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Page last published: 20 November 2007

Citigroup® Global Transaction Services
Fiduciary Services
news&views; March 2007
CESR consultation on derivatives on hedge fund indices
REITs in Germany
MiFID in Ireland
Luxembourg Specialised Investment Funds

Across Europe

· CESR launches a consultation on derivatives on hedge fund indices for UCITS investments

· The UCITS risk-management process: what lies beneath

· An analysis of the European Commission's White Paper on investment funds

· IOSCO Investigates soft commission arrangements

Germany

· REITs in Germany: new opportunities for property investment

Ireland

· Implications of the EC's Third Money Laundering Directive for the Irish fund industry

· MiFID: some questions have been answered yet others remain

Luxembourg

· Luxembourg Specialised Investment Funds: a new regime for investment vehicles dedicated to sophisticated investors

· Proposed FSA changes to stock lending for authorised funds - FSA consultation paper CP 06/18

Contacts

Welcome

Welcome to the first 2007 issue of European News & Views. The past year has been very interesting from a technical and regulatory perspective. MiFID implementation is slowly but consistently going ahead, and the initial doubts about its impact on the asset management sector are being clarified. Also, the European Commission's (EC's) vade mecum on the Markets in Financial Instruments Directive's (MiFID's) implications for the investment fund business, expected before summer, will prove to be a very useful reference guide.

In November, the EC's long-awaited White Paper on Enhancing the Single Market Framework for Investment Funds laid down plans to modernise and further develop the European Union's investment fund framework. The paper makes particular reference to Undertakings for Collective Investment in Transferable Securities (UCITS), but without forgetting the always more interesting alternative investment space. In this edition of News & Views you will find an initial analysis of the White Paper.

Both the International Organisation of Securities Commissions (IOSCO) and the Committee of European Securities Regulators (CESR) have produced interesting analyses for the investment fund sector, focusing on soft commissions and eligibility of hedge fund indices for UCITS investment, respectively; and we review the main features of these in detail.

At national level, while most of the attention has been focusing on EU-driven initiatives, we have identified some interesting topics for discussion. In the United Kingdom, the Financial Services Authority (FSA) has proposed in its consultation paper CP 06/18 amendments to the Collective Investment Schemes Sourcebook (COLL) to modify rules relating to stock lending.

In Luxembourg, the new law on specialised investment funds will surely boost the competitiveness of the Grand Duchy's investment fund industry, providing it with a more modern framework for sophisticated investors. News & Views features a very interesting contribution on this topic thanks to Frédérique Lifrange and Jérôme Wigny (both from law firm Elvinger, Hoss & Prussen).

In Ireland, we analyse the impact of the EC's Third Money Laundering Directive for the local investment fund business. Additionally, Paul Ryan from Dillon Eustace in Dublin has kindly provided us with a new article on MiFID, which expands and integrates the one published in the September edition of News & Views.

In Germany, we explore the new legal framework that introduces German Real Estate Investment Trusts (G-REITs). I wish you all a good read and, most of all, a very successful 2007.

Sean Quinn
European Head of Fiduciary Services

CESR launches a consultation on derivatives on hedge fund indices for UCITS investments

Those of you who have followed with us the Committee of European Securities Regulators (CESR) consultation on eligible assets for Undertakings for Collective Investment in Transferable Securities (UCITs), which took place in the second half of 2005, will remember how CESR took the decision not to allow UCITS to invest into derivatives on hedge fund indices, but was reconsidering its position in October 2006. Now the time has come to review the matter in more detail.

CESR's final advice on eligible assets for UCITS investments, published in January 2006, stated: "given the complexities of hedge fund indices and the fact that they are still developing, CESR cannot recommend, at this stage, allowing hedge fund indices to be considered as financial indices. CESR is monitoring the issue and is willing to reconsider its position by October 2006, after gaining sufficient experience. CESR members agree not to authorise setting up new UCITS with such investment policies during this period." On 26 October 2006, CESR published a paper entitled, "Can hedge fund indices be classified as financial indices for the purpose of UCITS?" The publication has been followed by a consultation process that closed on 30 November 2006. During the next few months, CESR will analyse the feedback, discuss it with the industry during an open hearing planned for March 2007 and deliver its final paper in May 2007.

Background definitions

CESR's final advice on eligible assets sets out in detail its views on the criteria that should be met by a financial index for derivatives on such an index to be considered an eligible investment for the purpose of UCITS.

CESR's advice has been adopted by the European Commission (EC) in its Level 2 Implementing Measures, which stand as follows:

Diversification criteria

The reference in point (g) of Article 19(1) of Directive 85/611/EEC to financial indices shall be understood as a reference to indices which fulfil the following criteria:

(a) they are sufficiently diversified, in that the following criteria are fulfilled:

(i) the index is composed in such a way that price movements or trading activities regarding one component do not unduly influence the performance of the whole index;

(ii) where the index is composed of assets referred to in Article 19(1) of Directive 85/611/EEC, its composition is at least diversified in accordance with Article 22a(1) of that Directive;

(iii) where the index is composed of assets other than those referred to in Article 19(1) of Directive 85/611/EEC, it is diversified in a way which is equivalent to that provided for Article 22a(1) of that Directive;

Benchmark criteria

The reference in point (g) of Article 19(1) of Directive 85/611/EEC to financial indices shall be understood as a reference to indices which fulfill the following criteria:

(b) they represent an adequate benchmark for the market to which they refer, in that the following criteria are fulfilled:

(i) the index measures the performance of a representative group of underlyings in a relevant and appropriate way;

(ii) the index is revised or rebalanced periodically to ensure that it continues to reflect the markets to which it refers following criteria which are publicly available;

(iii) the underlyings are sufficiently liquid which allows users to replicate the index;

Publicity criteria

The reference in point (g) of Article 19(1) of Directive 85/611/EEC to financial indices shall be understood as a reference to indices which fulfill the following criteria:

(i) their publication process relies on sound procedures to collect prices and to calculate and to subsequently publish the index value, including pricing procedures for components where a market price is not available;

(ii) material information on matters such as index calculation and rebalancing methodologies, index changes or information relating to any operational difficulties in providing timely or accurate information is provided on a wide and timely basis.

Any hedge fund index should have to meet the above criteria, which are still subject to changes, for derivatives having the hedge fund index as underlying to be an eligible investment for UCITS.

Main issues related to hedge fund indices

CESR identifies some of the material issues affecting hedge fund indices, noting, however, that some of these issues may also affect "traditional" financial indices.

The first set of issues relates to the underlying database or the underlying constituents of an index. The purpose of an index is to "concentrate and distil" the information from the underlying constituents. In this respect, information must be available on all possible and relevant constituents for the index to be representative. Since hedge funds are mainly "private" vehicles that are not required to report publicly, any database will only contain a partial selection of funds. "This is also the case because there is no universally accepted definition of what a 'hedge fund' actually is." There are other shortcomings in the creation of a hedge fund index:

· Only hedge funds that choose to report data will be included in a database. Poorly performing funds and/or hedge funds closed to new investments may decide not to report their data. An index drawn from that database may not be representative.

· A database may have minimum inclusion criteria, even for funds that choose to report or include only funds that are in existence at a certain point in time. Once again, this may not be fully representative.

The second set of issues relates to the index construction rules per se, i.e. the methodology determining how constituent hedge funds are selected on an ongoing basis, and how the index is calculated.

· A hedge fund index provider needs to determine how to select underlying funds. This may include only investable hedge funds, for instance. In general terms, depending upon the amount of due diligence the hedge fund index provider chooses to carry out on potential underlying hedge funds, the hedge fund index may provide "an active rather than passively rules-based selection of underlying funds".

· Also, the way the hedge fund index provider decides to treat a bankrupted hedge fund or a hedge fund that stops reporting data will affect the calculation of the index.

· Classification of hedge funds (extremely relevant, for instance, in the event of "investment-style" drift) and hedge funds' weighting will also heavily influence the results of the index.

CESR's main questions

The fundamental question is: can hedge fund indices qualify as financial indices for the purpose of UCITS? As we have seen above, the three main criteria a financial index has to meet to qualify as such are that:

· It is sufficiently diversified.

· It represents an adequate benchmark.

· It is published in an appropriate manner.

In terms of diversification, CESR is considering setting up Level 3 requirements, such as:

a) a minimum number of index constituents for a hedge fund index; or

b) a particular weighting scheme to be used by the index.

CESR welcomes feedback on the viability of its suggestion to establish Level 3 guidelines and input on the question, "what requirements on weighting should hedge fund indices have to qualify as financial indices?" The need to represent an adequate benchmark is another requirement for a hedge fund index willing to qualify as financial index.

As seen above, the EC's current Level 2 measures state that for an index to represent an adequate benchmark for the market to which they refer, two criteria have to be met.

(i) The index must measure the "performance of a representative group of underlyings in a relevant and appropriate way". As no hedge fund index could currently be representative of the universe of hedge funds, this condition suggests that the index provider must "precisely and comprehensively define and disclose what the hedge fund index is attempting to measure".

(ii) The index must be "revised or rebalanced periodically" to ensure that it continues to reflect the markets to which it refers, "following criteria that are publicly available".

Finally, the requirement that the index is published "in an appropriate manner", two main criteria should be complied with:

(i) The publication must rely on "sound procedures to collect prices and to calculate and to subsequently publish the index value". The frequency of net asset value (NAV) publication of hedge funds may be such that only estimates are available between formal valuations. CESR questions whether the calculation of a hedge fund index should be subject to an independent audit.

