Opinion of the Economic and Social Committee on the 'Proposal for a European Parliament and Council Directive amending Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)'
Date: 1999-02-25
Institutions: European Economic and Social Committee
Subjects: European Economic and Social Committee, approximation of laws, business management, financial legislation, investment company, securities

C 116/44

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Official Journal of the European Communities

28.4.1999

Opinion of the Economic and Social Committee on the ‘Proposal for a European Parliament and
Council Directive amending Directive 85/611/EEC on the coordination of laws, regulations and
administrative provisions relating to undertakings for collective investment in transferable
securities (UCITS)’(1)

(1999/C 116/11)

On 26 October 1998 the Council decided to consult the Economic and Social Committee, under Article
198 of the Treaty establishing the European Community, on the above-mentioned proposal.

The Section for Single Market, Production and Consumption, which was responsible for preparing the
Committee’s work on the subject, adopted its opinion on 11 February 1999. The rapporteur was
Mr Levitt.

At its 361st plenary session (meeting of 25 February 1999), the Economic and Social Committee adopted
the following opinion with 60 votes in favour and four against.

1.

Introduction

Directive 85/611/EEC(2) on Undertakings for Collec-
1.1.
tive Investment in Transferable Securities (UCITS) established
a ‘single licence’ regime for Collective Investment Undertakings
(i.e. an authorisation for products to be sold throughout the
Single Market on the basis of approval in one Member State).
Collective Investment Undertakings are now established in all
Member States, whereas before the adoption of the Directive
in 1985 they were not widespread. However, the Directive’s
impact has been limited by the fact that its single licence
regime applies only to investments in transferable securities
(essentially shares and bonds) traded on a stock exchange or
similar regulated market.

It is now proposed to maintain the basic principles
1.1.1.
of the UCITS Directive but to extend its scope. These basic
principles are: investor certainty, transparency, asset quality
and proper regulation. This cannot guarantee that individual
investors will never make a loss, but they can be confident that
UCITS will comply with sound basic standards and that they
will be properly regulated.

1.1.2. Markets have developed since the original Directive
was adopted in 1985. That Directive was itself the result of
proposals originating in the 1970s. Since 1985 financial
markets have developed, variations in the implementation of
the Directive by different Member States have emerged, and
the importance of the Single Market in financial services has
been reflected in the EU’s aims and legislative development,
including the clarification of some of the key principles and
concepts. In a number of regards, therefore, the 1985 Directive
needs to be brought up to date.

1.2.
The proposed legislative framework would, according
to the Commission, ensure a high level of protection for
individual investors by setting standards both for the invest-
ment products and for the managers undertaking the invest-
ment. As regards the products, the proposed rules would

ensure that funds raised from the public were invested in
suitably qualified assets and that risk-spreading requirements
were respected. As for the portfolio mangers, the rules would
impose strict market access and operating conditions and
controls.

Two amending Directives have been proposed(3). The
1.3.
focus of this Opinion is on the proposal concerning the
‘product’ (the investment fund). It would extend the range of
financial assets in which collective investment undertakings
benefiting from the single licence may invest. In future, UCITS
would be permitted to invest not only in listed shares and
bonds, but also in bank deposits (cash funds), money market
instruments (money market funds), standardised options and
futures contracts dealt on regulated exchanges and in units of
other collective undertakings (funds of funds). The proposed
rules on risk spreading would also recognise the validity of
new investment management techniques already widely and
successfully employed, such as those based on investing in
shares of different issuers according to the same weightings as
is used in the basket on which a particular stock-index is
based.

The other proposal(4) focuses on the financial inter-
1.4.
mediary which may manage UCITS and is the subject of a
separate Opinion(5).

The UCITS proposals were foreseen in the Action Plan
1.5.
for the Single Market and are part of the effort to improve the
functioning of the Single Market in financial services,
in
accordance with the request of the 15-16 June European
Council in Cardiff.

