate228, is
subject to this requirement.
Reinvestments must be specifically mentioned with their respective value in an appendix to
the financial reports of the UCITS.
228 The French original of the circular uses the terms “procurant un rendement supérieur au taux sans risque”
334
prevail.
CSSF CIRCULAR 08/371 OF 5 september 2008 CONCERNING THE Electronic
transmission of prospectuses and financial reports of UCIs and SIFs
to the CSSF
Luxembourg, 5 September 2008
To all Luxembourg undertakings for collective investment and to all those that take part in the
functioning and control of these undertakings and to all specialised investment funds
Re:
Electronic transmission of prospectuses and financial reports of UCIs
and SIFs to the CSSF
The purpose of this circular is to provide details on the procedure for the communication to
the CSSF of simplified and full prospectuses and annual and semi-annual reports that undertakings for collective investment (UCIs) must publish for their investors in accordance with
Chapter 17 of the law of 20 December 2002 relating to undertakings for collective investment
(the “Law of 20 December 2002”) as well as for the communication to the CSSF of offering
documents, prospectuses and annual reports of the specialised investment funds (SIFs)
falling under the law of 13 February 2007 relating to specialised investment funds (the “Law
of 13 February 2007”).
It should be borne in mind that, pursuant to Article 114(2) of the Law of 20 December 2002,
Circular CSSF 03/97 of 28 February 2003 provides that the UCIs’ simplified and full prospectuses as well as annual and semi-annual reports subject to the aforementioned law must
be published in the electronic reference database of the financial centre (“database of the
financial centre”) set up by the Centrale de Communications Luxembourg S.A. (“CCLux”).
1. Electronic transmission
The UCIs subject to the Law of 20 December 2002 must henceforth transmit electronically
their simplified and full prospectuses and their annual and semi-annual reports in their
final form to the CSSF.
In a similar way, the SIFs subject to the Law of 13 February 2007 must communicate
electronically the offering documents, prospectuses and annual reports in their final form
to the CSSF. It is specified that documents relating to SIFs are not subject to the publication in the database of the financial centre.
335
All these documents shall be transmitted in their final form via the e-file communication
platform to the address http://www.e-file.lu in compliance with the specific procedure
foreseen to that end.
Regarding the deadlines and other practical modes, the following specifications are applicable.
– The electronic file of a UCI’s prospectus respectively a SIF’s offering document or
prospectus must in principle be transmitted once it is approved by the CSSF, respectively for UCIs at the latest when the marketing of the units begins and for SIFs at the
latest when the activities begin in case the beginning is later than the approval by the
CSSF.
– The aimed version will be sent back electronically via e-file.
– The electronic file of the financial report must be transmitted within the deadlines
provided for in Article 109(2) of the Law of 20 December 2002, respectively in Article
52(2) of the Law of 13 February 2007. The UCIs and the SIFs do not need to transmit
these reports in “paper” form anymore.
2. Technical specifications
The files must be transmitted in PDF-text format. The documents where the “text part” is
digitized are not accepted.
In order to facilitate the processing of the transmitted files, the Déposants (i.e. the persons
who submit the documents) are requested to comply with the following nomenclature for
electronic files:
• Simplified prospectus: PDRREP-ONNNNNCCCC-YYYY-MM-DD-PS.pdf
• Full prospectus: PDRREP- ONNNNNCCCC-YYYY-MM-DD-PC.pdf
• Offering document: PDRREP- ONNNNNCCCC-YYYY-MM-DD-DE.pdf
• Annual report: PDRREP- ONNNNNCCCC-YYYY-MM-DD-RA.pdf
• Semi-annual report: PDRREP- ONNNNNCCCC-YYYY-MM-DD-RS.pdf
NNNNN representing the identification number allocated to the UCI by the CSSF;
CCCC representing the compartment number allocated by the CSSF (use 0000 if there
is more than one compartment respectively if the whole UCI is concerned); and YYYYMM-DD the date (year, month and day) of the transmitted document.
Furthermore, it is important to point out that the Déposant is responsible for the content
of the transmitted file. Since the UCI files are intended for the publication on the Internet
website set up by CCLux, it is in particular the Déposant’s responsibility to ensure that
the documents transmitted correspond indeed to the official “paper” version as it is
distributed.
The CSSF may grant, if duly justified, an exemption as regards the publication of UCIs
prospectuses and annual and semi-annual reports in the database of the financial
centre.
336
3. Entry into force
The aforementioned documents must be transmitted electronically to the CSSF as of 31
December 2008.
For further questions, please contact Mr Nico Barthels (phone number 26 25 1 249).
337
prevail.
CSSF CIRCULAR 08/372 OF 5 september 2008 CONCERNING THE Guidelines for
depositaries of specialised investment funds adopting alternative
investment strategies, where those funds use the services of a prime
broker
Luxembourg, 5 September 2008
To all specialised investment funds and their depositaries
Re:
Guidelines for depositaries of specialised investment funds adopting
alternative investment strategies, where those funds use the services of
a prime broker
This Circular is specifically directed at all specialised investment funds (hereinafter “SIF”)
which, while making use of derivatives or adopting alternative investment strategies, use the
services of a prime broker in accordance with market practice.
By way of example, the role of the prime broker generally consists in the provision of the
following services to SIFs:
– custody of the SIF’s assets;
– execution of transactions and netting operations on behalf of the SIF;
– actions relating to margin deposits;
– setting up credit facilities to finance overdrafts;
– securities lending and borrowing or share repurchase transactions.
The selection of the prime broker, as well as its official appointment by way of contract formalising the appointment and defining the duties and responsibilities of the prime broker, is,
depending on the legal form of the SIF, the decision and the responsibility of the management
board in charge in case the SIF is a legal entity or of the management company in case the
SIF is organised as common fund.
In accordance with the law of 13 February 2007 relating to specialised investment funds
(hereinafter “law of 13 February 2007”), the custody of assets of all SIFs must be entrusted to
a depositary. This is a general obligation insofar as it applies equally to all SIFs, irrespective
of legal form or investment policy.
The notion of custody in the context of the depositary’s duties is to be understood in the sense
of “supervision”. For the purposes of this Circular, the duty of “supervision” is fulfilled if the
provisions under points 1 and 2 below are respected.
Because of the prime broker’s role in the custody of the SIF’s assets and because of the
necessary interaction between the prime broker and the depositary in the context of provision
of services by the prime broker, with a view to safeguarding the SIF’s assets, the depositary
338
has to approve the SIF’s choice of prime broker as described hereafter. As a matter of fact,
the depositary of a SIF has to arrange its relationship with both the SIF and the prime broker
in such a way that it is in a position to fulfil its task of supervision of the SIF’s assets.
The purpose of this Circular is to set out the guidelines which permit the depositary of a SIF
resorting to the services of a prime broker to perform its supervisory tasks in compliance with
the provisions of the law of 13 February 2007.
1. Approval of the choice of the prime broker by the depositary
The depositary has to approve the SIF’s choice of prime broker given the fact that the depositary has to arrange its relationship with the SIF and the prime broker so as to be able to fulfil
its duty of supervision of the assets.
The approval by the depositary of the SIF’s choice of prime broker is limited to ensuring that
the prime broker fulfils the following criteria:
• The prime broker is a financial institution regulated by a supervisory authority in a state in
which the supervisory regime is recognised as being equivalent to the regime provided for
by Community law.
• The prime broker is a financial institution which is recognised and specialised in this type
of transactions.
2. Organisation of the relationship between the depositary and the prime broker
The depositary shall ensure that it arranges its relationship with the prime broker in such a
manner that the depositary is in a position to know the composition of the SIF’s assets.
In order to enable the depositary to fulfil its supervisory tasks, as laid down in this Circular
in a satisfactory manner, the depositary needs the reassurance that it has a right to obtain
information on the composition of the SIF’s assets which have been entrusted to the prime
broker. Such right to obtain information can arise from appropriate instructions given by the
SIF to the prime broker in the prime brokerage contract entered into between the SIF and the
prime broker or from a direct contractual relationship between the depositary and the prime
broker.
The depositary shall thus be able to obtain information from the prime broker at any given
moment on the composition and the value of the SIF’s assets which have been entrusted to
the prime broker.
The depositary shall also have a right of intervention in relation to the SIF’s assets which have
been entrusted to the prime broker if the depositary deems to be no longer able to fulfil its
supervisory tasks. Such a right of intervention can arise from appropriate instructions given
by the SIF to the prime broker in the prime brokerage contract entered into between the SIF
and the prime broker or from a direct contractual relationship between the depositary and the
prime broker.
The depositary does not need to have information about the correspondents with which the
prime broker holds the SIF’s assets.
3. Additional tasks of the depositary
The law of 13 February 2007 required the depositary to carry out all transactions regarding
the day-to-day administration of the assets of a common fund. This means that the depositary
has to specifically deal with the receipt of dividends, interests and securities which have come
to maturity, the exercise of option rights and, in general, any other transaction relating to the
339
day-to-day administration of securities and liquid assets belonging to the fund. Insofar as the
assets have been entrusted to a prime broker, the latter may be contractually invested with
the physical execution of such day-to-day administrative transactions.
4. Investor information
The offering document of a SIF resorting to the services of a prime broker, must include an
adequate description of the involvement of the prime broker and of any potential related risks,
including the counterparty risk.
340
prevail.
CSSF CIRCULAR 08/376 OF 23 october 2008 CONCERNING THE Financial
information to be submitted by investment companies in risk capital
(SICARs)
Luxembourg, 23 October 2008
Re:
Financial information to be submitted by investment companies in risk
capital (SICARs)
We refer to the CSSF’s supervisory mission as competent authority within the meaning of
article 11(1) of the law of 15 June 2004 relating to the investment company in risk capital
(SICAR), as amended (the “Law”).