(ii) Any material information on index calculation and rebalancing methodologies, index changes and any information on operational difficulties in providing "timely or accurate information", should be provided on a wide and timely basis. CESR queries at which level of detail this transparency should be applied, and whether similar information disclosure requirements should apply to a UCITS willing to invest in derivatives based on hedge fund indices.

Final thoughts

To a certain extent, your opinion on this matter depends on how you look at UCITS from a philosophical point of view.

The pace of financial markets innovation is such that the possibility for a UCITS to invest a) in a derivative instrument or b) on a hedge fund index (which would have been considered almost science fiction ten years ago), is currently being discussed by a committee of European regulators (another concept that was not considered plausible ten years ago).

Now the question is: can the current UCITS framework survive longer, and meaningfully (i.e. retaining its characteristics of safe harbour for retail investors), when it is clear that the number of financial instruments or techniques available to the average fund manager — that cannot be fully captured by the "simple" UCITS risk-spreading approach — is growing larger and larger?

The UCITS risk-management process: what lies beneath

The Undertaking for Collective Investments in Transferable Securities (UCITS) III Directive [Directive 85/611/ECC of Council as amended by Directives 2001/107/EC and 2001/108/EC of the European Parliament and Council]requires management or investment companies to employ a risk-management process (RMP) to monitor and measure at any time "the risk of the positions and their contribution to the overall risk profile of the portfolio". But what exactly is an RMP and how have different regulators interpreted this requirement? In this article, we aim to clarify our point of view.ΔP(Δt,Δ(x) is the change in the market value of the portfolio expressed as function of the forecast horizon Δt and of some random state variables Δx. The parameter α is a confidence level.

The added flexibility in terms of usage of financial derivative instruments in UCITS funds (introduced with the amended Directive 2001/108/EC) was accompanied by the requirement to establish a stronger internal control framework for the monitoring and measurement of a UCITS risk profile.

Article 21 of the amended UCITS Directive states: "The management or investment company must employ a risk management process which enables it to monitor and measure at any time the risk of the positions and their contribution to the overall risk profile of the portfolio; it must employ a process for accurate and independent assessment of the value of Over-the-Counter (OTC) derivative instruments. It must communicate to the competent authorities regularly and in accordance with the detailed rules they shall define, the types of derivative instruments, the underlying risks, the quantitative limits and the methods which are chosen in order to estimate the risks associated with transactions in derivative instruments regarding each managed UCITS."

During the last two years, both at the European Commission (EC) and the Committee of European Securities Supervisors (CESR) level, some initiatives have contributed in better defining not only how financial derivative instruments can be used under UCITS, but also which tools or techniques should be used to manage portfolio risk.

The EC Recommendation 2004/383/EC (EC Recommendation) on the use of financial derivative instruments for UCITS is of particular interest in this respect, as it provides not only for a harmonised interpretation of the limitation to the UCITS risk exposure, but also offers suggestions for further UCITS classification (i.e. sophisticated vs. non-sophisticated) and suggested standard methodologies of risk measurement, such as the "commitment" approach or the "Value-at-Risk" (VaR) approach.

The CESR has also made an important contribution with its work on the definition of eligible assets for UCITS investment and, in particular, for the clarification concerning transferable securities that "embed a derivative element".

According to CESR, if the security in which a UCITS is invested "embeds a derivative element, such derivative element must be taken into account, as required by Art. 21(3)" of the UCITS Directive, i.e. it has to be included in the calculation of a UCITS' global exposure (and subsequently be considered by the RMP).

The first step: identifying your UCITS

The EC has recognised the fact that different investment approaches may be taken under the UCITS regime, and that the means and efforts dedicated to managing a UCITS risk must be in line with the complexity of the investment strategy.

As mentioned above, the EC Recommendation has introduced a classification of UCITS as being either sophisticated or non-sophisticated. Additionally, it states under Art. 3.4 ("recommendation to carry out further work") that "considering that these risk-measurement methodologies need further refinement, Member States are recommended to encourage their competent authorities to undertake further work with a view to elaborating more advanced and elaborated methods of risk measurement and thus develop a convergent community-wide approach. This concerns in particular:

a) "The criteria to identify sophisticated and non-sophisticated UCITS". As no formal consultations have taken place to define criteria to identify a UCITS nature, each regulator has taken its own approach.

In the United Kingdom, the Financial Services Authority (FSA) has taken the view that, for funds established under COLL (the UK equivalent of UCITS III) 5.2.25, "an authorised fund manager is expected to demonstrate more sophistication in its risk management process for a scheme with a complex risk profile than for one with a simple risk profile. In particular, the risk-management process should take account of any characteristic of non-linear dependence in the value of a position to its underlying."

However, additional guidance in the UK has been published by the Investment Management Association (IMA) in conjunction with the Depositaries and Trustees Association (DATA) and the Futures and Options Association (FOA), whose reviewed derivative risk-management process guidelines (IMA guidelines, originally published in 2003) have been recently issued (October 2006).

The IMA guidelines acknowledge that "no formal regulatory definition of sophisticated or non-sophisticated usage of derivatives" exists. However, they also suggest that an approach to derivative exposures that mirrors the UCITS I rules (as opposed to more innovative UCITS III techniques) may qualify as non-sophisticated. This does not necessarily imply Efficient Portfolio Management (EPM) style strategies are of a non-sophisticated nature.

In Luxembourg, the Commission de Surveillance du Secteur Financier (CSSF) has not provided additional guidelines. Circular 05/176, which implemented the EC Recommendation, simply states "a distinction must be made whether the UCITS may be considered as non-sophisticated or sophisticated".

In Germany, the derivative regulation published in February 2004 ("Derivateverordnung", also known as "DerivateV") implemented similar requirements before the same EC Recommendation was published.

According to DerivateV, investment management companies must apply either a "qualified" or a "simplified" RMP. While generally stating that an investment-management company may apply the simplified method if such method enables all market risks within the fund to be adequately identified and evaluated, it also states that an investment management company may assume that a simplified method can be applied if the fund is invested in some "basic forms of derivatives and combination thereof". The details can be found under Art. 6 of DerivateV.

In the Republic of Ireland, the Financial Regulator issued updated Guidance Note 3/03 in May 2006 defining a non-sophisticated UCITS as one that "will only use a limited number of simple derivative instruments for non-complex hedging or investment strategies. The Financial Regulator will review the UCITS RMP to ensure the rationale for self-classification is appropriate."

The truth is that despite the EC's request to "undertake further work", no organised work has been performed until now and as yet there is no market practice or standards to which reference can be made, such that each regulator has developed a slightly different approach.

In general terms, it can be said that, while it is likely that most regulators will implicitly consider as "sophisticated" those UCITS funds that use financial derivative instruments for investment purposes, for the time being each UCITS is assessed on a case-by-case basis by the relevant regulator.

The commitment approach

If the UCITS is non-sophisticated, the EC Recommendation accepts that the RMP should be based on the commitment approach "whereby the derivative positions of a UCITS are converted into the equivalent position in the underlying assets embedded in those derivatives. For the application of the commitment approach, Member States' competent authorities should also take into account criteria such as the UCITS' overall exposure deriving from the employment of financial derivative instruments, the nature, aim, number and frequency of the contracts entered into by the UCITS and the management techniques adopted". A UCITS must ensure that its global exposure relative to derivative instruments does not exceed the total net value of its portfolio. The global exposure is calculated by taking into account:

· The current value of the underlying assets

· The counterparty risk

· Future market movements

· The time available to liquidate the positions

VaR (and other methodologies)

VaR can be defined as a single, summary, statistical measure of possible portfolio losses due to market movements in a determined period of time, as defined in the following formula:

Prob [ΔP(Δt,Δ(x)> -VaR] = 1 - α

In which

In other terms, the formula states that over a certain period of days, the portfolio's value will decline by no more than VaR for α per cent of the time.

To provide a numeric example, we will consider a USD1 million equity portfolio tracking the S&P500 index. Let us assume that the daily returns of the S&P500 index are distributed normally (i.e. they follow the normal probability distribution), with a mean of zero per cent per day and 100 basis points per day as standard deviation.

One of the characteristics of a normal probability distribution such as this is that there is a 47.75 per cent probability that an observation falls in the interval between the mean and two standard deviations below the mean.

Normal probability distribution

Using the example described above, and said in different terms, there is a 2.25 per cent probability that that the daily return of the S&P500 index will decline by more than 200 basis points. This means there is a 2.25 per cent chance that the daily loss of our portfolio will equal or exceed USD 20,000 (two per cent of one million).

The UCITS Directive requires management or investment companies to communicate to the competent authorities "the quantitative limits and the methods which are chosen in order to estimate the risks associated with transactions in derivative instruments". Assuming that the method chosen is VaR, as suggested in the EC Recommendation, the question arises: how do we define the "quantitative limits" in a way that is both meaningful from a risk-management perspective and acceptable to the regulators?

As we have seen from the example above, the forecast horizon (daily movement of the index) and the confidence level (100 per cent - 2.25 per cent) depend upon the risk manager's (or senior management's) preferences and so can, to a certain extent, be set at any level.

The key role in calculating VaR is played by the probability distribution ΔP(Δt,Δ(x) and how this is approximated, i.e. either using a normal probability distribution, as in our example, or using other methodologies such as historical simulations, Monte Carlo simulation, etc.

Another popular risk-management methodology consists of calculating a portfolio's tracking error (TE), i.e. the volatility of the excess returns of a fund's portfolio over a benchmark.

To use more mathematical terms, TE can be defined as the standard deviation of the difference in returns between a fund and its benchmark, over a certain period of time.

