UCITS III Funds - Background
UCITS III represents a regulatory revolution.
Undertakings for Collective Investment in Transferable Securities (UCITS) are now to be allowed to be wholly invested in non-transferable derivatives.
All EU based investment funds had to convert to the UCITS III rulebook by mid-February 2007.
A UCITS Funds can be sophisticated or unsophisticated.
Where a firm manages a “sophisticated” fund, one using derivatives extensively for investment, the regulations require that its Risk Management Process (RMP), must, in particular, incorporate a daily calculation of the “Value at Risk” (VaR) of the fund.
Many UCITS compliant funds are being traded as ETFS (Exchange Traded Funds), where the benefit of MIFID and UCITS means that a fund launched in one EU state can now be easily passported to other EU states.
‘Undertakings for Collective Investment in Transferable Securities’ (or UCITS, pronounced yoo-sits) are a set of European Union directives that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state. In practice many EU member nations have imposed additional regulatory requirements that have impeded free operation with the effect of protecting local asset managers.
A collective investment fund may apply for UCITS status in order to allow EU-wide marketing. The concept is to create a single market in transferable securities across the EU. With a larger market the economies of scale will reduce costs for investment managers which can be passed on to consumers.
Throughout Europe approximately €5 trillion are invested in collective investments. Of these funds about 70% are UCITS. (source Wikipedia 2005)