Article 32 of the Law requires Luxembourg SICARs to communicate to the CSSF a set of
financial information which the CSSF will use for its prudential supervision of SICARs as well
as for statistical purposes.
The first part of this Circular provides explanations regarding the content and drawing up of
standardised half-yearly information and introduces the electronic transmission of the standardised half-yearly reporting to be submitted to the CSSF.
The Circular also describes the SICARs’ other reporting obligations on an annual and ad hoc
basis.
A. Half-yearly financial information
I. Content of half-yearly financial information
The half-yearly financial information relating to SICARs has to be drawn up, if appropriate on
a compartment basis, in accordance with table K 3.1, which is available on the CSSF website
(http://www.cssf.lu) under the section Legal reporting/Periodic reporting/SICAR.
Table K 3.1 indicates the detail of the half-yearly financial information which has to be transmitted. By analogy to the statutory accounts of the SICARs, the same reporting scheme
applies to SICARs with fixed capital and to SICARs with variable capital.229
229 The tables K3.1 (old version) and K3.2 used for the financial reports as at 31 December 2007 and 30 June 2008
are abolished.
341
1. Reference dates
The reference dates for the drawing up of the half-yearly financial information to be communicated by SICARs are 30 June and 31 December of each year.
The half-yearly table has to indicate the reference date in the space provided for that
purpose.
2. Reporting deadlines
SICARs must transmit the half-yearly financial information to the CSSF within 45 calendar
days from the reference date.
In this context, it should be noted that the financial information to be submitted within the time
limit above may, if necessary, be based on provisional figures as regards the valuation of the
investments in risk capital.
3. Reporting currency
The half-yearly table must state, in the space provided for that purpose, the currency in which
the numerical information it includes is expressed.
4. Nomenclature
When saving and sending the relevant table, if appropriate on a compartment basis, care must
be taken to observe the nomenclature described in the Schedule of conditions published on
the CSSF’s website (http://www.cssf.lu) under the section Legal reporting/Periodic reporting/
SICAR.
5. Name of the responsible employee
The name of the employee responsible for preparing this table, as well as the telephone
number and email address at which he or she may be reached by the CSSF if necessary,
must be stated in the space provided for that purpose.
II. Secured transmission of data to the CSSF
SICARs, or their central administrations, shall transmit the required information to the CSSF
in the format defined by the CSSF.
To this end, SICARs, or their central administrations, are invited to download the Microsoft
® Excel template, which can be found on the CSSF website (http://www.cssf.lu) under the
section Legal reporting/Periodic reporting/SICAR.
SICARs shall transmit the duly completed table to the CSSF within the stated deadlines and
by electronic means.
Given the confidential nature of certain data to be provided, it is essential that the transmission
of the data is secure. The CSSF requires a security concept for the SICARs based on end-toend encryption between the institution subject to the prudential reporting and the regulator,
similarly to the requirements applicable to the TAF/MIFID reporting, the prudential financial
reporting of credit institutions (FINREP/COREP in XBRL format) and the PFS prudential
reporting.
Encryption specifications applicable to the SICARs’ half-yearly reporting files are identical to
the ones detailed in Circular CSSF 08/334 “Encryption specifications for reporting entities”.
SICARs can find this Circular on the CSSF website, under the section “Laws and regulations
/ Circulars”.
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III. Use of new transmission channels to transmit half-yearly reporting for the SICARs
As from 31 December 2008, SICARs must transmit their half-yearly reporting via one of
the transmission channels described on the website www.cssf.lu under the section Legal
reporting/File transport and data protection. It should be borne in mind that the abovementioned channels are offered with an encryption/decryption module compatible with the
encryption specifications set out in Circular CSSF 08/334.
For technical questions, please contact the CSSF’s IT Helpdesk on 26 25 1 – 414.
It should also be borne in mind that, as of 3 November 2008, before transmitting any data,
the Luxtrust certificate used to generate the electronic signature of reports shall be registered
with the CSSF according to the procedure described in Circular CSSF 08/334 and adapted
for SICARs in the following chapter.
IV. Installation of the transmission channel and registration of the certificate
The transmission of files is done
– by the central administration. In this case, the central administration shall install one of the
transmission channels accepted by the CSSF and register the certificate with the CSSF
by analogy to the procedure described in Circular CSSF 08/334, or
– by a technical agent to whom the central administration has delegated the transmission.
In this case, the technical agent shall install the transmission channel and shall register
the certificate with the CSSF.
The email (referred to in Circular 08/334) for the registration of the certificate shall be sent
by the central administration (or the technical agent in case of delegation) to the usual
address [email protected]. As regards SICARs, this email shall contain the following information:
– The channel through which the files signed with this certificate will be sent
– The name of the reporting entity (either the central administration or the technical agent)
– Surname of the contact person
- Name of the contact person
– Telephone number of the contact person
- E-mail address of the contact person
– Attached file: the Luxtrust certificate used for the signature.
It will also specify the list of SICARs which fall under the responsibility of the reporting entity:
SICAR information (compulsory)
Responsible central administration
(only required for technical agents)
Number
Name
Entity type
Number
Name
…
…
…
…
…
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The official letter (referred to in Circular 08/334) for the formal validation of the certificate has
to be sent to the CSSF’s GFD section by the SICAR’s central administration and has to
contain:
– the certificate number (either the Serial number or the Thumbprint);
– if appropriate, the name of the technical agent;
– the list of the SICARs concerned.
SICAR information (compulsory)
Number
Name
…
…
The registration of a certificate can only be done at SICAR level, not at compartment level of
the SICAR.
B. Other reporting obligations
In accordance with article 28 of the Law, any SICAR shall also submit to the CSSF a copy
of its audited annual report as soon as it is available and in any event within six months from
the end of the period to which the report relates. In this context, the letter of recommendation
from the auditor relating to the audit of the annual accounts of the SICAR or, where there is
none, a written declaration by the auditor stating that no such letter was issued, shall also be
sent to the CSSF.
C. Entry into force
The provisions of this Circular shall come into force for the financial reporting as at 31
December 2008.
From such date, all half-yearly financial reports shall be transmitted to the CSSF using the
new nomenclature and via the new channels. On the other hand, all reports dated before 31
December 2008 must be sent in the old format.
344
prevail.
CSSF CIRCULAR 08/380 OF 26 november 2008 CONCERNING THE Guidelines of
the Committee of European Securities Regulators (CESR) concerning
eligible assets for investment by UCITS
To all Luxembourg undertakings for collective investment in transferable securities (“UCITS”)
and to those involved in the operation and supervision of such undertakings
Re:
Guidelines of the Committee of European Securities Regulators (CESR)
concerning eligible assets for investment by UCITS
We are pleased to refer to Circular CSSF 08/339 on the guidelines of the Committee of
European Securities Regulators (CESR) concerning eligible assets for investment by
UCITS.
This circular draws the attention of UCITS subject to Part I of the amended law of
20 December 2002 relating to undertakings for collective investment to the publication of
the amended version of the guidelines published by CESR known as CESR’s guidelines
concerning eligible assets for investment by UCITS – March 2007 (Updated September
2008), Ref.: CESR/07-044b.
This document is attached to this circular and is also available on CESR’s website at
http://www.cesr.eu.
Special attention should be paid to the only amendment of the document CESR’s guidelines
concerning eligible assets for investment by UCITS which occurred in point 24, paragraph 1
relating to the techniques and instruments for the purpose of efficient portfolio management.
The amended paragraph reads as follows:
“Techniques and instruments relating to transferable securities and money market instruments include, but are not limited to, collateral under the provisions of Directive 2002/47/
EC on financial collateral arrangements, repurchase agreements, guarantees received, and
securities lending. The requirement to comply with the provisions of Article 21 of Directive
85/611/EEC imply in particular that if UCITS are authorized to use repurchase agreements
or securities lending, these operations must be taken into account to calculate the global
exposure of the UCITS.”
This document cancels and replaces the document CESR’s guidelines concerning eligible
assets for investment by UCITS – March 2007, Ref.: CESR/07-044 published by the
Commission de Surveillance du Secteur Financier (CSSF) through Circular CSSF 08/339
mentioned above.
345
APPENDIX: CESR’s guidelines concerning eligible assets for investment by UCITS – March
2007, (Updated September 2008) Ref.: CESR/07-044b.
Appendix:
CESR’s guidelines concerning eligible assets for investment by UCITS
INDEX
Overview
… …………………………………………………………………………… p. 347
Definitions
… …………………………………………………………………………… p. 348
The guidelines … …………………………………………………………………………… p. 348
346
OVERVIEW
Introduction
1. The UCITS Directive lays down a set of rules concerning what financial instruments a
UCITS can invest in («eligible assets»). Article 1 of the Directive defines these, at a high
level, as being «transferable securities and… other liquid financial assets». Other articles,
in particular Article 19, set out the rules in more detail.
2. Article 53a of the Directive provides that technical amendments may be made to the
Directive to clarify definitions «in order to ensure uniform application of [the] Directive
throughout the Community».
3. In October 2004 the Commission issued a mandate to CESR requesting its technical
advice - in its capacity as an independent advisory group - regarding clarification of definitions relating to eligible assets230.
Process
4. Having received the mandate, CESR proceeded to carry out two rounds of public consultation, including open hearings. As part of this process, two documents were published
(available on CESR’s website):
• CESR’s advice on clarification of definitions concerning eligible assets for investments
of UCITS – consultation paper (March 2005)231; and
• CESR’s draft advice on clarification of definitions concerning eligible assets for investments of UCITS – 2nd consultation paper (October 2005)232.
5. Following this period of consultation, CESR published its final advice to the Commission
in January 2006233, together with a feedback statement234. The advice set out suggested
measures that could be adopted at «level 2» and «level 3»235.