As TE is a measurement of past deviations of a portfolio from a benchmark, it should not be considered as the best methodology for assessing the future risk of a portfolio.

Additionally, because its calculation does not differentiate between positive and negative errors, it may not reflect accurately the risk that returns in a portfolio could be significantly lower than the benchmark returns.

The main difference between TE and VaR is that while TE is the value of the average error against a benchmark and assumes a symmetric normal distribution of returns, VaR is an indication of the probability of a loss of a portfolio that can be applied to a normal distribution of returns (as in our example) as well as to any other probability distribution, as appropriate. Evidently, VaR is a more sophisticated risk-management tool.

Another methodology combines VaR and TE, the so-called "Relative VaR" (also known as "ReVaR" or "earnings at risk").

ReVaR is defined as a percentile of the distribution of the excess returns. The picture below represents the same normal probability distribution used in the VaR example, but in this case it represents the excess returns over a benchmark's performance, instead of the absolute returns of a benchmark.

Normal probability distribution

When the excess returns are normally distributed, ReVaR is equivalent to the standard deviation (i.e. to TE) when an 84.15 per cent confidence level is set.

As in the case of VaR, the choice of the right probability distribution is the key factor determining ReVaR.

To conclude, both VaR and ReVaR are more sophisticated methodologies than TE for a number of reasons:

· TE assumes a normal probability distribution, while both VaR and ReVaR can also (but not only) be calculated on the basis of a normal probability distribution.

· TE does not differentiate between positive and negative returns

· TE is a good measure of the historical performance of the manager, but is not a predictor of future excess returns.

Other risk methodologies exist. Fixed-income asset managers, for example, have traditionally focused on duration as a measure of the risk of individual holdings and portfolios. Also, as we mentioned already, there are different methodologies for calculating VaR and ReVaR.

The RMP submission

Considering this is a relatively new process and no market standards are yet established, one should not expect the RMP submission to be a purely mechanical process. It is more than likely that the regulators will pose additional questions or request more details, assuming that there are no doubts around the UCITS self-classification as sophisticated or non-sophisticated.

In general, the RMP submission should include at least all the details specified in the UCITS Directive, as follows:

· A description of how the risk of positions and their contribution to the overall risk of the portfolio is measured

· A description of how the risk of positions and their contribution to the overall risk of the portfolio is monitored, including the frequency of monitoring

· A description of which arrangements are taken to ensure the RMP is available "at any time"

· A description of the processes used to independently and accurately assess the value of OTC derivatives

· Reporting methodologies (as defined by the regulator) for the types of derivative instruments held

· Reporting methodologies (as defined by the regulator) for the underlying risks of derivative instruments

· Reporting methodologies (as defined by the regulator) for the quantitative limits and methods used to estimate the risk associated in derivative instruments

· Criteria for applying the RMP process to each managed UCITS (fund or sub-fund)

· Self-classification of each managed UCITS (fund or sub-fund), and criteria for self-classification

· Escalation procedures in case of breaches

The Financial Regulator in the Republic of Ireland has published in an appendix to its Guidance Note 03/3 a useful checklist to assist in the preparation and submission of the RMP, which we invite you to read.

We also recommend you to consider the provisions of DerivateV in Germany. These are rather detailed, even if no templates have been developed by the local regulator or the industry, as far as we are aware.

Conclusions

The implementation of a solid RMP is a key control factor for ensuring that a UCITS risk is managed and monitored and ultimately that investors are protected. While UCITS III provides added flexibility in the usage of derivatives, we should bear in mind what a UCITS ultimately is, i.e. a long-term, risk-spread saving product for the retail investor.

An analysis of the European Commission's White Paper on investment funds

On November 15 2006, the European Commission (EC) published its White Paper on Enhancing the Single Market Framework for Investment Funds. The White Paper is the final act of a consultation process that started one year ago when the EC's Green Paper on the Enhancement of the EU Framework for Investment Funds was published. In this article, we will analyse the contents of the White Paper and identify possible regulatory evolution.

The White Paper says: "The UCITS Directive¹is no longer sufficient to support the European fund industry as it restructures to meet new competitive challenges and the changing needs of European investors. Core elements of the Directive are not functioning effectively. The freedoms conferred by the Directive come at the price of unnecessarily high compliance costs. It does not allow fund managers with funds or activities in different Member States sufficient flexibility to organise or restructure businesses. These inefficiencies and constraints are reflected in higher costs and lower returns that are borne by the fund investors. Independent research estimates that a reduction in European fund operating costs to US levels costs would boost nominal investment returns by 3%." In consideration of the issues identified, the White Paper proposes to progressively modernise and develop the existing EU investment fund framework in a number of specific and targeted areas.

The need for increased efficiency

The EC has identified some key points where it will quickly suggest proposals to change the existing UCITS Directive:

· UCITS notification process. Articles 44-47 of the UCITS Directive will be amended to eliminate current bottlenecks. Amendments will include a reduction of the two-month notification period and documentation exchange on a regulator-to-regulator basis.

· Cross-border fund mergers. The EC will propose additions to the UCITS Directive to create the legal and regulatory framework for fund mergers. However, as far as taxation is concerned, it prefers building on the relevant case-law of the European Court of Justice rather than pushing for tax harmonisation between Member States.

· Asset pooling. The EC recognises the difficulties (technical and administrative) of implementing effectively "virtual pooling" techniques. On the other side, current UCITS regulations rule out the possibility of adopting the simpler "entity pooling" techniques because of investment diversification requirements. The EC's intention is to propose amendments to the UCITS Directive to allow an expansive approach to entity pooling, and at the same time further explore the legal soundness of virtual pooling.

· Management company passport. The White Paper states: "It is time to complete this unfinished business and to extend these rights to contractual funds." A natural consequence of such a strong statement is that the EC will propose amendments to the UCITS Directive to allow an authorised management company to manage corporate and contractual funds in other Member States.

· Other efficiency improvements. The EC also identifies some efficiency improvements that do not require changes to the UCITS Directive, including: shortening the home state authorisation process; the adoption of common standards on message routing and fund order processing/settlement; and the depositary passport. On the latter issue, we make some suggestions below.

The depositary's passport

The EC's view is that "the freedom to appoint a depositary in another Member State does not seem to hold out the prospect of significant gains". Further, the EC asserts that "any marginal benefits seem to be considerably outweighed by the scale of adjustments that would be needed to be undertaken to the Directive to harmonise the responsibility and functions of the depositary". We do not share the EC's view in its entirety.

Two core arguments have been identified to prevent depositaries passporting services in another Member State:

· No prospects of significant gains

· Costs of harmonising the role and responsibilities of the depositary

The EC Commission Staff Working Document (SEC(2006) 1451) accompanying the White Paper provides for a more detailed analysis in this respect (see chart below). The EC's view is that the best solution is to work with Member States to increase flexibility in the provision of depositary services on a cross-border basis through the establishment of branches. Interestingly, this is the only option that does not bring any advantage to the investors, according to the EC Commission Staff Working Document.

We would like to share our views, beginning with some considerations about the harmonisation of the role and responsibilities of the depositary.

The role and responsibility of the depositary is already harmonised: the consolidated UCITS Directive describes the "obligations regarding the depositary" under Article 7 and Article 14 (with reference to unit trusts and investment company, respectively). Indeed, we believe that the fact that the depositary's obligations are listed in the UCITS Directive means that they are already harmonised.

We would suggest that the issue may be not whether the obligations are harmonised, but how those obligations are discharged across the European Union.

The next question is: if the obligations are the same, but the way in which they are discharged is different, why should anybody have an issue in allowing pure passporting of depositary services? Objections should only arise if we believe that funds (and investors) are not equally protected in each jurisdiction.

If this is the case, extremely urgent actions are required to ensure equal treatment of all investors in Europe, and the White Paper should ensure those actions are identified and put in place as soon as possible. Also, a disparity of treatment (or protection) should trigger further discussions regarding to the opportunity of allowing UCITS passporting. Instead, the general view is that UCITS passporting should be facilitated.

In terms of gains or savings, there are no figures easily available in the industry. In some jurisdictions, depositary and custody fees are bundled, as the two roles are carried out by the same legal entity (which also may be providing fund administration services). In other jurisdictions, they are clearly distinct.

Increased national and European competition (and subsequent concentration) may generate a reduction of depositary fees.

	Impact on:
Option	Efficiency	Market integration	Investors	Feasibility
Amend Directive (full passport)	+	+	+	Doubtful
Amend Directive (full custody passport)	+	+	+	Yes
Greater cross- border flexibility for depositary	++	++	»	Yes
Do nothing	-	-	+
	Source: Commission Staff Working Document SEC(2006) 1451

Protecting the investors' interests by ensuring the funds profit from any savings, regardless of their significance, is something to consider.

Marketing and distribution

The EC's view is that the simplified prospectus has "manifestly failed" in its mission of providing investors and intermediaries with basic information about the possible risks, associated charges and expected outcomes of the product.

Despite this, there is strong support for a standardised tool for delivering this information. Also, the shortcomings of the simplified prospectus are so significant that the investment fund market cannot wait for an amendment of the UCITS Directive. Thus, the EC has decided to work on a recommendation on the basis of contributions from CESR and national authorities, while at the same time working for amendments to the UCITS Directive.

As far as investment fund distribution is concerned, the EC points out that fund distribution "accounts for the biggest single component of costs in the investment fund industry — ranging from 46 per cent of total costs in France to 75 per cent in Italy".

