Box 1 (1)Do you consider there is a need to review the scope of assets and exposures that are deemed eligible for a UCITS fund?

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1 Eligible Assets Box 1 (1)Do you consider there is a need to review the scope of assets and exposures that are deemed eligible for a UCITS fund? Yes. The Directive 2007/16/EC provides for the wrapping possibility of non elibigle assets by using closed end funds (Art. 2 (2) (a) Directive 2007/16/EC), structured financial instruments (Art. 2 (2) (c) Directive 2007/16/EC) or financial indices (Art. 9 Directive 2007/16/EC). However, the Directive leaves room for different interpretations on the criteria for those instruments and hence the wrapping possibility. This leads to different treatments in member states. E.g., in some member states even leveraged structured instruments with non eligible underlying are considered eligible. A further harmonization is needed in this respect. Any review however, should lead to a consistent approach on the wrapper possibilities (i.e., not just focus on structured financial instruments, but also on closed ended funds and financial indices). (2)Do you consider that all investment strategies current observed in the marketplace are in line with what investors expect of a product regulated by UCITS? No. Even though most UCITS use non-eligible assets (e.g., commodity exposure, see answer (4)) to only a small extend for risk spreading purposes, there are also UCITS distributed in the market with passport which e.g. fully replicate a single hedge fund using different structured financial instruments or closed ended funds. Moreover UCITS replicating a hedge fund index (as it could be considered as financial index according to Art. 9 Directive 2007/16/EC) rather seem to be a fundof-hedge fund than following a traditional UCITS strategy. (3)Do you consider there is a need to further develop rules on the liquidity of eligible assets? What kind of rules could be envisaged? Please evaluate possible consequences for all stakeholders involved. Considering the variety of possible instruments, quantitative requirements for single asset liquidity may not be practical. Having also in mind that e.g. high quality bonds can often be liquidated shortly without being traded on an exchange and hence were a quantitative liquidity measures cannot be developed. Also, as it may be too harsh to require daily liquidability without price deviation for each asset, any less conservative requirement at its own will not solve liquidity constraints. An approach focusing on portfolio liquidity, i.e. requiring a minimum percentage for daily liquidity and weekly liquidity (assets sellable without significant price deviation) would be feasible. (4)What is the current market practice regarding the exposure to noneligible assets? What is the estimated percentage of UCITS exposed to non-eligible assets and what is the average proportion of these assets in such a UCITS' portfolio? Please describe the strategies used to gain exposure to non-eligible assets and the non-eligible assets involved. If you are an asset manager, please provide also information specific to your business. 1

2 We have examined overall about 0.4% commodity exposure of German UCITS (analyzed by 31 May 2012). The number of UCITS funds with commodity exposure is rather small, about 100. The vast majority of those 100 funds (about 60%) have less than 5% commodity exposure in its portfolio. About 20% funds have a portfolio exposure between 5% and 10%. Only 4 UCITS funds fully replicate commodity indices, i.e. have a portfolio commodity exposure of about 100%. The most used strategy to gain the exposure is via swap transactions based on commodity indices (as financial index according to Art. 9 Directive 2007/16/EC). The second most exposure is achieved indirectly via investments in other UCITS (which itself have commodity investments). The third most used way to generate exposure is via financial instruments replicating commodities (most time commodity indices). (5)Do you consider there is a need to further refine rules on exposure to non-eligible assets? What would be the consequences of the following measures for all stakeholders involved: - Preventing exposure to certain non-eligible assets (e.g. by adopting a "look through" approach for transferable securities, investments in financial indices, or closed ended funds). - Defining specific exposure limits and risk spreading rules (e.g. diversification) at the level of the underlying assets. Yes, see answer to question (1). Current application of the rules is not harmonized enough. A full look through approach would prohibit any investment in non-eligible assets, even though most of the UCITS use only a small amount for risk diversification. The second alternative, defining exposure limits, e.g. setting a specific maximum percentage for non-eligilble exposure would be practically feasible. It is necessary that any limitation will consistently apply to any economic exposure (e.g. achieved via transferable securities, closed ended funds or indices). (6) Do you see merit in distinguishing or limiting the scope of eligible derivatives based on the payoff of the derivative (e.g. plain vanilla vs. exotic derivatives)? If yes, what would be the consequences of introducing such a distinction? Do you see a need for other distinctions? We have examined only 40 German retail funds which use complex / non-plain vanilla derivatives and this to only a small / negligible extend. As risk measurement and management of complex derivatives is not straightforward, a limitation of complex derivative exposure would be feasible. There would be no consequences for the German market as the exposure is in practice already very limited. (7)Do you consider that market risk is a consistent indicator of global exposure relating to derivative instruments? Which type of strategy employs VaR as a measure for global exposure? What is the proportion of funds using VaR to measure global exposure? What would be the consequence for different stakeholders of using only leverage (commitment method) 2