6. Preparation of the advice was undertaken by the Expert Group on Investment Management.
The Group is chaired by Mr Lamberto Cardia, Chairman of the Italian securities regulator,
the Commissione nazionale per le società e la Borsa (CONSOB). The Expert Group set
up two working sub-groups on this issue, co-ordinated by Mme Pauline Leclerc-Glorieux
from the AMF and Mr Dan Waters from the FSA. The Expert Group is assisted by the
Consultative Working Group on Investment Management composed of sixteen market
practitioners and consumers’ representatives.
7. The Commission has considered CESR’s advice, and an implementing Directive has
been adopted by the Commission on 19 March 2007.
230 Available at http://ec.europa.eu/internal_market/securities/docs/cesr/final-mandate-clarification_en.pdf.
231 CESR/05-064b.
232 CESR/05-490b.
233 «CESR’s advice to the European Commission on clarification of definitions concerning eligible assets for investments of UCITS» (CESR/06-005, January 2006).
234 «CESR’s advice to the European Commission on clarification of definitions concerning eligible assets for investments of UCITS – feedback statement» (CESR/06-013, January 2006).
235 Under the «Lamfalussy» process, a four-level procedure is applied to financial services legislation. Level 1 constitutes framework legislation; level 2 covers implementing measures for level 1 legislation; level 3 consists of
supervisory committees facilitating the convergence of regulatory practice; level 4 concerns enforcement of EU
measures.
347
Level 3 guidelines
8. CESR has compared the text of the implementing Directive with its advice to the
Commission, and has decided to adopt at level 3 guidelines covering the text which was
not included in the implementing Directive (for material classified both as level 2 and level
3 in the advice).
9. Much of the wording of the level 3 guidelines is identical to that included in CESR’s
final advice to the Commission. Where this is the case, the guidelines can be read in
conjunction with that advice. However, in some areas changes have had to be made to
reflect the wording used in the implementing Directive. In these cases, the advice may
provide useful background information.
Next steps
10.CESR members will bring the implementing Directive and these guidelines into effect as
a single package of measures. This will be by March 2008 at the latest.
11.One area of potential level 3 material remains outstanding, relating to the classification
of hedge fund indices as eligible assets for investment by UCITS. CESR is currently
consulting on this issue, and if appropriate, will issue additional level 3 guidelines in
mid-2007.
DEFINITIONS
12.References in this paper to the «UCITS Directive» mean Directive 85/611/EEC of the
Council of 20 December 1985 on the co-ordination of laws, regulations and administrative
provisions relating to undertakings for collective investment in transferable securities
(UCITS), as subsequently amended.
13.References in this paper to the «implementing Directive» mean the Directive adopted by
the Commission on 19 March 2007 on the eligible assets under UCITS Directive.
14.References in this paper to terms defined in the UCITS Directive shall have the meaning
given to them in that Directive, or in the implementing Directive as applicable, unless the
context requires otherwise.
15.In this paper, the general term «UCITS» refers:
• to the investment company, if the UCITS is self-managed; and
• to the management company, if the UCITS is not self-managed, or if the UCITS is set
up in a contractual or unit trust form.
THE GUIDELINES
16.Where possible, the level 3 guidelines have been cross-referenced to the relevant article
in the implementing Directive.
17.Article 2 - Transferable securities
348
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
2(1)(a)
A partly paid security must not expose the UCITS to loss beyond the
amount to be paid for it.
2(1)(g)
The security's risks and their contribution to the overall risk profile of the
portfolio must be assessed on an ongoing basis.
2(1)
Where information is available to the UCITS that would lead it to determine
that a transferable security could compromise the ability of the UCITS to
comply with Article 37 of Directive 85/611/EEC, the UCITS must assess
its liquidity risk.
The liquidity risk is a factor that the UCITS must consider when investing
in any financial instrument in order to be compliant with the portfolio
liquidity requirement to the extent required by Article 37. In taking this
prudent approach, the following are examples of the matters a UCITS
may need to consider:
• the volume and turnover in the transferable security;
• if price is determined by supply and demand in the market, the issue
size, and the portion of the issue that the asset manager plans to buy;
also evaluation of the opportunity and timeframe to buy or sell;
• where necessary, an independent analysis of bid and offer prices over
a period of time may indicate the relative liquidity and marketability of
the instrument, as may the comparability of available prices;
• in assessing the quality of secondary market activity in a transferable
security, analysis of the quality and number of intermediaries and
market makers dealing in the transferable security concerned should
be considered.
In the case of transferable securities which are not admitted to trading on
a regulated market as defined in Article 19(1) of Directive 85/611/EEC,
liquidity cannot automatically be presumed. The UCITS will therefore
need to assess the liquidity of such securities where this is necessary to
meet the requirements of Article 37.
If the security is assessed as insufficiently liquid to meet foreseeable
redemption requests, the security must only be bought or held if there are
sufficiently liquid securities in the portfolio so as to be able to meet the
requirements of Article 37.
In the case of transferable securities which are not admitted to trading
on a regulated market as defined in Article 19(1), negotiability cannot
automatically be presumed. The UCITS must assess the negotiability of
securities held in the portfolio, with a view to ensuring compliance with the
requirements of Article 37.
2(2)
UCITS may not make investments in closed-end funds for the purpose
of circumventing the investment limits provided for UCITS by Directive
85/611/EEC.
349
2(2)(b)(ii)
In assessing whether the corporate governance mechanisms for funds in
contractual form are equivalent, the following factors are indicators which
can be used as a guidance:
Unitholders’ rights. The contract on which the fund is based should provide
for:
• right to vote of the unitholders in the essential decision-making
processes of the fund (including appointment and removal of asset
management company, amendment to the contract which set up the
fund, modification of investment policy, merger, liquidation);
• right to control the investment policy of the fund through appropriate
mechanisms.
It is understood that the assets of the fund should be separate and distinct
from that of the asset manager and the fund will be subject to liquidation
rules adequately protecting the unit holders.
18.Article 3 - Instruments normally dealt in on the money market
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
3(1)
CESR’s view is that there is no scope for gaining exposure to precious
metals through investment in money market instruments.
CESR’s view is that Article 42 of Directive 85/611/EEC prohibits the short
selling of money market instruments by a UCITS.
CESR’s view is that money market instruments referred to in Article 19(2)
(a) of Directive 85/611/EEC are those instruments that comply with the
definition of a money market instrument as set out by Article 1(9) of
Directive 85/611/EEC (i.e. are normally dealt in on the money market
and fulfil the requirements of liquidity and accurate valuation), but do not,
however, fall in the categories defined by Article 19(1)(a) to (d) or (h).
3(2)
Treasury and local authority bills, certificates of deposit, commercial
paper, and banker’s acceptances will usually comply with the criterion
“normally dealt in on the money market”.
19.Article 4 – Liquid instruments with a value which can be accurately determined at any
time
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
4(1)
When assessing the liquidity of a money market instrument (MMI), the
following cumulative factors have to be taken into account:
– at the instrument level:
• frequency of trades and quotes for the instrument in question;
350
• number of dealers willing to purchase and sell the instrument,
willingness of the dealers to make a market in the instrument
in question, nature of market place trades (times needed to sell
the instrument, method for soliciting offers and mechanics of
transfer);
• size of issuance/programme;
• possibility to repurchase, redeem or sell the MMI in a short period
(e.g. seven business days), at limited cost, in terms of low fees and
bid/offer prices and with very short settlement delay;
– at the fund level, the following relevant factors should be considered
in order to ensure that any individual MMI would not affect the liquidity
of the UCITS at the fund level:
• unitholder structure and concentration of unitholders of the
UCITS;
• purpose of funding of unitholders;
• quality of information on the fund’s cash flow patterns;
• prospectuses’ guidelines on limiting withdrawals.
The fact that some of these conditions are not fulfilled does not automatically imply that the financial instruments should be considered as
non-liquid.
These elements must ensure that UCITS will have sufficient planning in
the structuring of the portfolio and in foreseeing cash flows in order to
match anticipated cash flows with the selling of appropriately liquid instruments in the portfolio to meet those demands.
4(2)
With respect to the criterion «value which can be accurately determined
at any time», if the UCITS considers that an amortization method can be
used to assess the value of a MMI, it must ensure that this will not result
in a material discrepancy between the value of the MMI and the value
calculated according to the amortization method. The following UCITS/
MMI will usually comply with the latter principles:
• MMI with a residual maturity of less than three months and with no
specific sensitivity to market parameters, including credit risk; or
• UCITS investing solely in high-quality instruments with as a general
rule a maturity or residual maturity of at most 397 days or regular yield
adjustments in line with the maturities mentioned before and with a
weighted average maturity of 60 days. The requirement that the instruments be high-quality instruments should be adequately monitored,
taking into account both the credit risk and the final maturity of the
instrument.
These principles along with adequate procedures defined by the UCITS
should avoid the situation where discrepancies between the value of
the MMI as defined at Level 2 and the value calculated according to the
amortization method would become material, whether at the individual
MMI or at the UCITS level. These procedures might include updating the
credit spread of the issuer or selling the MMI.
351
4(3)
Where the presumption of "liquidity" and "accurate valuation" cannot be
relied upon, the MMI should be subject to an appropriate assessment by
the UCITS.
20.Article 5 - Instruments of which the issue or issuer is regulated for the purpose of protecting
investors and savings
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
5(1)
It remains the responsibility of the UCITS to ensure whether a money
market instrument (MMI) that is not dealt in on a regulated market is an
eligible asset.
5(2)(b)
CESR's view is that regular updates should normally occur on an annual
basis.
5(2)(c)
Such third parties should specialise in the verification of legal or financial
documentation and be composed of persons meeting professional
standards of integrity.
21.Article 8 – Financial liquid assets with respect to financial derivative instruments
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
8(2)(d)
A UCITS must undertake the risk assessment with the highest care when
the counterparty to the derivative is a related party of the UCITS or the
credit issuer.