The EC looks to the Markets in Financial Instruments Directive (MiFID) to manage issues such as possible distributors' and intermediaries' conflicts of interests and inducements, and will produce a vade mecum to consolidate the MiFID implementation rules on conduct of business.

Final thoughts on non-harmonised funds

Some categories of investment funds that are not compatible with UCITS are nevertheless available to retail investors at national level, under different regulatory regimes.

The impossibility of availing of the European passport for some of these products is seen as a frustration, most of all for long-established retail products such as open-ended property funds.

The EC believes there are too many uncertainties regarding the appropriateness of allowing passporting rights to non-UCITS products. These include issues such as the suitability of products for the retail public in terms of their risk/performance profile, or the cost/benefit impact of allowing passporting rights to additional products versus increased regulatory costs for taking advantage of those. Other questions remain unanswered, such as whether it would be preferable to expand the UCITS framework to include additional categories of products, or create new harmonised product-specific regimes.

The EC has undertaken to conduct additional studies, and to report to the European Council and the European Parliament in 2008.

As far as products available for qualified investors are concerned, the EC underlines the fact that "there is no common European approach to distinguish products that are suitable for the retail public from products that should remain the preserve of sophisticated investors".

MiFID and the prospectus directive (Directive 2003/71/EC) have created the building blocks of a common private placement regime.

MiFID places responsibility on investment firms to ascertain, on a client-by-client basis, whether a particular investment is suitable or appropriate.

The EC is planning to review existing national private placement rules, in conjunction with CESR and the newly created European Securities Market Expert Group (ESME) with the purpose of establishing a common placement regime in autumn 2007.

Conclusions and deliverables

The White Paper identifies a list of actions to be implemented in 2007 and 2008 that will, at first, lead to significant changes to the UCITS regime, the alternative investment space and the funds' service providers' market.

The EC will consult with CESR, national authorities and, hopefully, the business community to ensure that the proposed changes allow the continuing success of the UCITS brand, and the implementation of an effective single European market.

IOSCO investigates soft commission arrangements

The International Organisation of Securities Commissions (IOSCO) published a report on soft commissions at the beginning of December. The publication of the report is to be followed by a consultation process, closing on 15 March 2007. In this article, we will review IOSCO's findings from a fiduciary point of view.

The report examines IOSCO members' regulations (and proposed regulations) in terms of soft commission, applicable to undertakings for collective investment (UCI) and UCI operators.

In IOSCO's own words: "The amount of money involved in soft commission arrangements is quite high (that is, the portion of commissions paid to brokers that are used to "purchase" goods and services through soft commission arrangements), and the conflict of interests for UCI operators is really evident."

IOSCO's analysis

While the concept of soft commissions is widely recognised, IOSCO points out that in most jurisdictions there is no legal or statutory definition of soft commissions or soft commission arrangements. Consequently, it proposes adopting the following definition: "a soft commission arrangement is one in which a UCI operator receives a benefit in connection with a UCI's payment of commissions on UCI portfolio securities transactions".

The above definition focuses on benefits that UCI operators receive. Typically, the benefits take the form of certain goods and/or services that are provided by brokers-dealers to UCI operators. Some IOSCO Member States specifically limit by law or regulation the benefit that can be obtained with soft commissions, while others do not.

Also, the list of acceptable/non-acceptable benefits vary from jurisdiction to jurisdiction and can also be conflicting (i.e. market data may be permitted benefits in the United States, but not in the United Kingdom).

In those jurisdictions where benefits are limited, they are usually acceptable if used to make investment decisions for a UCI portfolio, include research and order execution services and are in the interest of investors.

Taking into account this fragmented approach to soft commissions, IOSCO recommends all its Member States to choose an approach that limits the benefits that UCI operators may receive from soft commission arrangements, and to ensure that allowed benefits do not include cash payments or the payment of day-to-day operational expenses of UCI operators "such as office space rental, furniture, salaries, travel expenses (hotel, meals, entertainment expenses) or professional licensing".

Identification and management of conflicts of interest

Soft commission arrangements can be a source of conflict between the interests of a UCI operator and those of the UCI and the UCI's investors.

For example, since the UCI operator receives goods and services from the broker-dealer, it may be interested in generating portfolio securities transactions for the UCI in order to increase soft commission payments.

Additionally, in those cases where transactions involving the operator paying up (i.e. paying more than the lowest level of commissions and receiving a benefit), a conflict arises with the duty of obtaining best execution on the UCI's portfolio securities transactions.

However, there may be circumstances where soft commission arrangements can provide benefits to UCI investors; for instance, UCI operators can receive valuable investment research from brokers-dealers that is used to improve the UCI's portfolio performance.

Regulatory approaches

IOSCO is not imposing any specific regulatory approach on its members. However, it considers that UCI operators "must manage the conflicts of interest inherent in soft commission arrangements".

According to the report, no IOSCO member jurisdiction prohibits UCI operators from receiving benefits in connection with a UCI's payment of commissions on UCI portfolio transactions. However, some jurisdictions have laws that specifically regulate soft commission arrangements by defining the goods and services that are permitted for the benefit that a UCI operator can receive in connection with soft commission arrangements.

In those few jurisdictions where no specific laws or regulations target soft commission arrangements, other mechanisms are in place for providing guidance, such as industry standards.

Additionally, in all IOSCO member jurisdictions, fiduciary principles require UCI operators to seek to obtain best execution for UCI portfolio securities transactions and limit UCI operators' ability "to use client assets (i.e. brokerage commissions) for their own benefit".

IOSCO has identified some common conflict-management techniques that are used, as follows:

· All UCI portfolio securities transactions must be subject to best execution requirements.

· Soft commission arrangements must be in writing, and disclosed to the management company's compliance function (or equivalent).

· Limit the benefits UCI operators may receive from soft commission arrangements.

· Soft commission arrangements must be disclosed appropriately, internally (i.e. directors, depositary) and externally (i.e. offering documentation, periodic reports).

· Additional scrutiny should be placed on UCI portfolio securities transactions with an affiliate of the UCI operator.

Final thoughts and conclusions

As we have mentioned above, this consultation process is due to close on 15 March 2007. IOSCO is requesting the interested parties to comment upon the following:

1. What are the conflicts of interest associated with soft commission arrangements?

2. How do you manage those conflicts of interest?

3. Do you agree with IOSCO's analysis of those conflicts in this paper?

4. Are there other aspects of soft commission arrangements that IOSCO should address in this paper?

We concur with IOSCO's identification of possible conflicts of interest regarding soft commissions. Obviously there may be cases where the conflict of interest is evident, and cases where this is more subtle.

Our opinion is that in order for such conflicts of interest to be properly managed by the UCI operators, the regulatory framework needs to be more specific and provide clearer guidance as to what services are permissible and how can conflicts of interest be adequately addressed.

However, in a European single market where even rules on more quantifiable issues such as NAV calculation errors differ from country to country, is it possible to enforce common standards on how to manage conflicts of interests? We do not believe so, as long as a single market is regulated by 27 (or more, depending on the country) regulators.

Germany

REITs in Germany: new opportunities for property investment

On 2 November 2006, the draft German Real Estate Investment Trust Act (the Act) on stock exchange-listed real estate investment companies was published. The Act, which was enforced on 1 January 2007, introduces German Real Estate Investment Trusts (G-REITs or referred to as REITs in other jurisdictions) and establishes a new exchange-listed real estate investment product. The introduction of G-REITs will strengthen the German financial marketplace and offer interesting tax advantages to German companies willing to securitise their real estate or property assets.

German investors interested in gaining indirect exposure to the property market currently have only two alternatives: either investing in (open or closed-ended) real estate funds or investing directly in real estate corporations listed on the stock exchange. Since 2000, open-ended real estate funds have enjoyed an enormous influx of capital, but their popularity has now declined due to poor performance and certain regulatory or reputational incidents.

In contrast, the 65 largest exchange-listed corporations hold real estate assets over EUR80 billion, while the three largest real estate corporations have a combined market capitalisation of approximately EUR3 billion (this compares to EUR250 billion assets under management of open-ended and closed-ended real estate funds).

However, the German real estate market remains the largest in Europe. In early 2005, the Initiative Finanzstandort Deutschland (IFD or Initiative on Germany as Financial place) submitted proposals for the introduction of G-REITs, forecasting a market capitalisation of approximately EUR130 billion by 2010.

As an asset class, REITS already have a long history in other jurisdictions. In the late 1960s, REITs were introduced in the US, but only became truly successful in the 1990s. Similar asset vehicles have been implemented in Luxembourg, Spain, Italy, New Zealand and South Africa, and implementation is expected in Finland and India.

Global investment in real estate in 2003

Source: KPMG, LLP UK

The globalisation of the investment market is continual and increasingly involves the real estate sector.

Investors across Europe are waiting for the introduction of additional REIT regimes in continental Europe and/or the UK, following the successful launch of the Sociétés d'Investissements Immobiliers Cotées (SIIC) in France. As home to the largest real estate market in Continental Europe, particular attention is being paid to developments in Germany.

REITs may represent an appropriate investment for private and institutional investors (which are, in turn, backed by individual investors). REITs may therefore be attractive to private investors because REITs pair the security normally associated with a savings account with returns normally only realised from significantly riskier investments.

Market share of publicly traded real estate assets

Continental Europe

Source: KPMG, LLP UK

Market share of publicly traded real estate assets

USA

Source: KPMG, LLP UK

Definition of G-REIT

The Act introduces G-REITs as a new, separate asset class, and is heavily influenced by the experiences and standards of those jurisdictions (more than 20 by now) where similar products have already been established.

