EUROPE: ESMA consultation on share classes of UCITS

Tuesday December 23 2014

The European Securities and Markets Authority has published a consultation paper on shares classes for UCITS.

The UCITS Directive recognises the possibility for UCITS to offer different share classes to investors but it does not prescribe whether, and to what extent, share classes of a given UCITS can differ from each other. ESMA has identified diverging national practices as to the types of share class that are permitted, ranging from very simple share classes (e.g. with different levels of fees) to much more sophisticated share classes (e.g. with potentially different investment strategies). Therefore, ESMA sees merit in developing a common understanding of what constitutes a share class of UCITS and of the ways in which share classes may differ from each other.

In the discussion paper, ESMA sets out its views on what constitutes a share class, including how to distinguish share classes from compartments of UCITS. The paper goes on to provide possible approaches to the extent of differentiation between share classes that should be permitted.

ESMA has requested feedback on the following questions:

1. What are the drivers for creating different share classes?
2. Why do certain UCITS decide to create share classes instead of setting up a new UCITS?
3. What are the costs of creating and operating a new share class compared to the cost of creating and operating a separate UCITS?
4. What are the different types of share class that currently exist?
5. How would you define a share class?
6. Do you agree that share classes of the same UCITS should all share the same investment strategy?
7. Could you explain how the operational segregation between share classes works in practice?
8. Do you agree that the types of share class identified by ESMA are compatible with the principle of having the same investment strategy?.
9. Do you believe that other types of share class that comply with the principle of having the same investment strategy exist (or could exist) and should be allowed?
10.Do you agree that the types of share class set out by ESMA do not comply with the principle of having the same investment strategy?
11.Please provide information about which existing UCITS do not comply with the criteria laid down by ESMA as well as an indication of the assets under management and the number of investors of these UCITS.
12.Do you see merit in ESMA clarifying how regulatory ratios such as the counterparty risk limit should be calculated (e.g. at the level of the UCITS or share classes)?
13.Do potential and current investors get adequate information about the characteristics, risks and return of different classes in the same UCITS?
14.Do you agree that ESMA should develop a common position on this issue?

ESMA will consider all comments received by Friday 27 March 2015.

ESMA will take into account the feedback from stakeholders with a view to establishing a common position on the use of share classes by UCITS.

Click on the above link for more details.