8(4)(a)
For the purpose of applying Article 21(1) of Directive 85/611/EEC in
conjunction with Article 19(1)(g) third indent of Directive 85/611/EEC, the
criteria «process for accurate and independent assessment of the value
of OTC derivatives» means:
• regarding the accurate assessment of the value of the over-thecounter (OTC) derivative: a process which enables the UCITS
throughout the life of the derivative to value the investment concerned
with reasonable accuracy at its fair value on a reliable basis reflecting
an up-to-date market value;
• organization and means allowing for a risk analysis realized by a
department independent from commercial or operational units and
from the counterparty or, if these conditions cannot be fulfilled, by an
independent third party. In the latter case, the UCITS remains responsible for the correct valuation of the OTC derivatives. Lastly, this
organization of the UCITS implies that risk limits are to be defined.
8(4)(b)(i)
352
The UCITS remains responsible for the correct valuation of OTC derivatives and must, inter alia, check that the independent third party can
adequately value the types of OTC derivatives it wishes to conclude.
8(4)(b)(ii)
CESR’s view is that «independent» and «adequately equipped» in this
context mean a unit which has the adequate means (both human and
technical) to perform this valuation. This implies that the UCITS use its
own valuation systems, which can however be provided by an independent
third party. This excludes the use of valuation models provided by a party
related to the UCITS (such as a dealing room with which OTC derivatives
are concluded) which have not been reviewed by the UCITS. This also
excludes the use of data (such as volatility or correlations) produced by a
process which has not been qualified by the UCITS.
8(5)
CESR’s view is that eligible assets exclude non-financial indices.
22.Article 9 – Financial indices
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
9(1)
Indices based on financial derivatives on commodities or indices on
property may be eligible provided they comply with the criteria set down
for financial indices.
9(1)(a)(ii)
If the composition of the index is not at least as diversified under the ratios
of Article 22a of Directive 85/611/EEC, its underlying assets have to be
combined with the other assets of the UCITS according to Article 21(3)
and Article 22 of Directive 85/611/EEC in order to avoid undue concentration.
9(1)(a)(iii)
Where derivatives on an index composed of non-eligible assets are used
to track or gain high exposure to the index, in order to avoid undue concentration the index should be at least as diversified as set out under the diversification ratios according to Article 22a of Directive 85/611/EEC.
If derivatives on the index are used for risk-diversification purposes,
provided that the exposure of the UCITS to the individual indices complies
with the 5/10/40% ratios, there is no need to look at the underlying components of the individual indices to ensure that they are sufficiently diversified.
23.Article 10 - Transferable securities and money market instruments embedding derivatives
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
10
Collateralized debt obligations (CDOs) or asset backed securities using
derivatives, with or without an active management, will generally not
qualify as structured financial instruments (SFIs) embedding derivatives,
except if:
• they are leveraged, i.e. the CDOs or asset backed securities are not
limited recourse vehicles and the investors’ loss can be higher than
their initial investment; or
353
• they are not sufficiently diversified.
Where a product is structured as an alternative to an over-the-counter
(OTC) derivative, its treatment should be similar to that of the OTC derivative instrument, if the consistency of the Directive provisions is to be
ensured. This will be the case for tailor-made hybrid instruments, such as
a single tranche CDO structured to meet the specific needs of a UCITS,
which should be considered as embedding a derivative from the Directive
point of view. Such a product offers an alternative to the use of an OTC
derivative, for the same purpose of achieving a diversified exposure with
a pre-set credit risk level to a portfolio of entities.
CESR’s view is that the following list of SFIs, which is illustrative and
non-exhaustive, could be assumed by a UCITS to embed a derivative:
• credit linked notes;
• SFIs whose performance is linked to the performance of a bond
index;
• SFIs whose performance is linked to the performance of a basket of
shares with or without active management;
• SFIs with a nominal fully guaranteed whose performance is linked
to the performance of a basket of shares, with or without active
management;
• convertible bonds; and
• exchangeable bonds.
UCITS using SFIs embedding derivatives must respect the principles of
the Directive 85/611/EEC. These include:
– embedded derivatives may never be used to circumvent the principles
and rules set out in the Directive (Recital 13 of Directive 2001/108/
EC);
– in compliance with the third indent of Article 21(3) of Directive 85/611/
EEC, “when a transferable security or money market instrument
embeds a derivative, the latter must be taken into account when
complying with the requirements of Article 21”. As a consequence, the
UCITS must:
• employ «a risk-management process which enables it to monitor
and measure at any time the risk of the positions and their contribution to the overall risk profile of the portfolio» (Article 21(1));
• have a global exposure relating to derivative instruments that does
not exceed the total net value of its portfolio (Article 21(3));
• comply with all the investment limits set by Article 22 and Article
22a of Directive 85/611/EEC: «A UCITS may invest ... in financial
derivative instruments provided that the exposure to the underlying assets does not exceed in aggregate the investment limits
laid down in Article 22» (Article 21(3)). More specifically:
– UCITS using SFIs embedding derivatives should refer to the
Commission Recommendation 2004/383/EC of 27 April 2004 on the
use of financial derivative instruments by UCITS in order to comply
with the risk spreading rules required by Article 22 of the Directive,
354
as this Recommendation sets out how the underlying assets of
financial derivative instruments should be taken into account when
assessing compliance with the risk limits set by the above-mentioned
article; and
– embedded derivatives will generally not be taken into account when
calculating counterparty limits, except if these products enable the
issuer of the hybrid instrument to pass the counterparty risk of underlying derivatives to the UCITS.
It is the responsibility of the UCITS to check that investment in hybrid
instruments embedding derivatives complies with these requirements.
The nature, frequency and scope of checks performed will depend on
the characteristics of the embedded derivatives and on their impact on
the UCITS, taking into account its stated investment objective and risk
profile.
Where the UCITS considers that this impact is not significant, controls
can be tailored accordingly. In such cases, the UCITS may for instance
rely on predefined investment limits to ensure compliance with the above
mentioned principles.
24. Article 11 - Techniques and instruments for the purpose of efficient portfolio
management236
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
11
Techniques and instruments relating to transferable securities and money
market instruments include, but are not limited to, collateral under the
provisions of Directive 2002/47/EC on financial collateral arrangements,
repurchase agreements, guarantees received, and securities lending.
The requirement to comply with the provisions of Article 21 of Directive
85/611/EEC imply in particular that if UCITS are authorised to use repurchase agreements or securities lending, these operations must be taken
into account to calculate the global exposure of the UCITS.
Regarding the coherence between Article 19 and Article 21(2) of Directive
85/611/EEC, CESR notes that currently only financial derivative instruments are subject to both articles. Therefore, in accordance with the
wording of Article 21(2), financial derivative instruments used under
Article 21(2) must comply simultaneously with the provisions of Article 19.
However, financial derivative instruments used under provisions of Article
19 are not automatically subject to the “efficient portfolio management”
requirement of Article 21(2).
236 Upon request from the European Commission, the following guidelines (first paragraph) were amended on 30
September 2008 in order to avoid any misinterpretation with respect to the combined use of physical short selling
technique and securities borrowing.
Physical short selling, whether or not backed by stock borrowing, is not compatible with UCITS Directive.
355
Article 28 of Directive 85/611/EEC defining the obligations concerning the
information to be supplied to unitholders by UCITS implies that techniques
and instruments relating to transferable securities and money market
instruments can not result in a change of the fund’s declared investment
objective or add substantial supplementary risks in comparison to the
concerned fund’s general risk policy as described in its applicable sales
documents.
25.Article 12 – Index replicating UCITS
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
12(2)
A UCITS should provide appropriate information for the subscribers in
the simplified prospectus, if the limit for investment in shares and/or
debt securities issued by the same body is raised above 20% and to a
maximum of 35% for a single issuer, in compliance with Article 22a(2) of
Directive 85/611/EEC, in order to justify exceptional market conditions.
26.Other collective investment undertakings (article 19(1)(e) of Directive 85/611/EEC)
ARTICLE
REFERENCE
LEVEL 3 GUIDELINES
n/a
In CESR’s view, the following matters can be used by the competent
authorities to assess whether a collective investment undertaking is
subject to supervision «equivalent to that laid down in Community law»,
as provided in Article 19(1)(e), first indent of Directive 85/611/EEC.
These factors can be used to guide a decision on equivalence:
• Memoranda of Understanding (bilateral or multilateral), membership
of an international organization of regulators, or other co-operative
arrangements (such as an exchange of letters) to ensure satisfactory
co-operation between the authorities;
• the management company of the target collective investment undertaking, its rules and choice of depositary have been approved by its
regulator; and
• authorisation of the collective investment undertaking in an OECD
country.
In CESR’s view, the following matters can be considered in deciding
whether the level of protection of unitholders is “equivalent to that provided
for unitholders in a UCITS”, as referred to in Article 19(1)(e), second
indent. These factors can be used to guide a decision on equivalence:
• rules guaranteeing the autonomy of the management of the collective
investment undertaking, and management in the exclusive interest of
the unitholders;
356
• the existence of an independent trustee/custodian with similar duties
and responsibilities in relation to both safekeeping and supervision.
Where an independent trustee/custodian is not a requirement of local
law as regards collective investment schemes, robust governance
structures may provide a suitable alternative;
• availability of pricing information and reporting requirements;
• redemption facilities and frequency;
• restrictions in relation to dealings by related parties;
• the extent of asset segregation; and
• the local requirements for borrowing, lending and uncovered sales of
transferable securities and money market instruments regarding the
portfolio of the collective investment undertaking.