G-REITs are German public companies (Aktiengesellschaft) that must apply for listing within three years following their incorporation, in an organised market within the meaning §2 (5) of the Securities Trading Act 1998 (i.e. a market which is regulated and supervised by state-approved bodies, is held on a regular basis and is directly or indirectly accessible to the public. This typically includes organised markets in the European Union, or in the European Economic Area).

The REIT is subject to the Aktiengesetz (public companies law) and to the German Corporate Governance Code. It can be a newly established entity or one created by transformation (including de-merger) of an already existing company.

The statutory office and actual business office of the G-REIT has to be in Germany and its minimum share capital requirement is EUR15 million.

G-REITs are not subject to the supervision of the German financial regulator, Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin).

Shareholder structure

To allow retail investors to take advantage of this new asset class, G-REITs are required to have a minimum of 25 per cent of their share capital to free float. Following a listing, the threshold is reduced to 15 per cent. Free float is considered to be the shares of the shareholders owning less than three per cent of the shares.

No investor can hold more than ten per cent of the G-REIT's shares.

Compliance with the above obligations will be monitored by the REITs company through regulatory reporting, as defined under the German Securities Trading Act (Wertpapierhandelgesetz).

Should a breach occur, the respective shareholder would be suspended from his/her voting rights and from the right of receiving dividends in respect of the excess.

Permissible investments

In order to benefit from the tax regime applicable to G-REITS, a G-REIT has to invest at least 75 per cent of its capital in real property and at least 75 per cent of its profits have to be generated from property investments. Investments may include residential properties, but only those built after 31 December 2006.

The Act states, under §1 (1) that G-REITs investments are limited to holding, managing or selling the ownership or collateral licences of domestic and foreign immovable assets (excluding the acquisition of real estates, which have a residential purpose) within the scope of renting, tenancy and leasing including the management of necessary near immovable support services. G-REITs may also buy, hold, manage or sell units on real estate partnerships.

Furthermore, the assets of the G-REIT's subsidiaries providing real estate-related services to third parties (REIT Dienstleistungsgesellschaften) may not exceed 20 per cent of the REIT asset value.

Additionally, the gross yield of these subsidiaries may not exceed 20 per cent of the total gross yield of the G-REIT over the fiscal year.

Finally, no more than half of the portfolio of the G-REIT may be sold within a period of five years. If more assets are sold, this will be deemed to be harmful real estate trading.

Properties that have been contributed to the G-REIT by making use of the Exit Tax (as described further below) have to be held for at least four years.

Failing to comply with the above restrictions will cause the REITs to loose its status and thus its tax advantages.

Profit distribution

G-REITs are exempt from corporate and trade income tax. They have to ensure that a minimum of 90 per cent of their distributable income is paid to its investors and, as already mentioned, 75 per cent of their earnings have to be real estate related.

As a consequence of the 90 per cent minimum profit distribution, new investments of the G-REIT will usually not be financed by non-distributed profits, but rather by an increase of the G-REIT's share capital. Access to debt is allowed to a limit of 60 per cent of the value of the REIT's net assets.

Tax considerations

The main tax aspects are the following:

a) Exit Tax. In order to promote G-REITs, certain tax incentives shall apply to real estate transferred to a G-REIT. Until 1 January 2010, only half of the realised hidden reserves of the property to be transferred to the G-REIT are subject to income tax. This applies only if the transferred real estate has been a German business asset for more than ten years.

However, the Exit Tax will be due retroactively if the G-REIT sells the real property within a period of four years or if the real property was transferred to a Pre-REIT (i.e. stock corporations not meeting all, but most of, G-REIT requisites) and the Pre-REIT does not meet all G-REIT requirements within the four-year period.

b) Tax privileges. Once the G-REIT has been listed at the stock exchange and met all further requirements, it is exempt from German corporate and trade tax. The tax exemption ends if the G-REIT either performs real estate trading or does not comply with the free-float regulations or the debt-financing regulations, respectively.

c) Shareholders' taxation. Dividends distributed by G-REITs are subject to withholding tax.

Also the sale of shares in the G-REIT is subject to the general taxation rules. Accordingly, no income tax is due on capital gains if the shares are held for more than one year and the investor has not held more than one per cent of the shares of the G-REIT at any point of time during the last five years.

Correspondingly, capital gains realised by foreign investors are subject to German income tax unless otherwise provided by the applicable double-taxation treaties.

Conclusions

The Act is an important step forward for the establishment of G-REITs in the German market as a vehicle for indirect real estate investment.

Since the Act is accompanied by tax advantages on the transfer of real estate, it is very likely that, as has occurred in the United States, G-REITs will become an integral part of Germany's real estate investments.

Ireland

Implications of the EC's Third Money Laundering Directive for the Irish fund industry

The European Commission's (EC's) Third Money Laundering Directive (Directive 2005/60/EC "on the prevention of the use of the financial system for the purpose of money laundering and terrorist Financing" or 3MLD) replaces and updates the first and second money-laundering directives and introduces broader identification requirements. This article considers the impact on the Irish fund industry.

Money laundering can broadly be defined as the process by which criminals attempt to conceal the true origin and ownership of the proceeds of criminal activities. If undertaken successfully, it also allows them to maintain control over those proceeds and ultimately provide a legitimate cover for their source of income. In Ireland, the Criminal Justice Act, 1994 was the first piece of legislation dealing specifically with money laundering, and has subsequently been amended and updated. The Act imposes ongoing obligations on "designated bodies" (entities that are authorised and supervised by a regulatory body) to help detect and prevent money laundering. (Designated bodies are regulated by money-laundering legislation that is at least equivalent to the standards required by the EC Directives and the Financial Action Task Force (FATF) 40 recommendations, and are required to establish identity and retain records to a standard at least equivalent to the requirements set out in the Act, as amended, and the relevant Guidance Notes).

The Act provides for customer identification, record-keeping requirements and reporting of suspicious transactions to the Gardai (police force) and the Revenue Commissioner.

Rationale for the 3MLD

In 2005, the FATF undertook an evaluation of its 40 recommendations and its nine special recommendations relating to money laundering and terrorist financing.

Following this review, the EC adopted 3MLD on 26 October 2005 to reflect the changes that arose from the revised FATF recommendation so that Member States have to update their laws/regulations accordingly. The 3MLD came into force on 15 December 2005 and Member States have until 15 December 2007 to transpose it into law. The salient highlights relating to the 3MLD include:

· Requirement of ongoing customer due diligence

· Identification of "non-domestic politically exposed persons"

· Identification of beneficial ownership of legal entities

· Risk-based approach to money-laundering and terrorist-financing obligations

· Simplified/enhanced customer due diligence in certain circumstances

· Designation of trust and company service providers

· Registration and licensing of trust and company service providers

The previous money-laundering directives concerned money laundering connected to the proceeds of criminal conduct. The 3MLD expands and includes terrorist financing, regardless of the source of funds (criminal or otherwise). The financing of terrorist activities from legitimate funds/clean money also falls within the scope of the 3MLD. Irish law has already made some inroads in legislating for terrorist financing under the Criminal Justice (Terrorist Offences) Act, 2005.

Implications of 3MLD for Member States

The immediate impact of the 3MLD to Member States is its extension of the list of designated bodies to include:

· Life and investment insurance intermediaries

· Trust and company service providers

· All natural and legal persons dealing in goods or providing services for cash payments of EUR15,000 or more

· Casinos

The 3MLD also replaces the term "Know Your Customer" (KYC) with the term "Customer Due Diligence" (CDD). Article 7 of the 3MLD states that CDD measures will apply under the following circumstances:

1. When establishing a business relationship (defined as relationship connected with the professional activities of the institutions and persons covered by 3MLD "which is expected at the time when contact is established to have an element of duration". It is noted that "element of duration" is not currently defined)

2. Carrying out occasional transactions amounting to EUR15,000 or more whether the transaction is carried out in a single operation or a series of linked ones

3. There is a suspicion of money laundering or terrorist financing

4. There are doubts about the veracity or adequacy of previously obtained customer-identification data

CDD requirements

The implications of the enhanced CDD espoused in the 3MLD may require a change to Irish legislation and may add to the perceived burden on designated bodies. Article 8 of the 3MLD further adds to the burden on CDD requirements by discussing the concept of beneficial owner, which relates to the ownership and control structure of the customer. The implication is that the designated body must understand the beneficial owner structure. Certainly, there may be an obligation on designated bodies to delve deeper into the relationship with the client.

Article 13 of the 3MLD further elaborates on the enhanced CDD obligations. It stipulates that persons or institutions covered by the 3MLD must apply enhanced CDD on a risk-sensitive basis in situations which by their nature can present a single risk of money laundering or terrorist financing. While non face-to-face business is currently covered in applicable Irish Guidance Notes in Ireland, it will now need to be established in legislation.

Potential impacts on Irish legislation/industry

Article 7 of the 3MLD requires designated bodies to carry out CDD on beneficial owners where there is uncertainty about previously obtained customer information. The potential of carrying out full remediation on client files may impact the Irish funds industry, in particular retail transfer agency business.

Article 8.1 of the 3MLD requires identification and verification measures. These requirements are detailed in the Irish Money Laundering Guidance Notes but may now need to be enacted into legislation.

Article 8.2 requires "risk-based measures" to CDD. This is not currently catered for in Irish legislation and in our view may be a complex issue to legislate.

The requirement of obtaining identification documentation of the "beneficial owner" could cause time-constraint problems in advance of business going live.

Because Article 13.2 of the 3MLD details that non face-to-face business requires enhanced CDD, customer identification requirements may need to be reviewed by business generally.