The ESC in its opinion(6) on the Commission’s original
1.6.
1976 UCITS Proposal concluded that ‘while the proposed

(1) OJ C 280, 9.9.1998, p. 6.
(2) OJ L 375, 31.12.1985, p. 3.

(3) COM(1998) 449 final and COM(1998) 451 final.
(4) COM(1998) 451 final.
(5) OJ C 101, 12.4.1999.
(6) OJ C 75/10, 26.3.1977.

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directive may be considered as a step forward ... it does not
fully achieve the objectives mentioned ... namely (i) to improve
conditions of competition, (ii) to standardise as far as possible
the obligations imposed on UCITS, (iii) to abolish restrictions
on the free movement of units and (iv) to ensure a better
inter-penetration of capital markets.’

Those criteria are still relevant. The present proposal is

1.7.
intended to improve their attainment.

2. Summary of the Commission document

2.1. Overview

The aim of the proposal, according to the Commission, is to
remove barriers to cross-border marketing of units of collective
investment undertakings through:

2.1.1.
the extension of the freedom to be marketed through-
out the EU collective investment undertakings investing in
financial assets other than transferable securities: i.e. to units
of other collective investment undertakings; money market
instruments; bank deposits; standardised options and futures
contracts;

2.1.2.
amendments in the light of new portfolio manage-
ment techniques to allow for ‘tracker’ funds, where shares
representing the underlying assets of an index are held and
which enable the ceiling of 10 % investment in one issuer to
be raised to a maximum of 35 %. The aim is to allow for
flexible risk spreading;

removal of uncertainties concerning the definition of
2.1.3.
‘transferable securities’ to make it clear that money market
instruments are covered;

The proposal would also introduce minimum risk
2.1.4.
control measures concerning transactions which Member
States allow UCITS to enter into for purposes of ‘efficient
portfolio management’, especially the use of financial deriva-
tives, including over the counter (OTC) derivatives and securi-
ties lending transactions where the UCITS acts as lender.

2.1.5.
The proposal clarifies the requirement that sub-
sidiaries of UCITS should normally be incorporated in a
Member State.

2.1.6.
The proposal ascribes to the UCITS Contact Com-
mittee, set up by the original UCITS Directive, comitology
powers for the introduction of technical adaptations to the
Directive.

2.1.7.
The proposal introduces new transparency require-
ments to provide investors with additional information, includ-
ing replication of stock-indices and investment in financial
derivatives.

2.2. Specific Amendments (see Annexe)

2.2.1.
Amendment 1 — Article (1) 2 defining UCITS
enables investment funds to invest in a wider range of financial
assets.

2.2.2.
Amendment 2, adding a new paragraph 8 to Article
1 makes clear that ‘transferable securities’ may include different
types of instruments and is intended to ensure a clearer
common understanding among Member States;
‘money
market instruments’ are considered to be included in the
category of ‘transferable securities’.

Amendment 3 proposes additions to paragraph 1 of
2.2.3.
Article 19 of
the original Directive and identifies liquid
financial assets other than listed transferable securities which
qualify as eligible investments for UCITS. The list includes
units of other UCITS, bank deposits, financial futures and
options dealt in on regulated markets and non-listed money
market instruments issued by qualified issuers.

2.2.4.
Amendments 4 and 5 propose deletions to Articles
19.2.b and 19.3 and Article 20 and follow from the inclusion
of money market instruments in the definition of ‘transferable
securities’.

Amendment 6, proposes additions to Article 21
2.2.5.
in the original Directive which permits UCITS to employ
‘techniques and instruments’ for efficient portfolio manage-
ment without specifying the types of techniques and instru-
ments. Taking into account the new portfolio management
and hedging techniques which have been developed since the
Directive was adopted in 1985, this amendment is intended to
clarify that UCITS may conclude transactions involving all
sorts of financial derivatives, including derivatives not dealt in
on regulated markets [over the counter derivatives (OTC)] and
that UCITS may act as lenders in security lending transactions.
Transactions would, however, be subject to measures intended
to eliminate or reduce to an acceptable degree the risks
involved.