357
PricewaterhouseCoopers Asset Management Partners
John Parkhouse
Luxembourg Asset Management Leader
+352 49 48 48 5736
[email protected]
Marc Saluzzi
Global Asset Management Leader
+352 49 48 48 2511
[email protected]
Valérie Arnold / Asset Management Partner - Assurance
+352 49 48 48 2588 / [email protected]
Xavier Balthazar / Asset Management Regulatory Compliance Partner
+352 49 48 48 5779 / [email protected]
Thierry Blondeau / UCITS IV Champion and European Asset Management Regulatory
Leader
+352 49 48 48 5779 / [email protected]
Norbert Brühl (Dr.) / Asset Management Partner - Assurance
+352 49 48 48 2375 / [email protected]
Olivier Carré / Asset Management Regulatory Compliance Partner
+352 49 48 48 2615 / [email protected]
Christelle Crépin / Asset Management Partner - Assurance
+352 49 48 48 5747 / [email protected]
Laurent de la Mettrie / Asset Management Tax Leader
+352 49 48 48 2598 / [email protected]
Mark Evans / Fund Distribution Leader - Regulatory Compliance
+352 49 48 48 5710 / [email protected]
Amaury Evrard / Real Estate Leader
+352 49 48 48 5751 / [email protected]
François Génaux / Asset Management Consulting Leader
+352 49 48 48 4011 / [email protected]
Jean-Robert Lentz / Asset Management Partner - Assurance
+352 49 48 48 2530 / [email protected]
Steven Libby / European SAS 70 Champion and Controls Reporting Leader
+352 49 48 48 4139 / [email protected]
Alain Maechling / Asset Management Partner - Assurance
+352 49 48 48 5741 / [email protected]
358
Régis Malcourant / Hedge Funds Leader
+352 49 48 48 2540 / [email protected]
Laurent Marx / Asset Management Audit Leader
+352 49 48 48 5746 / [email protected]
Markus Mees / Asset Management Partner - Assurance
+352 49 48 48 5771 / [email protected]
Anne Mergeai-Laurent / Regulatory Compliance Partner
+352 49 48 48 2549 / [email protected]
René Paulussen / Asset Management Partner - Assurance
+352 49 48 48 6113 / [email protected]
Christophe Pittie / Asset Management Partner - Assurance
+352 49 48 48 2552 / [email protected]
Valérie Piastrelli / Asset Management Partner - Assurance
+352 49 48 48 5728 / [email protected]
Didier Prime / Alternative Investments Leader
+352 49 48 48 6130 / [email protected]
Marie-Elisa Roussel-Alenda / Asset Management Partner - Assurance
+352 49 48 48 2511 / [email protected]
Catherine Rückel / Asset Management Partner - Assurance
+352 49 48 48 5717 / [email protected]
Sébastien Sadzot / Valuation and Pricing Solutions Leader
+352 49 48 48 2514 / [email protected]
Marc Schernberg / Asset Management Partner - Assurance
+352 49 48 48 5703 / [email protected]
Günter Simon / Asset Management Partner - Assurance
+352 49 48 48 2375 / [email protected]
Valérie Tixier / Private Equity Funds Leader
+352 49 48 48 5822 / [email protected]
Oliver Weber / Asset Management Partner - Tax
+352 49 48 48 5712 / [email protected]
359
Index
A
85/611/EEC Directive … …………………………………………………………… 136, 138, 153
Accounts ……………………………………………………… 12, 18, 27, 30, 53, 56, 58, 61, 62,
63, 82, 90, 92, 93, 94, 95, 96, 102, 106, 110, 113, 114, 115, 116, 117, 139, 140, 142, 167,
168, 171, 178, 180, 189, 191, 201, 202, 203, 204, 213, 216, 237, 308, 315, 341, 344
Advertising documents ……………………………………………………………………… 6, 174
Advertising material … ………………………………………………………………… 7, 174, 251
Agreement on the European Economic Area … ………………… 34, 35, 52, 53, 54, 108, 110
Annual report …7, 26, 31, 34, 35, 59, 60, 61, 62, 78, 93, 94, 96, 102, 115, 116, 117, 163, 165,
168, 174, 175, 179, 192, 215, 216, 226, 227, 271, 274, 275, 278, 305, 335, 336, 344
Articles of incorporation … 21, 22, 23, 24, 25, 26, 37, 67, 69, 85, 86, 87, 99, 101, 104, 105,
106, 107, 138, 171, 172, 212, 224, 271, 274, 275, 279
Asset … 15, 16, 21, 22, 23, 31, 45, 75, 76, 85, 102, 124, 126, 128, 139, 140, 141, 166, 170,
171, 178, 183, 184, 198, 204, 232, 237, 241, 247, 285, 288, 291, 295, 296, 304, 305, 306,
307, 309, 310, 311, 312, 313, 314, 317, 318, 320, 325, 329, 330, 331, 332, 333, 349, 350,
352, 353, 357, 358, 359
Assets and liabilities … 26, 60, 61, 67, 75, 76, 93, 95, 99, 102, 105, 115, 116, 140, 157, 161,
204, 206, 213, 216
Authorisation … … 3, 6, 20, 21, 22, 25, 30, 32, 36, 37, 38, 39, 40, 41, 42, 43, 45, 46, 49, 50,
51, 53, 55, 57, 63, 64, 69, 84, 85, 87, 88, 89, 90, 91, 96, 97, 105, 107, 108, 109, 112, 113,
118, 119, 138, 170, 171, 180, 189, 194, 218, 229, 230, 231, 233, 234, 243, 252, 253, 255,
278, 356
B
Bearer securities … …………………………………………………………………… 16, 81, 143
Borrowings … …………… 5, 33, 36, 37, 39, 154, 156, 165, 167, 192, 196, 200, 283, 314, 316
Branch ………………………………………………………… 11, 12, 44, 45, 46, 47, 48, 56, 147
C
Capital duty …………………………………………………………………………… 4, 65, 98, 121
CESR … 7, 8, 9, 254, 255, 270, 271, 272, 273, 274, 275, 324, 325, 345, 346, 347, 348, 350,
352, 353, 354, 355, 356
Closed-ended UCIs … …………………………………………………………………… 154, 155
Close links … …………………………………………………… 11, 21, 42, 61, 94, 116, 216, 233
Closing of the accounts ……………………………………………………………………… 18, 82
Collective investment A
… , C, 3, 4, 6, 7, 8, 10, 11, 12, 13, 15, 38, 59, 65, 66, 68, 69, 80, 81, 98,
100, 101, 103, 104, 118, 120, 121, 122, 123, 124, 125, 132, 134, 135, 136, 162, 177, 178,
179, 183, 184, 192, 194, 201, 204, 205, 206, 215, 217, 222, 223, 226, 227, 228, 243, 247,
251, 252, 254, 261, 270, 277, 279, 280, 301, 303, 312, 324, 325, 326, 333, 334, 335, 345,
348, 356, 357
Collective portfolio management ………………………………………… 79, 229, 234, 252, 253
Commercial and company register ……………………………………………………………… 23
Commission de Surveillance du Secteur Financier …11, 52, 82, 107, 122, 133, 183, 251, 345
Common fund …………………………………………………………… 3, 5, 6, 14, 15, 16, 17, 18,
19, 20, 21, 26, 32, 33, 35, 36, 38, 40, 41, 44, 45, 47, 59, 63, 64, 67, 69, 70, 71, 72, 73, 74,
77, 81, 82, 83, 84, 85, 87, 89, 93, 96, 97, 99, 100, 134, 136, 139, 148, 149, 150, 169, 170,
171, 175, 180, 203, 207, 221, 223, 277, 278, 338, 339
Common management ……………………………………………………………………… 31, 327
360
Compartment … ………………………………………… 5, 31, 33, 65, 66, 67, 68, 72, 74, 77, 78,
99, 100, 105, 138, 169, 170, 171, 173, 174, 175, 178, 179, 196, 213, 220, 225, 232, 244,
245, 292, 293, 336, 341, 342, 344
Competent authority … 11, 12, 17, 23, 34, 35, 42, 43, 46, 47, 48, 49, 56, 78, 174, 229, 234,
251, 255, 262, 264, 267, 269, 341, 356
Concentration risk … ……………………………………………… 281, 282, 284, 289, 290, 294
Constitutional document … 15, 19, 21, 22, 25, 26, 27, 28, 30, 34, 35, 38, 39, 45, 50, 51, 60,
67, 105, 107, 108, 115, 137, 141, 149, 150, 152, 156, 169, 171, 172, 173, 185, 224, 234,
271, 327
Convert … …………………………………………………………………… 67, 99, 248, 290, 297
Cooperation …………………………………………………………… C, 26, 45, 141, 145, 233
Counterparty … 27, 28, 29, 128, 129, 161, 195, 196, 199, 210, 212, 281, 282, 283, 287, 288,
289, 290, 291, 294, 302, 327, 328, 329, 330, 331, 332, 333, 340, 352, 355
Court … 17, 19, 25, 53, 55, 56, 57, 58, 59, 63, 82, 84, 87, 89, 90, 91, 92, 93, 96, 107, 109,
111, 112, 113, 114, 115, 118, 188
CSSF … …………………………………………………… 6, 7, 8, 9, 11, 15, 16, 17, 19, 20, 21,
22, 23, 25, 26, 27, 28, 30, 34, 35, 36, 37, 38, 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51,
52, 53, 54, 55, 56, 57, 58, 59, 60, 61, 62, 63, 64, 66, 82, 84, 85, 86, 87, 88, 89, 90, 91, 92,