Finally, Article 13.5 of the 3MLD prohibits entering or continuing a correspondent banking relationship with a "shell bank". Consideration will need to be given for this prohibition to be entered into Irish legislation.

Final thoughts

To conclude, the 3MLD shall result in a number of changes to the current Irish anti-money-laundering and terrorist-financing regime. It remains to be seen how these changes shall be implemented in Ireland. What is clear, however, is that the area of money laundering is technical and complex with multi-layered definitions and obligations.

The implementation of the 3MLD will pose numerous challenges for government bodies, the Financial Regulator and industry. In this regard, the Irish Funds Industry Association (formerly the Dublin Funds Industry Association) has set up a working sub-group to liaise with the Financial Regulator on the implementation of the 3MLD.

MiFID: some questions have been answered yet others remain

In less than two months, both Levels I and II of the Markets in Financial Instruments Directive (MiFID) should have been transposed into the laws of all Member States of the European Union. The Committee of European Securities Regulators (CESR) has begun the consultation process that will encompass Level III of MiFID by issuing a Working Programme for its Level III Working Group as well as its initial Level III consultation papers. However, while the end of the formal and legal processes begins to emerge, there are still some fundamental questions pertaining to MiFID which require answers.

One of the major questions relating to the overall impact of MiFID concerns its application to firms providing services to collective investment schemes. As late as the first week in November, the Irish Funds Industry Association (IFIA) has stated, "whether the investment funds industry will be impacted by MiFID is still an unanswered question". What we have known since MiFID was originally published in 2004 is that under Article 2(1)(h) an exemption exists for the management companies of collective investment schemes (the amendment to UCITS Directive 85/611/EEC contained in article 66 of MiFID will have some implications for management companies of UCITS in certain situations). We have also known via Annex 1 of MiFID that firms providing certain portfolio-management services will be within its scope. However, for other types of firm, the landscape has been less clear.

To answer some of these questions as they pertain in Ireland, a joint Financial Regulator/industry forum on MiFID has been established and is scheduled to meet on 13 November. Ahead of this meeting, the informal and unofficial indications from both the industry (as well as its representative body) and the Financial Regulator is that the scope of MiFID will not apply to certain fund-related companies. Whether the forum itself plans on determining the scope of MiFID as it applies (or not) to these companies in Ireland is not clear at this point. However, the IFIA has indicated that Financial Regulator clarification has been promised in due course.

An obvious question arising from the Irish situation is whether this is in fact an intra-national issue at all, and thus whether individual Member States have competence (under the directive) to make a decision unilaterally, especially when viewed against one of the central tenets of MiFID, the desire for maximum harmonisation of its provisions in all Member States. Thus, it should follow that the need exists for a pan-state solution to this issue. Whether this definitive solution ever arrives remains to be seen.

As we have seen in the Irish case, some Member States are working towards provision of their own solutions to some of these issues. Take as another example the situation in Luxembourg with respect to transfer agents. In Luxembourg transfer agents are generally authorised to conduct their activities in one of the following ways:

1. As an investment undertaking, authorised under Article 24G of the law of 5 April 1993 (as amended) (the "Banking Act"), to conduct the activities of a registrar and transfer agent

2. As the management company of an undertaking for collective investment (UCI)

3. As a bank

Focusing on the first category above, "agents de transfert et de registre" (i.e. companies especially established for the provision of transfer agency services), it is widely understood that pursuant to the existing Luxembourg legislation these companies fall within the category of investment firm and as such would prima facie come within the scope of MiFID.

However, it has been mooted that the Investment Fund Supervision department of the Commission de Surveillance du Secteur Financier (CSSF) is considering a possible change of Article 24G of the Banking Act to exclude "agents de transfert et de registre" from the scope of the MiFID, while still remaining regulated entities under a separate article within the act, a view apparently shared by the Association of the Luxembourg Fund Industry (ALFI). The net result of this would be a level regulatory playing field for all firms in the three categories of Luxembourg transfer agent referred to above.

The need exists for agreement between Member States with respect to many remaining issues relating to MiFID. When viewing the specific case of the MiFID's application to fund-related companies, as outlined briefly within this article, whether this agreement will be along informal yet consistent interpretation of the provisions of MiFID across Member States, or by way of definitive decision-taking by the appropriate bodies, will no doubt become clearer over time. The echoing silence of the latter may well herald the acceptance of the former.

Paul Ryan
Director
Dillon Eustace Solicitors

Luxembourg

Luxembourg Specialised Investment Funds: a new regime for investment vehicles dedicated to sophisticated investors

Luxembourg is about to adopt a new investment vehicle in replacement of the existing institutional investment fund. This new vehicle will offer greater flexibility in terms of corporate structure and investment rules as well as a lighter prudential regime, notably in that no requirement for a promoter will be imposed. Besides, the scope of eligible investors will be widened so as to cover not only institutional investors but also other types of well informed investors, including sophisticated private investors.

On 5 October 2006, the Luxembourg government deposited in parliament a bill on specialised investment funds (the "Bill").

The object of the Bill is to replace the law of 19 July 1991 concerning undertakings for collective investment, the securities of which are not intended to be placed with the public (the "Law of 1991") by a new law designed for investment funds dedicated to sophisticated investors.

The Law of 1991 governs undertakings for collective investment (UCIs) reserved for one or several institutional investors (Institutional UCIs). The investors targeted by the Law of 1991 are thus different from those targeted by the law of 30 March 1988 (the "Law of 1988") and the law of 20 December 2002 (the "Law of 2002"), which both govern UCIs the securities of which may be placed with retail investors.

In all other respects, notably concerning the rules applicable to the operation and monitoring of Institutional UCIs, the Law of 1991 refers to the provisions of the Law of 1988, which govern UCIs subject to part II of this law, i.e. non-EU harmonised UCIs. Apart from the possibility to have a single investor and the obligation to be reserved for institutional investors, the statutory regime applicable to Institutional UCIs is therefore similar to the one applicable to non-EU harmonised UCIs that may be distributed to retail investors. However, in light of the fact that institutional investors do not need a similar protection as the one that need to be assured for retail or private investors, the Luxembourg regulator (Commission de Surveillance du Secteur Financier or CSSF) adopts, in practice, a more flexible approach with Institutional UCIs in certain respects, notably regarding the diversification rules and the approval procedure.

Due to the cross-reference it contains to the Law of 1988, the Law of 1991 must be amended or redrafted by 13 February 2007, date as of which the Law of 1988 will be repealed as a result of the transitional provisions included in the Law of 2002 that implements the Undertaking for Collective Investment Transferable Securities (UCITS) Directive 85/611/EC, as amended (the so-called "UCITS III regime"), into Luxembourg law.

Rather than modifying the Law of 1991, the approach adopted by the Bill is to replace it by instituting a self-contained law providing for a statutory regime adequate for sophisticated investors. The Bill is directly inspired by the Law of 2002, but provides for a more flexible corporate framework and a lighter prudential regime than that applicable to UCIs that may be distributed to retail investors.

To further distinguish the vehicles created under the new regime from UCIs governed by the Law of 2002, the Bill refers to them as Specialised Investment Funds (SIFs).

So as to ensure a smooth transition for UCIs currently governed by the Law of 1991, the Bill contains appropriate transitional provisions pursuant to which existing Institutional UCIs will automatically become SIFs subject to the new law, once enacted.

The purpose of this contribution is to give an overview of the main features of the contemplated SIF regime, namely its scope (I), the investment rules applicable to SIFs (II), the structural aspects and the functioning rules governing SIFs (III), the regulatory aspects (IV) and finally the tax features of the SIF regime (V) [This contribution has been prepared on the basis of the bill deposited in Parliament by the government. There may be changes to the text by the time it becomes law].

I. Scope

The SIF regime will be applicable to UCIs (i) the securities of which are restricted to one or several well informed investors and (ii) the constitutive documents of which submit them to the SIF regime (iii).

(i) Undertakings for collective investment.

SIFs are a new category of UCIs. Contrary to the investment company in risk capital (SICAR), SIFs are collective investment vehicles subject to the principle of risk spreading and accordingly qualify as UCIs. This status is of importance, notably concerning the applicability or not of various European directives such as Directive 2003/71/EC (the so-called "Prospectus Directive").

(ii) Well informed investors.

SIFs must be reserved for well informed investors that are able to adequately assess the risk associated with an investment in such a vehicle.

The Bill provides for an extended definition of well informed investors, which comprises institutional investors and professional investors but also other well informed investors who confirm in writing that they adhere to the status of well informed investors and either invest a minimum of EUR125,000 or benefit from an assessment made by a credit institution within the meaning of Directive 2006/48/EC, an investment firm within the meaning of Directive 2004/39/EC or a management company within the meaning of Directive 2001/107/EC certifying their capability to appraise the contemplated investment and the risk thereof. This third category of well informed investors means that sophisticated retail or private investors will be authorised to invest in SIFs.

The above conditions will not apply to the persons involved in the management of a SIF.

(iii) Optional regime.

The submission to the SIF regime must be opted for by inserting an express mention to that effect in the constitutive documents (articles of incorporation or management regulations) or offering documents of the investment vehicle. As a result, any investment vehicle reserved for one or several well informed investors will not necessarily be governed by the SIF regime. An investment vehicle restricted to a limited circle of sophisticated investors could for instance opt to be established as an unregulated company subject to the common rules of Luxembourg company law.

II. Investment rules

(i) Flexibility with respect to eligible assets.