3 as a measure of global exposure? If you are an asset manager, please provide also information specific to your business. Yes. Market risk is a consistent indicator of global exposure. About 72% of the German retail funds (majority UCITS) use the relative VaR approach as measure for global exposure. Additionally about 2% use the absolute VaR. The application of VaR is not necessary related to a specific strategy. The use of VaR for most of the funds is related to economics of scale. As the VaR models must be implemented anyway, it may be less costly to apply them to all funds of the management company. We usually would require the implementation of VaR models to measure and monitor market risk within the risk management framework. The use of VaR does not lead to higher leverage levels compared to the commitment approach. By an examination of funds using VaR we have identified only 2% of those funds with a leverage slightly above 2 by due date when using the commitment approach. However, when looking at a time period, the average leverage levels are smaller and below the threshold. A requirement of using only the commitment method would have a huge impact on the German management companies. The daily use of commitment method is costly as it requires effort in the demonstration of hedging or netting. In contrast VaR models are already implemented, used also for the purpose of risk management, and are fully automated. (8)Do you consider that the use of derivatives should be limited to instruments that are traded or would be required to be traded on multilateral platforms in accordance with the legislative proposal on MiFIR? What would be the consequences for different stakeholders of introducing such an obligation? No, non-standardized contracts are still necessary, also for hedging purposes. Efficient Portfolio Management (EPM) Box 2 (1) Please describe the type of transaction and instruments that are currently considered as EPM techniques. Please describe the type of transactions and instruments that, in your view, should be considered as EPM techniques. Securities Lending (Section 54 of the German Investment Act) and Repo and Reverse Repo Transactions (Section 57 German Investment Act) No other transactions should be considered as EPM. (2) Do you consider there is a specific need to further address issues or risks related to the use of EPM techniques? If yes, please describe the issues you consider merit attention and the appropriate way of addressing such issues. We consider the provisions outlined in the ESMA Guidelines on ETF and other UCITS issues as a good way to address the risks related to EPM. There may be additional provisions on the use of Repo and Reverse Repo feasible. E.g. counter- 3

4 parties of Repo and Reverse Repo transactions may be restricted to credit and financial services institutions. As a Repo transaction may economically also be considered as borrowing, a similar treatment would be feasible (e.g. applying the 10% limitation). Yet, the safeguard introduced by the ESMA Guidelines, i.e., prohibiting the use of cash from the Repo transaction, may already limit the use of Repo for sake of borrowing. (3) What is the current market practice regarding the use of EPM techniques: counterparties involved, volumes, liquidity constraints, revenues and revenue sharing arrangements? Securities lending: With due date 31 March 2012, 12.5% of the German funds engaged in securities lending. In about 70% of those funds, the volume of the transaction was less than 20% of the funds NAV. In 18.5% of the funds, it was between 20% and 50% of funds NAV. In about 12%, the volume was more than 50% of NAV. With regard to liquidity constraints, Section 54 of the German Investment Act requires only short term securities lending except for 15% which may be lend for 30 days. Moreover, full collateralization is required. Section 54 of the German Investment Act also sets out requirements on the types of collateral. Repo: With due date 31 March 2012 Repo transactions were conducted by only 17 UCITS. The volume was below 6% of funds NAV. Section 57 the German Investment Act provides for repo and reverse repo up to 12 month with credit institutions and financial service institutions. (4) Please describe the type of policies generally in place for the use of EPM techniques. Are any limits applied to the amount of portfolio assets that may, at any given point in time, be the object of EPM techniques? Do you see any merit in prescribing limits to the amount of fund assets that may be subject to EPM? If yes, what would be the appropriate limit and what consequences would such limits have on all the stakeholders affected by such limits? If you are an asset manager, please provide also information specific to your business. As a repo transaction may economically also be considered as borrowings, a similar treatment would be feasible (e.g. applying the 10% limitation). Yet, the safeguard introduced by the ESMA Guidelines, i.e., prohibiting the use of cash from the Repo transaction, may already limit the use of Repo for sake of borrowing. On the other hand reverse repo is comparable to a deposit. Hence a limitation of the counterparty (i.e. credit institution or financial service institutions) and a limitation of counterparty exposure as well as a limitation of the term (no more than 12 month and recallability) would be feasible. (5) What is the current market practice regarding the collateral received in EPM? More specifically: - are EPM transactions as a rule fully collateralized? Are EPM and collateral positions marked-to-market on a daily basis? How often are margin calls made and what are the usual minimum thresholds? Section 54 of the German Investment Act requires full collateralization of securi- 4