2.2.6.
Amendment 7, proposes a new Article 22a to allow
the replication of stock indices. According to the existing
Article 22, UCITS may invest no more than 10 % of their
assets in securities issued by the same issuer. Today, a widely
adopted management technique for UCITS investing primarily
in shares is based on the replication of the composition of
certain stock-indices which, according to the Commission,
represent a useful benchmark for such investments. The aim
of the amendment is to introduce more flexible risk-spreading
requirements for investments in shares involving underlying
assets of qualified stock-indices, to facilitate the replication of
such indices. The amendments would raise the limit in Article
22 to a maximum of 35 % for investment in shares from the
same issuer when the aim of the UCITS is to replicate the
composition of an approved stock-index.

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2.2.7.
Amendment 8 proposes a new Article 24. At present
UCITS may only invest up to 5 % of their assets in other UCITS.
This ceiling has been considered unnecessarily restrictive by
Member States and the investment fund industry and the
amendment would raise the ceiling to a maximum of 35 %,
provided that the UCITS invests in at least five different
collective investment undertakings in order to ensure diversifi-
cation of risk.

2.2.8.
Amendment 9 proposes a new Article 24a to
facilitate investment in bank deposits. Amendment 9 also
proposes a new Article 24b. At present UCITS are permitted
to invest in derivatives only for purposes of ‘efficient portfolio
management’ and the amendment is, according to the Com-
mission, intended to allow UCITS to invest, as part of their
general investment policy, in standardised financial futures
and options dealt in on regulated markets.

3.2. Money Market Instruments (Amendments 2 and 3)

The treatment of money market

3.2.1.
instruments in
proposed Article 1.8(b) together with proposed Article 19.1(i)
is confusing. Article 1.8(b) refers to money market instruments
other than those which, for the purposes of Article 1.8(b), are
normally dealt in on the money market. If it is intended to
allow investment in money market instruments dealt both on
a regulated market and on non-regulated markets, the wording
of Article 19.1(i) ‘money market instruments which are not
dealt in on a regulated market’ should be replaced by ‘money
market instruments other than those which, for the purposes
of Article 1.8(b), are normally dealt in on the money market’.

Amendments 10 and 11 amend Article 25.2 of the
2.2.9.
original Directive and set a ceiling of 10 % of the UCITS assets
which may be invested in money market instruments issued
from a single body.

32.2.
The second indent of Article 19(1)(i) should read as
follows: ‘issued by an undertaking any securities of which are
admitted to official listing on a stock exchange or are dealt in
on another regulated market which operates regularly and is
recognised and open to the public or...’.

2.2.10.
Amendment 12 proposes a new Article 25.3.e
intended to clarify that subsidiaries of investment companies
constituted as UCITS should normally be incorporated in a
Member State on the grounds that such subsidiaries should
be considered part of the organisational structure of such
companies which, in order to ensure effective supervision,
have to be entirely located within the EU. The new Article
25.3.d identifies the exceptional cases in which UCITS may
hold subsidiaries in third countries.

2.2.11.
Amendments 13, 14 and 15 (Article 26.1.2, Article
41.2 and Article 42) refer to the technical consequences of
broadening the investment possibilities for UCITS.

Amendment 16 proposes a new Article 53.a to
2.2.12.
enable comitology powers to be exercised by the UCITS
contact committee under Article 53 of the original Directive
to facilitate technical amendments to the Directive in future.

2.3.
There are a number of respects in which the existing
text of the proposal needs to be clarified or amended, as
explained below.

3. Specific comments

The amendments summarised in section two above are
3.1.
to be welcomed. They extend the scope of the financial assets
concerned, subject to a number of strict conditions.