Like part II of the Law of 2002 governing non-EU harmonised UCIs, and in contrast to the law of 15 June 2004 relating to the Société d'Investissement en Capital à Risque, the Bill allows significant flexibility with respect to the assets in which SIFs may invest. Accordingly, the new regime could be opted for by vehicles investing in any type of assets and pursuing any type of investment strategies. The SIF regime could be used, inter alia, for the creation of transferable securities funds, money-market funds, real estate funds, hedge funds, private equity funds and debt funds.

(ii) Submission to the principle of risk-spreading.

Like UCIs governed by the Law of 2002 and UCIs currently governed by the Law of 1991, SIFs will be subject to the principle of risk-spreading. The Bill does not provide for specific investment rules or restrictions. The CSSF could allow for a lower level of diversification than for UCIs that can be distributed to retail investors. It is expected that principles based investment restrictions will be applicable rather than the detailed quantitative investment and borrowing restrictions applicable to UCIs that may be distributed to retail investors.

III. Structural aspects and functioning rules

(i) Legal forms and structures available.

Legal forms available

A SIF could be established under the form of either a fund of the contractual type, the fonds commun de placement, or a fund of the corporate type, the investment company. The Bill specifically refers to the fonds commun de placement (FCP) and the investment company with variable capital (SICAV) but does not limit the legal forms in which a SIF could be established. Other legal forms are therefore possible. It could, for example, be possible to establish a SIF under a fiduciary contract.

Fonds commun de placement

The first feature to which the Bill refers is the contractual type fund, i.e. the FCP, which is, in terms of structure, somewhat similar to an English unit trust.

The FCP itself is not a legal entity, but a co-proprietorship of assets that is managed, on behalf of the joint owners, by a management company governed by the Law of 2002.

Investors subscribe for units in the FCP that represent a portion of the net assets of the fund. Unitholders are only liable up to the amount contributed by them.

An FCP is not subject to Luxembourg company law, which makes such a vehicle rather flexible. The rights and obligation of the unitholders and their relationship with the management company are defined in the management regulations.

The management company takes, on behalf of the FCP, all decisions relating to the investments and the operations of the fund.

Investors in an FCP are entitled to vote only if and to the extent that the management regulations provide for such a possibility.

This is usually not the case, which makes the FCP an optimal vehicle for promoters who wish to keep control over the fund.

Investment company

Alternatively, a SIF could be established under the form of a corporate type fund.

An investment company subject to the SIF regime could be created either with a SICAV or with fixed capital (SICAF).

The capital of a SICAV is increased or reduced automatically as a result of new subscriptions or redemptions, with no need for formalities such as an approval of the general meeting of shareholders or the intervention of a public notary.

Under the Bill, a SICAV is not required to be a limited liability company (société anonyme) as is the case for SICAVs subject to the Law of 2002 or the Law of 1991. A SIF created under the form of a SICAV could adopt one of the corporate forms listed by the Bill, i.e. the public limited company (société anonyme), the partnership limited by shares (société en commandite par actions), the private limited company (société à responsabilité limitée) or the cooperative set up as a public limited company (société coopérative organisée sous forme de société anonyme).

Except where the Bill derogates therefrom, investment companies are subject to the provisions of Luxembourg company law. However, the Bill departs from such rules on a series of aspects so as to offer a flexible corporate framework.

Multiple class structures

The Bill specifically refers to the possibility to create a SIF with multiple compartments (a so-called "umbrella fund").

The Bill further provides that each compartment of such a vehicle is linked to a specific portfolio of investments which is segregated from the portfolio of investments of the other compartments, unless its constitutive documents provide otherwise. Pursuant to this principle, although the umbrella fund constitutes one single legal entity, the assets of a compartment are exclusively liable for its own debts and obligations.

Besides, different classes of securities could be created within a SIF or even within a compartment of a SIF established under the form of an umbrella fund. Such classes may have different characteristics notably as regards the fee structure, the type of target investors or the distribution policy.

(ii) Capital structure.

The Bill provides that the minimum capitalisation for a SIF is EUR1.25 million. This minimum must be reached within 12 months from the authorisation of the SIF, compared to six months for UCIs governed by the Law of 2002. Except for FCPs, the reference should be the subscribed capital rather than the net assets. The minimum capital also includes the issue premium.

A SIF, whatever its form, could issue partly paid shares/units. Shares must be paid in to the extent of a minimum of five per cent per share on issue.

As mentioned above, it will be possible to set-up a SIF with fixed or variable share capital. Besides, a SIF may be of the open-ended or closed-ended type independently of the variability or not of its capital.

(iii) Issue and redemption of securities.

The conditions and procedures for the issue and redemption of securities are relaxed compared to the rules applicable to UCIs governed by the Law of 2002 or the Law of 1991. In this regard, the Bill provides that the conditions and procedures applicable to the issue and, if applicable, the redemption of securities are determined in the constitutive documents, without imposing more precise rules. As a result, there is, for example, no requirement that the issue price be based on the net asset value as it is the case for a SICAV or an FCP governed by the Law of 2002 or the Law of 1991. Under the new regime, SIFs could thus issue shares at a predetermined fixed price and structure it so as to comprise a portion of par value and a portion of issue premium.

As SIFs could issue partly paid shares, subscription in different tranches could be achieved either by successive subscriptions that may be ascertained at the initial subscription by means of subscription commitments or by means of partly paid shares, the remaining amount of the issue price being payable in further installments. Compared to the mechanism of subscription commitments, partly paid shares present the advantages that the SIF disposes of all means permitted by company law to enforce the payment of the non-paid in portion of the shares, such as temporary suspension of voting rights, freezing of dividend payments or compulsory repurchase of shares.

(iv) Dividend policy.

A SIF will not be required to maintain a legal reserve and the Bill does not provide for any restriction on the distribution of dividends, provided the minimum capitalisation is complied with.

(v) Valuation of assets.

In light of the virtually unlimited potential investments of SIFs, it was considered important to provide for flexible valuation rules. For that reason, the Bill provides that, unless otherwise provided for in the constitutive documents, the assets of a SIF must be valued at fair value. Such value is to be determined in accordance with the rules set forth in the constitutive documents.

Further, SIFs would not be required to calculate and publish the net asset value on a regular basis.

IV. Regulatory aspects

(i) Prudential regime.

SIFs will be regulated vehicles subject to permanent supervision by the CSSF. In light of the fact that well informed investors do not need a similar protection as the one that need to be assured for retail investors, SIFs will, however, be subject to a somewhat "lighter" regulatory regime than UCIs governed by the Law of 2002 both in terms of approval procedure and regulatory requirements.

As for UCIs governed by the Law of 2002, the CSSF will approve at launch the constitutive documents, the choice of the directors/managers, the central administration agent, the custodian and the auditor of SIFs. During the life of a SIF, any change of the constitutive documents and any change of director or of the aforementioned service providers will require CSSF prior approval.

However, the Bill provides that SIFs may be created before having received regulatory approval, provided that an application for authorisation is filed with the CSSF within the month following their creation. This flexibility will certainly be extremely useful for SIFs with multiple compartments willing to create further compartments.

It will not be required that a SIF be set up by an institutional promoter with significant financial resources and subject to prior approval by the CSSF nor that the financial standing or status of its investment manager be checked by the CSSF. Only the directors who formally represent a SIF, i.e. in the case of limited partnerships, the general partners and, in the case of public limited companies and private limited companies, the members of the board of directors or managers, must be approved by the CSSF, which will check that they are of sufficiently good repute and have sufficient experience to perform their functions. This waiver of the requirement to have a promoter should boost the development in Luxembourg of certain products, such as hedge funds, where the expertise is developed by smaller institutions.

(ii) Requirement for a depository.

Like UCIs that may be distributed to retail investors, a SIF will have to entrust the custody of its assets to a depository that is a credit institution having its registered office in Luxembourg or the Luxembourg branch of a credit institution having its registered office in another Member State of the European Union. The custody of the assets is to be understood in the sense of "supervision", which implies that the depository must have knowledge at any time of how the assets of the SIF are invested and where and how these assets are available. This does not prevent the physical safekeeping of the assets to be entrusted to another professional.

The Bill does not require the depository to perform additional monitoring duties in relation to certain operations of the fund as imposed by the Law of 2002 and the Law of 1991. This lightening of the duties of the depositary should be particularly valuable in the context of hedge funds, notably in the light of the significant involvement of prime brokers.

(iii) Requirement to appoint an auditor.

The annual accounts of a SIF must be controlled by a Luxembourg independent auditor, which can justify an appropriate professional experience.

(iv) Information of the investors and reporting requirements.

An offering document will have to be produced. However, the Bill does not impose a specific schedule with respect to the minimum content of this document. An ongoing updating of the offering document will not be required but the essential elements of such document must be up to date when new securities are issued to new investors.

SIFs will have to publish an audited annual report within six months from the period to which it relates. No semi-annual report is required by the Bill.

SIFs will be exempt from the obligation to prepare consolidated accounts imposed by Luxembourg company law.

V. Tax features

Like Institutional UCIs, SIFs will be subject to an annual subscription tax (taxe d'abonnement) at a rate of 0.01 per cent (compared to 0.05 per cent for most UCIs existing under the Law of 2002), such tax being determined on the basis of the net assets valued at the end of each calendar quarter. In the same manner as the Law of 2002, the Bill exempts from the subscription tax the portion of assets invested in other Luxembourg UCIs subject to this tax, certain institutional cash funds and pension pooling funds. In respect of the latter, the Bill innovates by not requiring (unlike the Law of 2002) that the participating pension schemes be of the same group and by permitting individual compartments and classes reserved to pension schemes to also benefit from the exemption.