93, 94, 95, 96, 97, 103, 107, 108, 109, 110, 111, 112, 113, 114, 115, 116, 117, 127, 133,
139, 140, 153, 162, 170, 171, 172, 173, 174, 175, 176, 177, 179, 180, 182, 184, 185, 186,
187, 189, 190, 191, 192, 193, 194, 195, 201, 202, 203, 204, 205, 209, 211, 212, 213, 214,
215, 216, 217, 218, 220, 221, 222, 225, 226, 227, 228, 229, 230, 231, 232, 233, 234, 235,
236, 243, 246, 247, 249, 250, 251, 252, 253, 254, 255, 256, 261, 262, 263, 264, 266, 267,
268, 269, 270, 271, 272, 273, 275, 276, 277, 278, 280, 281, 292, 294, 301, 302, 303, 304,
305, 324, 326, 327, 328, 329, 330, 331, 335, 336, 337, 338, 341, 342, 343, 344, 345
Currency …5, 6, 27, 33, 75, 128, 140, 154, 159, 161, 169, 170, 171, 175, 178, 183, 237, 238,
239, 240, 241, 242, 280, 285, 289, 296, 304, 305, 306, 307, 309, 313, 319, 342
D
Deduction at source … ……………………………………………………………………… 65, 98
Depositary … …… 5, 9, 11, 16, 17, 18, 19, 20, 24, 25, 33, 36, 45, 46, 51, 52, 53, 64, 73, 75,
77, 82, 83, 87, 96, 106, 107, 108, 109, 110, 139, 140, 141, 142, 143, 147, 148, 149, 150,
151, 170, 172, 230, 231, 233, 242, 310, 315, 338, 339, 356
Deposits … 27, 29, 65, 66, 98, 122, 154, 164, 197, 198, 218, 240, 280, 289, 308, 313, 315,
333, 334, 338
Derivative instruments … …27, 28, 29, 31, 123, 128, 197, 213, 221, 244, 260, 283, 296, 302,
352, 354, 355
Director … …… 18, 19, 21, 24, 25, 38, 50, 51, 59, 62, 64, 65, 73, 81, 86, 88, 89, 93, 95, 96,
97, 105, 107, 108, 112, 117, 119, 134, 162, 163, 164, 166, 169, 172, 180, 192, 194, 199,
203, 204, 205, 206, 207, 212, 214, 215, 231, 232, 233, 234, 249, 278, 284
Distribution policy … ………………………………………………………………………… 18, 82
Distributor 142, 143, 204, 211
District Court dealing with commercial matters …… 55, 57, 59, 63, 91, 93, 96, 112, 115, 118
Dividend 12, 24, 60, 78, 87, 106, 148, 244, 308, 310, 314, 315, 317, 332, 339
E
Efficient portfolio management … ……………… 28, 123, 130, 131, 157, 281, 326, 345, 355
Eligible assets ……………………………… 8, 9, 223, 224, 324, 325, 345, 346, 347, 348, 353
Embedded derivative ………………………………………………………………… 125, 354, 355
Embedding a derivative ………………………………………………………………… 130, 354
Embedding derivatives ……………………………………………………123, 325, 353, 354, 355
European Economic Area ………………………… 34, 35, 52, 53, 54, 108, 110, 127, 224, 225
361
F
Financial institution … ………………… 29, 53, 110, 127, 159, 160, 161, 327, 328, 333, 339
Financial reports 6, 59, 93, 112, 139, 145, 146, 158, 160, 161, 172, 173, 174, 175, 199, 328,
329, 330, 331, 334, 335, 341, 344
Financial Risk …………………………………………………………………………… 8, 280, 281
Fine … ……………………………………………… 59, 63, 64, 65, 66, 93, 96, 97, 99, 112, 119
Fractions of units … …………………………………………………………………… 16, 81, 190
Freedom of establishment … …………………………………………………………………… 69
Free provision of services ………………………………………………………………………… 69
Futures contracts … …………………………………………… 5, 159, 162, 164, 165, 198, 313
G
General meeting ………24, 38, 57, 62, 64, 67, 86, 88, 91, 95, 97, 99, 113, 117, 171, 180, 203
Group 27, 30, 66, 77, 120, 127, 129, 131, 229, 230, 233, 258, 287, 288, 289, 290, 297, 347
Guarantee … ………………………………… 42, 282, 287, 299, 313, 327, 328, 332, 333, 334
H
Head office … …15, 35, 42, 49, 70, 73, 81, 104, 187, 188, 189, 190, 191, 192, 204, 205, 206,
207, 208, 209, 210, 211, 215, 229, 242, 322
Hedging … …………………………………………………………… 31, 159, 244, 260, 284, 320
Historical performance … …………………………………………………… 74, 77, 243, 244, 245
Home Member State …………………………………… 12, 14, 48, 56, 262, 267, 271, 275, 276
Host Member State … …………………… 12, 14, 34, 44, 45, 47, 48, 56, 264, 269, 272, 274
I
Immovable property … ……………… 28, 33, 57, 64, 89, 91, 96, 97, 108, 113, 278, 349, 350
Index … C, 28, 30, 31, 123, 129, 130, 131, 159, 218, 244, 286, 289, 290, 291, 295, 313, 325,
329, 331, 332, 353, 354, 356
Indices ………………………………………… 27, 128, 129, 159, 244, 280, 324, 325, 348, 353
Infrastructure … ……………………………………………… 140, 147, 226, 229, 230, 231, 252
Initial capital … ……………………………………………………………… 12, 22, 41, 219, 234
Institutional investor … ………………………………………65, 66, 80, 104, 188, 219, 278, 301
Investment advisory … …………………………………………………………… 47, 48, 135, 240
Investment company ………………………… 3, 4, 7, 9, 13, 14, 15, 24, 25, 26, 28, 32, 33, 35,
38, 40, 42, 45, 47, 59, 60, 62, 64, 67, 68, 69, 70, 71, 72, 73, 74, 77, 80, 81, 85, 87, 93, 95,
97, 103, 104, 106, 108, 109, 110, 118, 119, 120, 124, 134, 135, 136, 169, 170, 171, 175,
221, 223, 228, 235, 252, 253, 256, 257, 258, 266, 274, 275, 277, 282, 290, 341, 348
Investment company with variable capital ……………………………………… 13, 24, 87, 277
Investment management … ……………………………… 45, 79, 163, 165, 167, 232, 233, 347
Investment policy … ……………………………… 3, 26, 18, 28, 30, 31, 32, 67, 72, 75, 77, 82,
99, 105, 122, 124, 137, 138, 155, 162, 163, 165, 166, 168, 169, 184, 185, 186, 192, 194,
196, 199, 200, 208, 213, 217, 218, 223, 224, 225, 229, 232, 243, 244, 256, 257, 259, 260,
280, 284, 286, 292, 298, 302, 325, 328, 329, 331, 338, 350
Investor 6, 7, 27, 33, 37, 38, 40, 45, 46, 47, 48, 49, 53, 59, 60, 61, 65, 66, 67, 80, 81, 85, 86,
87, 88, 93, 94, 95, 96, 97, 100, 102, 104, 105, 106, 107, 115, 116, 117, 119, 126, 136, 137,
139, 142, 143, 144, 145, 146, 152, 162, 163, 165, 166, 169, 172, 173, 184, 185, 186, 187,
188, 189, 190, 191, 193, 196, 199, 200, 204, 206, 211, 215, 216, 219, 223, 224, 226, 231,
232, 234, 244, 247, 248, 249, 250, 256, 261, 277, 278, 283, 301, 335, 340, 352, 353
Issue ………………………………………… 5, 16, 17, 18, 19, 20, 22, 23, 24, 26, 27, 29, 30, 32,
36, 37, 39, 57, 63, 64, 67, 71, 73, 81, 82, 83, 84, 85, 86, 91, 96, 106, 113, 118, 126, 127,
143, 145, 148, 149, 152, 155, 163, 165, 166, 167, 168, 170, 188, 190, 199, 200, 204, 205,
248, 271, 304, 347, 348, 349, 352
362
L
Late Trading … ……………………………………………………………… 7, 247, 248, 249, 250
legal reserve … ………………………… 24, 64, 86, 89, 96, 97, 106, 108, 237, 278, 349, 350
Letter box entity ………………………………………… 46, 64, 89, 96, 97, 108, 278, 349, 350
Liability …5, 18, 19, 24, 46, 61, 64, 83, 87, 89, 96, 95, 97, 107, 108, 117, 128, 139, 141, 150,
151, 169, 216, 231, 278, 291, 349, 350
Liquid assets … 28, 36, 37, 39, 138, 148, 154, 158, 166, 197, 200, 241, 291, 309, 313, 318,
332, 334, 340, 352
Liquidation … 17, 19, 20, 25, 33, 53, 57, 58, 59, 62, 64, 67, 82, 84, 85, 86, 87, 88, 89, 90, 91,
92, 93, 95, 96, 97, 100, 105, 107, 108, 109, 110, 112, 113, 114, 115, 117, 118, 278, 333,
349, 350
Liquid financial assets … ………………… 15, 16, 21, 25, 123, 128, 129, 218, 223, 225, 347
Loan …………………………………………… 33, 36, 64, 85, 96, 154, 167, 237, 241, 259, 314
M
Management company … 6, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 31, 32, 33, 35, 36,
40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 56, 59, 64, 70, 71, 72, 73, 77, 81, 82, 83, 84,
85, 89, 93, 96, 97, 105, 108, 136, 139, 148, 169, 172, 175, 180, 203, 204, 205, 206, 207,
210, 212, 214, 215, 218, 219, 221, 223, 228, 229, 230, 231, 232, 233, 234, 235, 239, 252,
253, 255, 271, 272, 273, 278, 282, 283, 286, 292, 338, 348, 349, 350, 356
Management regulations …16, 17, 18, 19, 20, 26, 28, 50, 60, 67, 70, 81, 82, 83, 84, 100, 138,
148, 149, 150, 170, 172, 212, 221, 224, 243, 274, 275, 327
Manager … … 38, 59, 64, 86, 88, 89, 93, 95, 96, 97, 108, 141, 142, 148, 149, 165, 167, 192,