3.3. Funds of Funds [Amendments 3 and 8, amending Article

19.1(e)]

3.3.1.
The proposal to allow the developments of ‘funds of
funds’ is to be welcomed. This allows UCITS to create balanced,
diversified funds in a manner which is much more economical
than creating a new, entirely separate fund to invest directly in
stocks and bonds.

3.3.2.
The Commission recognizes that the restriction on
the ability of UCITS to invest up to 5 % of their assets in other
UCITS should be lifted, and this is to be welcomed. The
question arises as to what should be the new limit. On the one
hand, there is the need to ensure prudential protection of
investors through risk-spreading, i.e. the avoidance of excessive
investment in a single or narrow range of entities. On the
other hand, a single UCITS in which other UCITS may invest
would itself have a widely diversified portfolio. The former
consideration implies a limit on the extent to which a UCITS
can invest in another UCITS, while the second consideration
implies that the limit need not be very low. For example,
approximately half of global market capitalisation consists of
US equities, so it could be argued that a UCITS solely devoted
to the management of a widely diversified US portfolio could
form 50 % of the assets of another UCITS — so, according to
this reasoning, the 35 % ceiling o investment in another UCITS
is too low. On the other hand, a jump from the present 5 %
ceiling to 50 % is rather radical, nd on balance the Commission
proposal of a 35 % limit appears to be a reasonable compro-
mise which, in the Commitee’s opinion, should be adopted.

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3.3.3.
The Committee notes that there is no provision for a
waiver from the percentage share of the ‘fund of funds’ in the
liabilities of each eligible UCITS, which is kept to a maximum
of 10 %. The Committee thinks this ratio should be raised to
35 % because the 10 % rule is highly restrictive: it is difficult
to check compliance with a ratio where the denominator
changes every day because it represents the assets of another
UCITS. This difficulty will obviously be heightened for the
investments of the ‘fund of funds’. No such ratio is laid down
for direct investments by an individual or legal entity.

shares contracts covered by shares). In the Committee’s view,
such an obligation would prevent all deals other than hedging.
It therefore seems unnecessarily restrictive and should be
It is not necessary that there should be exact
abolished.
congruence between the underlying portfolio and the deriva-
tive exposure because UCITS would not then be able to use
derivatives to obtain protection from risk because they would
be holding the same position in both the derivative and the
covering securities. Full correlation between the underlying
portfolio and the derivatives exposure is unnecessary, but what
is important is that the fund should be able to meet its
liabilities.

3.4.

Inconsistency between the treatment of derivatives (Amend-
ments 6 and 9, proposing Articles 21.3 and 24b)

The proposal to amend Article 21 clarifies that all
3.4.1.
UCITS can invest in over the counter (OTC) derivatives for
purposes of efficient portfolio management, and this is to be
welcomed. This does not change the status quo, at least as it
exists in several Member States. However the new Article 24b
does not allow UCITS to use such derivatives in specialist
futures and options funds, where only ‘standardised’ contracts
may be used. This could also unjustifiably restrict the activities
of UCITS operating in countries where derivatives exchanges
are less well developed.

The case for the distinction is not made. While it is
3.4.2.
true that OTC derivatives bring with them counterparty
risk which is not present with exchange-traded standardised
contracts, this risk needs to be controlled rather than facing a
blanket prohibition.

3.4.3.
The appropriate response is to require the competent
authorities to ensure that an appropriate quality and spread of
counterparties are used, subject to appropriate limits, and that
controls and prices are strong, with positions revalued at the
same interval as the fund and that the risk is duly monitored
by the UCITS (see also 3.4.6 below).

3.4.4.
Derivatives can be used both to reduce and manage
risk as well as to increase risk but Article 24b appears to be
written from the viewpoint which regards derivatives as only
increasing risk.

3.4.5.
Cover requirements for derivatives (Article 24b.1).
The Directive requires that derivatives exposure should be
covered by other assets. This is to prevent derivatives being
used as leverage for large uncovered exposures. According to
the ninth recital, the Commission is asking for derivatives deals
to be covered by underlying securities of the same type (e.g.

