GERMANY: BaFin publishes FAQ on UCITS eligible assets

Monday June 18 2007

In Germany, BaFin has published some FAQ on UCITS Eligible Assets. This follows on from the European Commission’s recent UCITS Eligible Assets Directive and from CESR Guidelines on UCITS Eligible Assets.

BaFin’s feedback, which is consistent with the Directive, includes:

*financial indices can be acceptable underlying for derivatives, even when the components of the index are not themselves eligible assets of UCITS;

*Certificates over precious metals and hedge funds are in principle eligible assets of UCITS – so long as all eligibility criteria are satisfied ;

*Synthetic shorting using physically settled derivaties is acceptable;

*There is no need to apply a look-through approach to investments in closed end funds;

*Disaster event bonds may be eligible assets of UCITS ;

*Money market instruments can be structured products and embed derivatives ;

*Instruments giving 1:1 exposure to the underlying need not be considered as derivatives or embedding derivatives.

The last point above is exceptionally important as regards UCITS spread rules, although as with all of the above comes with the requirement for a prudent spread of risk.

Please click on the above link for access to the Bafin Website. For information on Funds-Axis training and consultancy services in respect of UCITS eligible assets, click `http://www.funds-axis.com/uDocs/UCITS%20III%20and%20ELIGIBLE%20ASSETS.pdf`here