30 March 2012

ICMA AMIC ETF Working Group submits response to ESMA consultation paper

Index‐tracking UCITS

The prospectus of an index‐tracking UCITS should include:

a) A clear description of the index including details of its underlying components. In order to avoid the need to update the document frequently, the prospectus can direct investors to a web site where the exact composition of the index is published.

b) Information on how the index will be tracked and the implications of the chosen method for investors in terms of their exposure to the underlying index and counterparty risk.

c) The policy of the index‐tracking UCITS regarding the ex‐ante tracking error including its target level.

d) A description of factors that are likely to affect the index‐tracking UCITS‘ability to track the performance of the index, such as transaction costs, small illiquid components, dividend reinvestment etc.

e) Details of whether the index‐tracking UCITS will follow a full replication model or use, for example, a sampling policy.

The annual and half‐yearly reports of an index‐tracking UCITS should state the size of the tracking error as at the end of the period under review. The annual report should provide an explanation of any divergence between the target and actual tracking error for the relevant period.

Index‐tracking leveraged UCITS

The prospectus for index‐tracking leveraged UCITS should include the following information:

a) A disclosure on the leverage policy, how this is achieved (e.g. whether the leverage is at the level of the index or arises from the way in which the UCITS obtains exposure to the index), the cost of the leverage and the risks associated with this policy.

b) A disclosure on the impact of any reverse leverage (i.e. short exposure).

c) A description of how the frequency of calculation of leverage impacts on investors’ returns over the medium to long term.

Information to be provided according to paragraph 1 (b) above should also be included in the KIID.

Full paper

© ICMA