3.4.6.
If UCITS undertake OTC transactions, the counter-
parties to such transactions should be qualified institutions
recognised by the UCITS competent authorities and the assets
should be capable of being valued at the same interval as the
fund. The fund should be able to sell or liquidate the derivative
instrument at any time, and the maximum exposure in respect
of any one counterparty should be no greater than 10 % of the
value of the fund.

3.4.7.
There would be merit in bringing in a single article
all the dispositions relating to UCITS’ use of derivatives. This
would enhance clarity. It seems to the Committee that it is also
necessary to amend Article 21, so that UCITS may use
derivatives based on any of the assets that they are permitted
to hold. They should continue to be able to use foreign
exchange derivatives to cover their foreign exchange exposure.

3.5. Stock Lending (Amendment 6, inserting Article 21.4)

3.5.1.
Securities lending transactions can be collateralised
not only by cash or securities but also by letters of guarantee.
The words ‘or other appropriate security’ should therefore be
added after ‘appropriate collateral’.

3.5.2.
The Commission proposal rightly suggests the safe-
guard of a third party custodian when a UCITS lends securities
to its depository. However, a similar effect can be achieved by
other means, for example the use of segregated accounts. The
Directive should be amended to allow UCITS to lend securities
to their depositories, provided that they take all the steps
necessary to avoid any confusion between the assets of the
depository and the collateral raised for the benefit of the
UCITS. At the very least, the collateral must be registered in a
guarantee account opened in the name of the UCITS on the
books of the depository.

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3.6. Replication of Stock Indices — Tracker Funds (Amendment

7, inserting new Article 22a)

be welcomed, the problem which it addresses seems likely to
diminish in significance over time.

3.6.1.
The present Directive can prevent UCITS investing
to replicate the composition of a certain stock-index, when a
particular company issue accounts for more than 10 % of a
national stock market. This is because UCITS cannot invest
more than 10 % of their assets in the securities of a single
issuer.

3.6.2.
The proposed directive would increase this limit to
35 % in the case of the index approved by the competent
authorities. However, the increase in the limit would only be
allowed where the UCIT seeks to ‘replicate the composition of
an index’, and full replication of an index can be an expensive
method of reproducing the economic effects of an index,
especially for smaller funds where statistical sampling tech-
niques and the use of derivatives may be used to seek to
replicate the return.

3.6.6.
The proposal, by reserving a higher limit for tracker
funds, could unintentionally distort the market in their favour
and to the detriment of managed funds. Managed funds seek
to beat indices. The only way to do this is to be overweight in
certain stocks. If managed funds are restricted to a 10 % limit,
there could be circumstances where they could not even have
a neutral weighting for a particular issuer,
let alone be
overweight in that stock. If the diversification rules are to be
relaxed, they should be relaxed for all funds.

3.6.7.
to index-tracking funds.

The requirements of Article 22a(2) should not apply

3.7. Cash Funds (Amendment 9, inserting new Article 24a)

Consequently, in Article 22a.1 the words ‘the aim of
3.6.3.
the UCITS investment policy is to replicate the composition of
a certain stock index’ should be replaced by ‘the management
objective corresponds to the evolution of a specific index of
financial instruments’. The Committee feels that the draft’s
wording is too strict and would not allow products which aim
for performance which exceeds a particular index.

3.7.1.
The proposal to allow the creation of funds investing
in cash deposits is to be welcomed. It is also right that such
funds be subject to appropriate regulations. However, these
should be both relevant and proportionate. The Commission’s
proposal should be revised to reflect this.

3.6.4.
The proposal to increase the investment limit to
35 % for tracker funds alone raises two questions. Is it prudent?
Does it have unintended distortive effects?

