ESMA Guidelines on Repo Arrangements for UCITS

The European Securities and Markets Authority (“ESMA”) has published its Final Report on Guidelines on repurchase and reverse repurchase agreements (the “Final Guidelines”) for UCITS. The Final Report which includes a Feedback Statement, contains an annex detailing the Final Guidelines.

The main aim of the Final Guidelines is the protection of investors through the introduction of requirements on using repurchase and reverse repurchase agreements.

The main features of the Final Guidelines are as follows:

1. A UCITS that enters into a repurchase agreement should be able to recall at any time the assets which are subject to these arrangements or to terminate the agreement;
2. A UCITS that enters into a reverse repurchase should be able to recall at any time the full amount of cash or terminate the agreement on either an accrued or a mark-to-market basis. If the cash is recalled on a mark-to-market basis, the value should be used for the calculation of the net asset value; and
3. Fixed-term repurchase and reverse repurchase agreements that do not exceed 7 days, are considered to be arrangements that allow the assets to be recalled at any time by the UCITS.

The Final Guidelines will be incorporated into the Report and Consultation Paper which focused on UCITS Exchange-Traded Funds (“ETFs”) and other UCITS issues (ESMA/2012/474) which was published on 25 July 2012.