ISDA published its comments to CESR and Commission regarding ability of UCITS funds to enter into credit default swaps following implementation of Eligible Assets Directive.
ISDA is concerned as to whether some provisions of the Eligible Assets Directive should be read as preventing UCITS from investing in market standard CDS where the documentation states the deliverable obligation as bond or loan.
“The position should be that CDS have been, and continue to be, eligible assets for UCITS, provided that they are cash-settled with respect to the ineligible asset”, ISDA states.
“There is presently a great deal of uncertainty in the markets, from both dealers and their UCITS fund manager clients, as to the interpretation of Article 8(2)(b) and how they should proceed with existing and future trades in light of the EAD”, ISDA states.
In light of the imminent (and in some Member States present) implementation of the EAD into Member State’s national laws further guidance and/or clarification on this point is urgently required.
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