3.6.5.
The 35 % limit is too high, even if a 10 % limit is too
low. The rationale for UCITS is to allow small investors to
have the benefits of diversification normally reserved for
investors able to afford large portfolios. A limit of 20 % should
be sufficient to ensure that all major indices can be tracked.
This should be supplemented by an aggregate limit of 50 % of
the total assets of the fund, composed of investments in
individual entities each of which is over 10 % of the fund’s
assets. It may be noted that the proposal to raise the ceiling on
investment in a specific entity reflects the fact that a certain
company may represent well over 10 % of
the market
capitalisation in some Member States (i.e. it accounts for more
than 10 % of the shares in the stock index). However, one of
the effects of the single currency will be a reduction in the
emphasis on national stock indices and the growing import-
ance of pan-EU indices, as investors switch the focus of their
portfolio management from countries to sectors and to major
international companies. A number of pan-European stock
and bond indices have already been developed to reflect this
trend and to meet investors’ needs. Consequently, a major
international company which represents over 10 % of the
for a
stock index of
substantially smaller proportion of the assets in the pan-EU
index. In short, while the proposed increase in the ceiling is to

its country of origin will account

Article 24a.1 limits investments to credit institutions
3.7.2.
which offer ‘sufficient financial and professional guarantees’.
EU credit institutions are subject to the authorisation criteria
and capital and risk-spreading requirements of EU Directives.
These take up internationally agreed standards which are
generally applied to all internationally active banks. It is not
clear what the proposed Directive is seeking over and above
this. In addition, the application of a 10 % limit suggests that
bank deposits are as risky as stocks and bonds. This is not the
case, and a limit of 30 % would be more appropriate to reflect
the high degree of regulatory oversight to which EU banks,
and other banks which meet international standards, are
subject.

3.7.3.
Article 24a.3 requires funds to warn investors that
the UCITS invests in bank deposits. It is right that investors
should be informed clearly about the nature of the UCITS and
its risk profile but this is disproportionate. This provision,
which is very similar to Article 24b.2 on risk warnings for
derivatives, treats deposits as if they were as risky as derivatives.

3.7.4.
Finally, Article 24a.4 forbids deposits with the fund’s
depository. This is too absolute. Provided that appropriate
procedures are in place to ensure that there is appropriate
diversification and independent investment analysis, and pro-
vided that investment decisions are truly independent, then
there is no need for a blanket prohibition.

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3.7.5.
This article also highlights a lacuna in the Directive.
Limits are couched in terms of investment limits. This could
leave other forms of exposure uncovered. For example, in
addition to a deposit, a UCITS might have exposure to a
credit institution arising from a bond or equity holding, and
counterparty credit risk arising from an OTC derivatives
transaction. There is a case for inserting global exposure limits
into the Directive.

3.8. Risk Warning on Futures and Options Funds (Article 24b.2)

3.8.1.
The proposal requires that ‘promotional literature
must include a prominent statement drawing attention to the
fact that the UCITS invests ... in the financial futures contracts
and options. These documents shall also contain a warning
that the investment in the units of such a UCITS is only
suitable for experienced investors’.

3.8.2.
Such warnings are highly appropriate for futures and
options UCITS which are used to take speculative positions.
However, derivatives can be used to create funds which are
entirely appropriate for inexperienced investors where such a
warning would be misleading, for example:

— index tracking funds — derivatives can often be used to
track an index in a manner which is cheaper and more
efficient than holding all the components of the basket in
the appropriate proportions; and

— protected funds — derivatives are used to limit the capital
losses which investors can suffer on equity investments,
including the offering of guarantees that investors will
suffer no capital loss.

3.8.3.
The proposition that investors in futures and options
funds always need additional warnings and that they are only
suitable for experienced investors therefore needs to be
qualified. As they stand, these proposals contradict the Com-
mission’s intention to allow the development of index funds.

Brussels, 25 February 1999.