194, 199, 204, 211, 214, 235, 252, 253, 258, 278, 286, 349, 350
Marketing …6, 32, 34, 35, 47, 48, 50, 56, 60, 79, 138, 142, 144, 172, 176, 181, 219, 231, 247,
248, 249, 255, 271, 272, 273, 274, 275, 276, 336
Market risk … …………………… 213, 283, 284, 285, 286, 290, 292, 296, 297, 298, 299, 332
Market Timing ………………………………………………………………… 7, 247, 248, 249, 250
Market to ………………………………………………………………………… 30, 129, 131, 290
Money laundering … ………………………………………………………145, 203, 206, 208, 211
Money market instrument …… 8, 12, 26, 27, 28, 29, 30, 31, 32, 33, 65, 66, 75, 98, 122, 123,
125, 126, 127, 130, 131, 138, 154, 186, 197, 218, 241, 280, 281, 284, 289, 290, 308, 309,
312, 313, 315, 325, 326, 329, 330, 332, 333, 334, 345, 350, 353, 355, 356, 357
N
Net asset ……………………………………… 15, 16, 18, 20, 21, 22, 23, 24, 28, 31, 37, 38, 64,
66, 75, 76, 83, 84, 85, 86, 97, 98, 102, 106, 126, 138, 139, 140, 141, 154, 155, 156, 157,
158, 159, 160, 163, 164, 165, 166, 170, 171, 178, 183, 184, 185, 196, 204, 225, 229, 245,
247, 283, 304, 305, 306, 307, 314, 317, 329, 330, 332, 333
Net asset value … 15, 16, 21, 22, 23, 31, 75, 76, 85, 102, 126, 139, 140, 141, 166, 170, 171,
178, 183, 184, 204, 247, 304, 305, 306, 307, 329, 330, 332, 333
Non-core service … …………………………………………………………………… 40, 41, 235
Non-sophisticated UCITS …………………………………… 281, 282, 284, 285, 290, 295, 296
Notification … …8, 17, 46, 48, 55, 58, 82, 89, 90, 92, 111, 112, 205, 263, 264, 268, 269, 270,
271, 272, 273, 274, 275, 276
O
Offer … 8, 16, 21, 25, 36, 37, 38, 39, 51, 52, 53, 54, 109, 110, 111, 137, 153, 169, 176, 190,
224, 261, 262, 263, 264, 266, 267, 268, 269, 349, 351, 354
Officially listed securities … ……………………………………………………… 17, 23, 39, 156
Option … 5, 148, 157, 158, 159, 160, 161, 162, 164, 165, 166, 197, 198, 200, 212, 241, 295,
313, 314, 319, 320, 321
363
OTC ………27, 28, 29, 128, 129, 280, 281, 283, 287, 288, 289, 291, 294, 302, 352, 353, 354
Own funds … …………………………………………… 13, 41, 42, 44, 219, 228, 234, 239, 293
P
Par value …………………………………………………………… 23, 67, 86, 100, 105, 169, 171
Parent undertaking ………………………………………………… 13, 43, 61, 94, 95, 116, 216
Participating shares … ……………………………………………………………………… 24, 119
Participation … …………………………………………………………… 13, 106, 118, 199, 258
Pension fund … ………………………………………………… 40, 66, 137, 219, 234, 235, 240
Portfolio … ……………………… 4, 18, 22, 28, 31, 36, 38, 39, 43, 45, 47, 48, 66, 75, 79, 83,
98, 102, 123, 124, 126, 130, 131, 134, 140, 141, 142, 148, 149, 156, 157, 158, 159, 160,
163, 170, 171, 183, 192, 196, 208, 212, 214, 229, 231, 234, 235, 240, 241, 243, 245, 249,
252, 253, 257, 258, 281, 282, 283, 284, 285, 286, 291, 293, 296, 297, 298, 299, 300, 316,
318, 326, 327, 329, 331, 345, 349, 351, 354, 355, 357, 360, 361
Portfolio turnover rate … ………………………………………………………………… 243, 245
Probable realisation value … ……………………………………………… 17, 23, 39, 156, 212
Promoter … 133, 141, 142, 143, 144, 155, 172, 184, 186, 187, 188, 189, 190, 191, 192, 193,
194
Prospectus … …………………………………………………… 4, 6, 7, 8, 10, 28, 30, 31, 34, 35,
46, 51, 59, 60, 61, 62, 63, 67, 73, 74, 77, 78, 93, 103, 105, 115, 116, 117, 122, 137, 139,
141, 142, 143, 144, 145, 146, 155, 157, 163, 164, 165, 166, 167, 168, 171, 172, 173, 174,
175, 176, 184, 185, 190, 192, 197, 199, 200, 216, 217, 219, 224, 226, 227, 232, 233, 243,
244, 245, 246, 247, 248, 249, 254, 255, 261, 262, 263, 264, 265, 266, 267, 268, 269, 271,
272, 274, 275, 284, 286, 292, 327, 335, 336, 351, 356, 365
Prospectus law … ……………………………………………………………… 261, 262, 263, 264
Prudential supervision … 11, 27, 29, 40, 44, 45, 109, 215, 228, 232, 233, 235, 251, 287, 327,
328, 329, 330, 331, 341
Publication … ……………………………………… C, 17, 18, 23, 25, 51, 58, 59, 62, 63, 69, 73,
78, 82, 86, 89, 92, 106, 114, 115, 117, 129, 131, 137, 173, 175, 191, 206, 214, 217, 219,
220, 226, 227, 254, 263, 268, 324, 335, 336, 345
Public offer … ………………………………………………………………………………… 51, 262
Q
Qualifying holdings ……………………………………………………………… 13, 43, 44, 233
R
Recently issued transferable securities …………………………………………………… 26, 75
Redemption 5, 15, 17, 18, 19, 20, 23, 24, 31, 32, 36, 37, 39, 57, 63, 64, 72, 73, 79, 82, 83,
84, 86, 135, 137, 139, 140, 142, 143, 144, 145, 148, 149, 152, 155, 156, 163, 166, 170,
171, 183, 187, 190, 199, 200, 208, 211, 224, 245, 247, 248, 249, 306, 307, 310, 317, 328,
330, 331, 349, 357
Register … 16, 23, 52, 53, 63, 71, 79, 81, 82, 86, 93, 94, 96, 106, 109, 110, 117, 139, 140,
144, 145, 146, 163, 165, 343
Registered office … 11, 12, 14, 15, 18, 25, 27, 29, 32, 35, 36, 42, 49, 55, 70, 73, 81, 83, 87,
90, 104, 106, 112, 136, 218, 223, 276
Registration duties ……………………………………………………………………… 58, 92, 114
Regulated market … ………………………………………………………… 8, 13, 26, 27, 30, 51,
75, 124, 125, 126, 152, 153, 155, 157, 158, 161, 167, 195, 197, 198, 241, 260, 261, 262,
263, 264, 266, 267, 268, 269, 280, 309, 312, 329, 331, 332, 349, 352
Repurchase ……15, 72, 73, 126, 157, 161, 197, 198, 199, 212, 261, 285, 315, 326, 328, 329,
330, 331, 332, 333, 338, 345, 351, 355
Repurchase transactions … ……………………… 161, 197, 198, 199, 285, 326, 328, 332, 338
Reverse repurchase … …………………………………………… 212, 326, 330, 331, 332, 333
364
Risk management … … 31, 124, 128, 131, 206, 212, 221, 229, 231, 281, 282, 283, 284, 285,
286, 291, 292, 294, 296, 299, 300, 326
Risk(s) ………………………………………………………………………………………… 5, 7, 8,
9, 15, 16, 21, 25, 28, 29, 30, 31, 32, 33, 35, 36, 37, 38, 39, 45, 55, 59, 77, 80, 81, 85, 89,
94, 103, 104, 105, 106, 108, 109, 110, 111, 115, 118, 119, 120, 124, 125, 126, 127, 128,
130, 131, 133, 134, 144, 155, 157, 159, 161, 163, 164, 165, 166, 168, 186, 187, 194, 195,
196, 197, 198, 199, 200, 201, 203, 206, 212, 213, 219, 221, 229, 230, 231, 238, 243, 244,
248, 249, 251, 252, 255, 256, 257, 258, 259, 260, 266, 277, 280, 281, 282, 283, 284, 285,
286, 287, 288, 289, 290, 291, 292, 293, 294, 295, 296, 297, 298, 299, 300, 301, 302, 320,
326, 327, 332, 333, 334, 340, 341, 342, 349, 351, 352, 353, 354, 355, 356
- counterparty risk … … 28, 195, 196, 212, 281, 282, 283, 287, 288, 289, 294, 302, 332, 340,
355
- global exposure 2
… 8, 281, 282, 283, 284, 285, 286, 292, 293, 294, 295, 296, 300, 334, 345,
354, 355
- investment risks … 21, 25, 37, 38, 80, 85, 163, 164, 165, 168, 194, 198, 200, 212, 277, 301
- risk-management process ……………………………………………………………28, 255, 354
- risk profile …… 28, 31, 59, 77, 125, 130, 231, 243, 244, 281, 283, 284, 286, 295, 297, 299,
326, 327, 349, 354, 355
- underlying risks … ……………………………………………………………………………… 28
Risk-spreading … ……………… 8, 15, 16, 30, 32, 33, 35, 36, 37, 39, 81, 133, 134, 301, 302
S
Schedule A …………………………………………………………………………… 4, 60, 70, 173
Schedule B ……………………………………………………………… 4, 60, 174, 175, 201, 204
Schedule C ……………………………………………………………………………………… 4, 60
Securities 3, 4, 5, 7, 8, 9, 10, 11, 12, 13, 15, 16, 17, 18, 20, 21, 23, 24, 25, 26, 27, 28, 29,
30, 31, 32, 33, 36, 37, 38, 39, 51, 57, 65, 66, 71, 75, 80, 81, 85, 88, 89, 91, 93, 94, 98, 99,
100, 101, 103, 104, 105, 108, 113, 115, 118, 120, 121, 122, 123, 124, 130, 131, 134, 135,
136, 137, 138, 140, 142, 143, 144, 148, 152, 153, 154, 155, 156, 157, 158, 159, 160, 161,
162, 163, 165, 166, 167, 169, 170, 171, 172, 176, 185, 186, 195, 196, 197, 198, 199, 200,
