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AFM endorses ESMA guidelines on ETF's

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The Netherlands Authority for the Financial Markets (AFM) endorses the Guidelines on ETFs and other UCITS issues (Guidelines).

These Guidelines devote attention to – among other things – Efficient Portfolio Management Techniques, such as securities lending. The Guidelines also provide starting points for the information that has to be provided with respect to UCITS. They furthermore contain specific rules that UCITS must apply when performing transactions in OTC financial derivatives. And finally, these Guidelines provide criteria that must be met by financial indices in which UCITS invest. The Guidelines entered into effect on 18 February 2013.

Efficient Portfolio Management Techniques

In addition to this announcement, the AFM has also drawn up a separate document in which it has included several points for attention concerning the Guidelines. These points for attention relate in particular to Part X of the Guidelines (Efficient Portfolio Management Techniques).

In the opinion of the AFM, Efficient Portfolio Management Techniques, such as securities lending, entail risks. Where possible, these must be limited to a level that is acceptable to both the collective investment scheme – and consequently its investors – and the financial system as a whole.

Collective investment schemes have to place the central focus on the interest of their clients when applying Efficient Portfolio Management Techniques. This means that the manager of a collective investment scheme first and foremost must decide whether it is desirable to apply Efficient Portfolio Management Techniques to collective investment schemes in which private investors have invested. If the decision is made to apply these Efficient Portfolio Management Techniques, the risks must be made clear to private investors, and they must be sufficiently mitigated.

The AFM also considers it particularly desirable for parties to be clear about the costs and fees related to the Efficient Portfolio Management Techniques. And finally, the distribution of the fees related to the Efficient Portfolio Management Techniques has to be in line with the distribution of the risks. The AFM has included the various points for attention in a comprehensive manner in a separate document.

Scope of application

The Guidelines apply to:

  • UCITS managers
  • UCITS in the form of collective investment schemes under independent administration.

The AFM also considers it desirable that other parties take note of the content of the Guidelines. This concerns managers of collective investment schemes that are not UCITS and managers of investment companies, including bank investment companies, which distribute these collective investment schemes.

The AFM is committed to promoting fair and transparent financial markets.

As an independent market conduct authority, we contribute to a sustainable financial system and prosperity in the Netherlands.

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