3.9. Ban on use of non-EU Subsidiaries

amending Article 25.3(e)]

[Amendment 12,

The Commission proposes to ban the use of non-EU
3.9.1.
subsidiaries by UCITS on the grounds that effective supervision
requires the location of any subsidiaries within the EU. This is
not reasoning which is applied elsewhere in single market
legislation, and a number of Member States do allow UCITS
to make use of such subsidiaries. Provided the competent
authorities are satisfied that they can effectively supervise the
activities of a non-EU subsidiary and that it does not threaten
the interests of unit-holders, there is no need for a blanket
prohibition. A ban may have a negative effect if, for example,
it prevented UCITS being given the benefit of double taxation
treaties between third countries

4. Conclusions

4.1.
The ESC welcomes and approves the Commission’s
proposal and urges the Council and Parliament to consider it
with all speed. But there are a number of points on which
further attention and some amendments appear to be required.

4.1.1.
take account of its concerns regarding:

Specifically, the Committee urges the Commission to

— ambiguities in the Draft Directive about money-market

instruments (3.2 above);

— inconsistency in the treatment of derivatives (3.4);

— restrictions on stock lending (3.5);

— replication of stock indices and tracker funds (3.6);

— inconsistent treatment of tracker funds and actively man-

aged funds (3.6.6);

— restrictions on investment in bank deposits (3.7);

— risk warnings on investment in futures and options funds

(3.8);

— the ban on the use of non-EU subsidiaries (3.9).

The President

of the Economic and Social Committee

Beatrice RANGONI MACHIAVELLI

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APPENDIX

to the opinion of the Economic and Social Committee

This appendix sets out how the Commission’s proposal amends the 1985 Directive.

Article of 1985 UCITS
Directive concerned
(85/611/EEC)

Changes proposed by Commission
in COM(1998) 449 final

Purpose

Article 1, paragraph 2

Add a phrase

Extends definition of ‘UCITS’

Article 1

Add new Article 1, paragraph 8

Article 19, paragraph 1

Insert new points (e) to (i)

Article 19, paragraph 2(b) Delete

Article 19, paragraph 3

Article 20

Article 21

Delete

Delete

Defines ‘transferable securities’ and ‘money market
instruments’

Extends eligible investments for UCITS to include:
e) units of other UCITS
f) deposits with credit institutions
g) standardized financial-futures contracts
h) standardized options
i) money market instruments

Technical consequence of new Article 19, para-
graph 1(i)

Removal of previous 10 % limit on certain assets

Technical consequence of new Article 19, para-
graph 1(i)

Add new Article 21, paragraphs 3 For purposes of effective portfolio management, (3)
permits transactions involving financial derivatives
and 4
and (4) UCITS acting as lenders in securities lending
activities

Article 22

Insert new Article 22a

Article 24

Replace with new Article 24

Article 24

Insert new Article 24a

Article 24

Insert new Article 24b

Article 25, paragraph 2

Add a new indent

Article 25, paragraph 2

Amend second sentence

Article 25, paragraph 3(e) Amend sentence

Article 26, paragraph 1

Replace second sentence

Article 41, paragraph 2

Replace with new paragraph 2

Article 42

Replace with new Article 42

Article 53

Insert new Article 53a

Raises limit of shares from one issuer to 35 % for
stock-index replication purposes

Removes limits to investment
(‘funds of funds’)

in other UCITS

Permits investment in bank deposits (maximum
10 % of assets)

Permits investment in financial-futures contracts
and options

Technical consequence of new Article 19, para-
graph 1(i)

Technical consequence of new Article 19, para-
graph 1(i)

Clarifies previous text: subsidiaries of investment
companies must be incorporated in a Member State

Technical consequence of new Article 19, para-
graph 1(i)

Technical consequence of new Article 19, para-
graph 1(i)

Technical consequence of new Article 19, para-
graph 1(i)

Foresees future Directive to regulate technical modi-
fications and identify future comitology powers for
UCITS Contact Committee