IRELAND: UCITS and financial indices – Consultation Paper on requirements for approval of the Regulator

Thursday December 21 2006

The Financial Regulator has published a Consultation Paper on a proposed Guidance Note to clarify the circumstances in which a UCITS must seek approval from the Financial Regulator in respect of financial indices both in the case of index tracking UCITS and in the case of usage by a UCITS of financial derivative instruments (FDI) where the underlying is a financial index.

The Consultation Paper can be found at the above link.

The attached document represents Funds-Axis understanding of the proposals as to when submission to the Regulator will be required. Funds-Axis will raise a number of issues with the Financial Regulator in respect of the proposals. Also, we will also be building on our existing relationships with the index providers to identify how we can support Managers who need to make the required submissions to the Regulator.

The Guidance Note also sets out the documentary evidence that should be provided with the submission in order that it is sufficient to demonstrate that the index:

*Is sufficiently diversified;

* Represents an adequate benchmark for the market to which it refers;

* Is published in an appropriate manner; and

* Is independently managed from the management of the UCITS.

Additionally, Appendix I provides a detailed checklist to assist applicants prepare their submissions.

Prospectus Disclosures

The proposed Guidance Note also sets out proposals for prospectus disclosure requirements. It is proposed that if an index is being used for EPM purposes, there is no requirement to disclose details of the index in the prospectus other than the fact that the UCITS will gain exposure to indices for such purposes. Where indices may be used for investment purposes, the prospectus must provide sufficient disclosure to allow a prospective investor to understand the market that the index is representing, why it is being used as part of the UCITS investment strategy, how the investment will be made (i.e. directly through investment in the constituents or indirectly through FDI) and where additional information on the index may be obtained.