Scanning No.1

EUROPE ELTIFs Council compromise proposal Background

« ELTIFs should be able to borrow cash amounting for up to 30% of their assets.

648/2012 (EMIR) and which expressly agreed to have their name mentioned publicly. This list is not exhaustive. What’s next? The list will be subject to further updates accord- ing to ESMA. ESMA’S LIST IS AVAILABLE HERE. ESMA informs EU Commission of its intention to ease the frontloading requirement under EMIR Background ESMA’s letter to the Commission concerns the frontloading requirement. The frontloading re- quirement is the obligation to clear OTC derivative contracts which will be subject to the clearing ob- ligation entered into after a central counterparty (CCP) which is able to clear those OTC derivative contracts has been authorized under EMIR and be- fore the date of the clearing obligation. What’s in there? On 8 May 2014, ESMA informed the Commission of its intention to ease the frontloading require- ment under EMIR. According to an analysis by ESMA the requirement may introduce significant uncertainties in the market with the consequences mainly borne by derivative end-users. The front- loading window can be divided into two periods: Period A: between the notification of the classes of OTC derivative contracts to ESMA and the entry into force of the Regulatory Technical Standards (RTS) on the clearing obligation. Period B: between the entry into force of the RTS

Portfolio composition and diversification: « As a rule, ELTIFs may not invest more than 10% of their assets in transferable securities issued by a single body; the threshold would be raised to 25% for bonds issued by a credit institution subject by law to special public supervision de- signed to protect bond-holders. « The depositaries of ELTIFs marketed to retail investors would not be able to discharge them- selves of liability in case of a loss of financial instruments held by a sub-depositary. What’s next? The regulation needs to be adopted by the Parlia- ment and the Council. The regulation would enter into force 6 months after its adoption. The Council Presidency proposal dated 8 May 2014 is AVAILABLE HERE. EMIR - List of central counterparties (CCPs) Background Article 25 of Regulation 648/2012 on European Market Infrastructure Regulation (EMIR) provides for the recognition of third country CCPs by ESMA, and the necessary requirements to allow those CCPs to provide clearing services to clearing mem- bers and trading venues established in the EU. What’s in there? On 29 April 2014, ESMA issued a list of CCPs established in non-EEA countries which have ap- plied for recognition under Article 25 of regulation Specific provisions concerning the depositary of an ELTIF marketed to retail investors:

European Long Term Investment Funds (ELTIFs) are EU-AIFs managed by EU authorised AIFMs that do not offer regular redemption before the end of the vehicle’s life and invest in long-term assets. ELTIFs benefit from an EU passport and might be marketed to retail investors across the EU. On 26 June 2013, the Commission issued a Pro- posal for a regulation of the European Parliament and of the Council on European long-term invest- ment funds ( “the Regulation” - AVAILABLE HERE ). The Regulation shall ensure that uniform require- ments apply to the investment and operating con- ditions of ELTIFs. On 17 April 2014, the European Parliament in ple- nary adopted amendments to the Commission’s proposal (available here – a note from the General Secretariat of the Council to the Permanent Repre- sentatives Committee on the outcome of the Parliament’s first reading is available here). On 24 April 2014, the Presidency of the Council is- sued a first compromise proposal ( available here ) . What’s in there? On 8 May 2014, the Presidency of the Council is- sued a second compromise proposal. The main changes to the regulation are the following: Eligible investment assets: « Units or shares of AIFs would be eligible assets to the extent that such AIFs (i) are not allowed to invest in aggregate more than 10% of their cap- ital in other UCIs, (ii) invest at least 70% of their assets in ELTIFs’ eligible investments (iii) do not undertake any short selling activities or do not take direct or indirect exposure to commodities and (iv) have a depositary;

page 2 - Scanning - June 2014