There will be no tax on income received and capital gains realised by SIFs. SIFs of the corporate type will have to pay, upon incorporation, a contribution duty of EUR1,250.

Conclusion

The Bill aims at replacing and improving the legal framework currently applicable to Institutional UCIs by providing for a separate statutory regime that is specifically designed for investment funds dedicated to sophisticated investors and thus more flexible than that applicable to UCIs that may be distributed to retail investors.

In a nutshell, the SIF regime will offer a great amount of corporate and investment flexibility with the benefit of a favourable tax treatment in an environment with recognised supervision.

The law on SIFs is expected to be adopted by 12 February 2007 at the latest.

Frédérique Lifrange and Jérôme Wigny
Elvinger, Hoss & Prussen

United Kingdom

Proposed FSA changes to stock lending for authorised funds — FSA consultation paper CP 06/18

Fund portfolio managers and investors have long recognised stock lending as a means of enhancing income from portfolios. Returns from stock lending can improve funds' performances and significantly improve their rankings in peer tables where positions can be dependent on just a few basis points (bps). The UK Financial Services Authority (FSA) has recently published in its quarterly consultation paper (CP 06/18) its proposed amendments to the Collective Investment Schemes Sourcebook (COLL) to modify rules relating to stock lending.

Some USD11 trillion of assets are made available to the stock lending market, of which on average USD2.5 trillion are on loan at any one time (source: Performance Explorer, September 2006), an average utilisation rate of approximately 22 per cent. Annualised yields may typically range from 10 bps for US Treasury bonds (generally a high-demand asset-type with a market utilisation rate in excess of 90 per cent); rarer, developing-market securities (issued, for example, by Israel, Russia and Hungary) can pay 300 bps and more, and their depositary receipts are equally attractive. The more established emerging markets (i.e. Taiwan) can return between 50 and 100 bps.

Major custodian lending agents (including Citigroup and its affiliates), through their breadth of contacts across the globe, will receive requests from industry counterparts for the loan of securities: for example, a market-maker may be running a short position on their book and need to avert a buy-in or other late settlement penalties by borrowing stock to deliver on (in the expectation that they will, in due course, attract a seller of the security).

Custodians will identify available, as well as already loaned, securities within their safekeeping records, aggregating positions from across the lender base to fill larger applications. Comprehensive online reports will be available to clients and may be uploaded into their systems. Fees will normally be a negotiated percentage of the commission offered by the borrower.

As with any transaction, there is risk during its progression (timely retrieval of the asset to cover sales, counterpart failure, etc.) and the taking of collateral (with a daily mark-to-market exercise, of an agreed type or quality and to a premium value) will generally mitigate this. Full transfer of title to the loaned securities passes to the borrower and likewise, transfer of ownership of the collateral plus margin transfers to the lender. Note, the only unresolved issue of benefit of ownership is a lender's loss of voting rights when lending stock; all other benefits, such as dividends, are easily manufactured by the borrower.

Stock lending in COLL and the FSA proposals

In accordance with COLL 5.4.2, authorised funds (AFs) are currently permitted to lend stock, but only in accordance with s.263B of the Taxation of Chargeable Gains Act 1992 (essentially, where a contract for sale is not involved).

Additionally, counterparts must be authorised persons and positions must be collateralised (these parameters will be specifically defined by the AF lender and set in the custodian's systems). The scheme prospectus should disclose the AF prerogative and relevant arrangements to engage in such business, including rates of fees.

The FSA's suggestions in CP 06/18 are designed to "give greater flexibility to carry out stock lending". The FSA proposes allowing repurchase and reverse-repurchase agreements (also known as "repos" and "reverse-repos") within the scope of permitted stock lending. Additionally, the list of permitted counterparties should be expanded to include "US broker-dealers and certain US banks".

The FSA also acknowledges that, in consideration of the volume of stock lending conducted specifically through Euroclear Bank's Securities Lending and Borrowing Programme (SLBP), retail funds should be also permitted to participate (and, we would suggest, any other comparable facility of the type run by Citigroup and Clearstream, for instance).

In terms of collateral, the FSA suggests adding two categories for stock lending transactions, i.e. commercial paper and liquidity (or money-market) funds that offer daily dealing and maintain AAA rating or equivalent.

Where collateral is taken in the form of cash, this may be reinvested by the depositary or its agent to generate additional income for the benefit of the fund. However, such reinvestment "should not be made contrary to the fund's investment objective and policy".

While we believe that fundamentally the FSA's proposals are sensible, we believe that the proposed rules in terms of cash collateral reinvestment require some clarification.

The FSA allows for cash collateral to be reinvested in the "type of collateral that can be received under COLL 5.4.6R", i.e. excluding cash, government and public securities, certificate of deposits, letters of credit or other readily realisable securities.

Stock lending is generally permitted for the purpose of generating additional income (COLL 5.4.2); in the CP the FSA comments that cash collateral may be reinvested for that purpose and that its rules are "silent" on the matter. The consultation paper CP 06/18 then proposes as guidance that reinvestment of cash collateral will be allowed into the same asset-types that can be received directly as collateral, as defined within COLL 5.4.6R. We would welcome the FSA's clarification on whether it is their intention that collateral may in turn be lent — a process known as "hypothecation".

The nature of collateral-eligible securities (including government and public securities and readily realisable assets) will lead to such reinvested cash generating [changes in] capital value. "Income" is not to be taken in the defined glossary sense of "income property". This is a function of the introduction of market risk. In this scenario, we would anticipate that the FSA will review COLL 5.4.6.R3 requiring that "the depositary must ensure that the value of the collateral at all times is at least equal to the value of the securities transferred". Also, we believe that it would be appropriate to aggregate any reinvestment for the purpose of exposure, risk-spreading and significant influence calculation.

By way of example, a fund fully invested in bonds of a particular government could further invest the cash collateral into more of those bonds.

Should that government's assets become worthless, the fund will still owe cash (the collateral) to the borrower; however, it would have no assets from which to raise it. In the same way, we would suggest further clarifications in respect of the fund's valuation, as under COLL 5.4.6R, collateral transferred to the depositary "does not fall to be included in any valuation" and "does not count as scheme property". Surely this does not apply to reinvested collateral, also because the FSA states that the rationale for allowing reinvestment of cash collateral is to "generate income for the fund", which should include capital gains (or losses).

Change events and fees

COLL requires that any new activity in an authorised fund must go through the change-event assessment and notification process. If the stock lending activity gives rise to a "new type of payment out of scheme property" (including fees), this is considered to be a fundamental change, irrespective of its materiality, and so it will require approval from the unitholders'/ shareholders' meeting.

According to CP 06/18, income from stock lending is to be accounted for as the gross amount paid by the borrower; any deductions or income-sharing arrangements may be only of the proposed specified types and must be detailed in the prospectus. The proposed allowable costs are: (counterparty) loan arrangement; (depositary) collateral safekeeping; and transaction costs.

Although the purpose of treating a new type of payment as a fundamental change is understood, there may be cases where the costs of organising a unitholders'/ shareholders' meeting or vote is disproportionate to the net revenue stream generated by, or the charges levied for, stock lending activities.

In this respect, we would suggest the FSA consider whether a materiality test should be introduced; then, for so long as the payment continued not to be material, the change event may only need to be classified as that of the stock lending activity itself, i.e. most likely post-notifiable.

Next steps

The consultation closed on 6 December 2006 and it is envisaged that ensuing rule updates will be made in February 2007.

Contacts

Sean Quinn
European Head of Fiduciary Services
sean.quinn@citigroup.com
tel: +44 (0)20 7500 5619

David Morrison (London)
Fiduciary Relationship Manager
david.m.morrison@citigroup.com
tel: +44 (0)20 7500 8021

Iain Lyall (London)
Fiduciary Relationship Manager
ian.lyall@citigroup.com
tel: +44 (0)20 7500 8356

Francine Bailey (London)
Fiduciary Relationship Manager
francine.bailey@citigroup.com
tel: +44 (0)20 7500 8580

Andrew Newson (London)
Fiduciary Relationship Manager
andrew.c.newson@citigroup.com
tel: +44 (0)20 7500 8410

Bronwyn Wright
European Head of Fiduciary Relationships
bronwyn.wright@citigroup.com
tel: +353 1 622 2791

Nicola Byrne (Dublin)
Fiduciary Relationship Manager
nicola.byrne@citigroup.com
tel: +353 1 622 1056

Shane Baily (Dublin)
Fiduciary Relationship Manager
shane.baily@citigroup.com
tel: +353 1 622 6297

Juergen Ehle
Head of German Fund Services
juergen.ehle@citigroup.com
tel: +49 (0)69 1366 1409

Francis Pedrini (Luxembourg)
Fiduciary Relationship Manager
francis.pedrini@citigroup.com
tel: +352 45 1414 228

Daniel Mente (Luxembourg)
Fiduciary Relationship Manager
daniel.mente@citigroup.com
tel: +352 45 1414 492

Ingrid Byrne

Fiduciary Oversight & Research

ingrid.byrne@citigroup.com

tel: +353 1 622 6264

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Contents

Citigroup® Global Transaction Services Fiduciary Services news&views; March 2007 CESR consultation on derivatives on hedge fund indicesREITs in GermanyMiFID in IrelandLuxembourg Specialised Investment Funds

Citigroup® Global Transaction Services
Fiduciary Services
news&views; March 2007
CESR consultation on derivatives on hedge fund indices
REITs in Germany
MiFID in Ireland
Luxembourg Specialised Investment Funds