208, 212, 214, 217, 218, 223, 224, 225, 226, 235, 237, 238, 241, 242, 243, 245, 249, 254,
256, 257, 259, 260, 261, 266, 267, 268, 269, 270, 277, 278, 279, 280, 281, 284, 285, 289,
290, 291, 301, 302, 306, 308, 309, 312, 313, 314, 315, 316, 317, 318, 320, 324, 325, 326,
327, 328, 329, 330, 331, 332, 333, 338, 339, 340, 345, 347, 348, 349, 353, 355, 356, 357
Securities lending … ……… 157, 160, 195, 196, 197, 198, 326, 327, 328, 332, 338, 345, 355
Securitisation … …………………………………………………………………… 27, 80, 104, 127
Semi-annual report … 7, 34, 35, 59, 60, 62, 78, 163, 165, 168, 174, 175, 226, 227, 335, 336
Services … 9, 11, 12, 40, 41, 44, 45, 46, 47, 48, 49, 54, 56, 66, 69, 79, 111, 139, 140, 141,
142, 143, 144, 145, 190, 206, 229, 232, 234, 235, 251, 315, 316, 338, 339, 340, 347
Shareholder … 6, 16, 21, 22, 23, 24, 25, 37, 38, 39, 43, 50, 67, 71, 72, 86, 99, 113, 139, 144,
171, 174, 180, 203, 205, 233, 257, 327, 328, 330, 331
Shares …………5, 8, 12, 13, 16, 21, 22, 23, 24, 25, 30, 32, 37, 39, 40, 49, 50, 67, 71, 72, 73,
78, 85, 86, 87, 89, 100, 104, 105, 106, 115, 117, 119, 134, 135, 136, 137, 138, 142, 143,
149, 150, 152, 155, 161, 163, 165, 166, 169, 170, 171, 181, 183, 185, 186, 187, 188, 190,
191, 196, 197, 208, 211, 217, 218, 223, 224, 225, 241, 244, 245, 248, 249, 261, 262, 263,
264, 271, 272, 273, 274, 275, 276, 278, 289, 291, 295, 306, 307, 308, 309, 310, 312, 314,
317, 318, 329, 330, 331, 332, 333, 354, 356
SICAV …13, 21, 22, 23, 24, 25, 37, 38, 67, 85, 86, 87, 99, 134, 149, 150, 239, 241, 242, 277
Simplified prospectus … …4, 7, 59, 60, 62, 77, 217, 219, 226, 336, 243, 244, 245, 246, 254,
255, 356
Sophisticated UCITS ……………………………… 281, 282, 284, 285, 290, 292, 295, 296, 299
Stress test … ……………………………………………………………………………… 286, 299
365
Subscription right … …………………………………………………………………… 32, 33, 313
Subscription tax ………………………………………………… 4, 65, 66, 98, 122, 242, 310, 316
Subsidiary … ………………………………………… 13, 15, 32, 43, 61, 94, 95, 116, 216, 333
Supervision 3, 11, 26, 27, 29, 39, 40, 44, 45, 47, 51, 52, 53, 56, 58, 59, 66, 82, 88, 92, 93,
103, 107, 108, 109, 114, 133, 139, 146, 147, 148, 149, 150, 153, 170, 174, 182, 184, 194,
196, 207, 208, 215, 217, 222, 226, 228, 230, 231, 232, 233, 235, 243, 247, 249, 250, 251,
252, 254, 261, 270, 277, 278, 280, 281, 287, 300, 325, 326, 327, 328, 329, 330, 331, 338,
339, 341, 345, 356, 357
Supervisory authority 28, 40, 45, 52, 54, 55, 56, 57, 107, 108, 110, 111, 133, 134, 138, 139,
147, 162, 180, 187, 191, 196, 203, 231, 232, 233, 254, 255, 271, 273, 293, 325, 339
Suspension of redemptions ……………………………………………………………………… 57
Swaps … ……………………………………………………………………………… 159, 212, 296
T
Techniques and instruments … 5, 8, 13, 28, 72, 123, 130, 131, 157, 161, 218, 281, 326, 327,
345, 355, 356
TER … …………………………………………………………………………………………… 245
Third country … ……………………………………………………………… 44, 52, 109, 233, 288
Total Expense Ratio … ………………………………………………………………………… 245
Transactions by private agreement …………………………………………………………… 158
Transferable securities ………… 3, 4, 5, 8, 10, 11, 12, 13, 15, 16, 20, 21, 25, 26, 28, 29, 30,
31, 32, 33, 36, 37, 39, 57, 75, 93, 113, 118, 122, 123, 124, 130, 134, 136, 138, 152, 153,
154, 155, 157, 159, 160, 162, 169, 185, 195, 197, 200, 217, 218, 223, 225, 235, 237, 238,
243, 254, 261, 280, 281, 284, 289, 290, 317, 324, 325, 326, 345, 347, 348, 349, 353, 355,
356, 357
U
UCITS … ……………………………………… 3, 4, 5, 7, 8, 9, 10, 11, 12, 13, 14, 15, 18, 25, 26,
27, 28, 29, 30, 31, 32, 33, 34, 35, 40, 42, 44, 45, 46, 50, 56, 57, 63, 68, 69, 73, 75, 76, 77,
78, 123, 124, 126, 128, 129, 130, 131, 136, 137, 138, 147, 152, 153, 154, 155, 156, 157,
158, 159, 160, 161, 162, 163, 165, 166, 167, 194, 218, 219, 220, 221, 222, 223, 224, 225,
228, 229, 230, 231, 232, 233, 234, 235, 243, 244, 245, 246, 254, 255, 270, 271, 272, 273,
274, 275, 276, 280, 281, 282, 283, 284, 285, 286, 287, 288, 289, 290, 291, 292, 293, 294,
295, 296, 297, 298, 299, 300, 324, 325, 326, 327, 328, 329, 330, 331, 332, 333, 334, 345,
346, 347, 348, 349, 350, 351, 352, 353, 354, 355, 356, 358
UCITS of the closed-ended type ………………………………………………………15, 137, 224
UCI with multiple compartments ………………………………………………… 31, 65, 66, 196
Uncovered sales …………………………………………………………… 26, 33, 160, 200, 357
Undertaking for collective investment …………… 13, 118, 121, 122, 124, 179, 183, 325, 326
Undertaking for collective investment in transferable securities ……………………… 13, 326
Unitholder … …………… 3, 16, 17, 18, 19, 20, 21, 26, 30, 33, 34, 35, 36, 45, 57, 58, 59, 60,
62, 63, 70, 71, 72, 73, 74, 77, 79, 81, 82, 83, 84, 85, 86, 91, 92, 139, 144, 169, 170, 233,
328, 330, 331, 350, 351, 356
V
Valuation …………………………………………… 17, 23, 27, 39, 72, 79, 82, 85, 88, 106, 123,
124, 126, 128, 129, 140, 141, 142, 156, 160, 161, 166, 167, 168, 170, 185, 203, 206, 208,
212, 221, 249, 281, 283, 287, 289, 291, 292, 294, 328, 332, 342, 350, 352, 353
366
Value … …………… 12, 15, 16, 17, 19, 21, 22, 23, 27, 28, 29, 31, 37, 39, 41, 66, 67, 75, 76,
82, 85, 86, 88, 98, 100, 102, 105, 106, 118, 119, 122, 125, 126, 128, 129, 139, 140, 141,
148, 149, 150, 156, 158, 159, 160, 163, 165, 166, 167, 168, 169, 170, 171, 178, 183, 184,
185, 195, 196, 197, 199, 200, 204, 212, 228, 238, 239, 240, 247, 249, 257, 258, 259, 283,
284, 285, 286, 287, 289, 291, 295, 296, 297, 298, 299, 304, 305, 306, 307, 314, 320, 328,
329, 330, 332, 333, 334, 339, 350, 351, 352, 354
Value-at-Risk … …………………………………………………………………………… 285, 297
VaR … ……………………………………………… 285, 286, 287, 292, 293, 297, 298, 299, 300
Venture capital … ………………………………………… 5, 134, 138, 162, 163, 225, 256, 257
Visa … …………………………………………………………………………… 174, 175, 246, 272
Volatility … ……………………………………………… 31, 185, 186, 200, 256, 282, 297, 353
Voting right … ………………………………………………………… 13, 16, 32, 71, 81, 171, 233
W
Warrants … ……………………………………………… 158, 232, 241, 295, 309, 312, 313, 320
367
Published by the SOCIETE DE LA BOURSE DE LUXEMBOURG S.A. and the Association
Luxembourgeoise des Fonds d’Investissement and containing the Luxembourg
laws and regulations regarding undertakings for collective investment as well as the related
circulars of the supervisory authority.
In case of divergence between this translation and the original French text, the French text
shall prevail.
PricewaterhouseCoopers Luxembourg (www.pwc.com/lu) employs more than 1950 professionals from 53 different countries. PricewaterhouseCoopers (www.pwc.com) provides
industry-focused assurance, tax and advisory services to build public trust and enhance value
for our clients and their stakeholders. More than 163,000 people in 151 countries across our
network share their thinking, experience and solutions to develop fresh perspectives and
practical advice.
“PricewaterhouseCoopers” refers to the group of independent firms that are members of
PricewaterhouseCoopers International network, each of which is a separate and independent
legal entity.
Undertakings for collective investment 2010
For any further information about our firm or our services please contact the PricewaterhouseCoopers
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Undertakings for
2010

Undertakings for collective investment

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