5 ties lending transactions on a daily basis (daily marked-to-market). Margin calls must be made daily in case of a under-collateralization. - does the collateral include assets that would be considered as noneligible under the UCITS Directive? Does the collateral include assets that are not included in a UCITS fund's investment policy? If so, to what extent? No. Collateral must be eligible. But collateral must not be compatible with the fund investment rules. This would not be adequate as it would e.g. prohibit the use of high quality government bonds as collateral for equity funds. In case of Reverse Repo, securities received (bought) are not considered legally as collateral. They are considered in the funds NAV and must comply with the investment limits, also as set out in the fund rules. - to what extent do UCITS engage in collateral swap (collateral upgrade/downgrade) trades on a fix-term basis? NA. (6) Do you think that there is a need to define criteria on the eligibility, liquidity, diversification and re-use of received collateral? If yes, what should such criteria be? We consider the provisions on collateral (including the prohibition of re-use) outlined in the ESMA Guidelines on ETF and other UCITS issues as a minimum as necessary and feasible. (7) What is the market practice regarding haircuts on received collateral? Do you see any merit in prescribing mandatory haircuts on received collateral by a UCITS in EPM? If you are an asset manager, please provide also information specific to your business. NA. (8) Do you see a need to apply liquidity considerations when deciding the term or duration of EPM transactions? What would the consequences be for the fund if the EPM transactions were not "recallable" at any time? What would be the consequences of making all EPM transactions "recallable" at any time? The fund bears still the full market risk of the securities lend or sold in repo transactions. If securities would not be recallable at any time, the fund manager would not be able to react on changing market conditions. E.g. will not be able to sell assets in case of declining prices. However, the fund is fully exposed to the price decline. Requirering recallability at any time does not necessary prohibit the use of long term repos. It may just be costly to recall the assets for the fund. The alternative would be to require only overnight repos. For the German Market we do not expect much impact of further limitations as Repo transactions are rarely used (see answer to question (3)). 5

6 (9) Do think that EPM transactions should be treated according to their economic substance for the purpose of assessment of risks arising from such transactions? Yes. (10) What is the current market practice regarding collateral provided by UCITS through EPM transactions? More specifically, is the EPM counterparty allowed to re-use the assets provided by a UCITS as collateral? If so, to what extent? The Investment Act does not contain rules on the use at the counterparty level. (11) Do you think that there is a need to define criteria regarding the collateral provided by a UCITS? If yes, what would be such criteria? The UCITS is the economic owner of the collateral given even in case of title transfer. The collateral is still included in NAV valuation and investment limits. Safeguards on collateral given could therefore be adequate. (12) What is the market practice in terms of information provided to investors as regards EPM? Do you think that there should be greater transparency related to the risks inherent in EPM techniques, collateral received in the context of such techniques or earnings achieved thereby as well as their distribution? We consider the provisions on transparency outlined in the ESMA Guidelines on ETF and other UCITS issues as sufficient. OTC Derivatives Box 3 (1) When assessing counterparty risk, do you see merit in clarifying the treatment of OTC derivatives cleared through central counterparties? If so, what would be the appropriate approach? Yes, it should be clarified whether 10% counterparty limitation should be relevant for such central cleared derivatives. It should be clarified who should be treated as counterparty. The counterparty risk can be attributed to the General or Direct Clearing Member the UCITS uses for clearing access. (2) For OTC derivatives not cleared through central counterparties, do you think that collateral requirements should be consistent between the requirements for OTC and EPM transactions? Yes. According to ESMA Guidelines on ETF and other UCITS issues, requirements on eligible collateral are already consistent. (3) Do you agree that there are specific operational or other risks resulting from UCITS contracting with a single counterparty? What measures could 6

7 be envisaged to mitigate those risks? Operational risk are also inherent in a multiple counterparty model. Operational risks should be managed by close counterparty monitoring and robust emergency plans in case of defaults. (4) What is the current market practice in terms of frequency of calculation of counterparty risk and issuer concentration and valuation of UCITS assets? If you are an asset manager, please also provide information specific to your business. The German Investment Act and the Derivative Ordinance requires daily valuation and calculation of risk and limitations. (5) What would be the benefits and costs for all stakeholders involved of requiring calculation of counterparty risk and issuer concentration of the UCITS on an at least daily basis? Daily calculation is already required. (6) How could such a calculation be implemented for assets with less frequent valuations? Less than daily valuation should not be applied in UCITS funds. Extraordinary liquidity management tools Box 4 (9)What type of internal policies does a UCITS use in order to face liquidity constraints? If you are an asset manager, please provide also information specific to your business. Sollte von der Branche beantwortet werden. (10) Do you see a need to further develop a common framework, as part of the UCITS Directive, for dealing with liquidity bottlenecks in exceptional cases? Yes. (11) What would be the criteria needed to define the exceptional case referred to in Art. 84(2)? Should the decision be based on quantitative and/or qualitative criteria? Should the occurrence of exceptional cases be left to the manager s self-assessment and/or should this be assessed by the competent authorities? Please give an indicative list of criteria. The decision should be based on the following two criteria: difficulties with regard to the valuation of fund units (qualitative criteria) or liquidity shortage due to an excessive amount of redemption requests (quantitative criteria). Since the decision based on the first criterion (difficulties with the valuation) is rather an economic decision and also the decision based on the second criterion relates to the management company s organizational procedures, the evaluation whether an exceptional case is given or not, should be left to the manager s self-assessment. 7

8 (12) Regarding the temporary suspension of redemptions, should time limits be introduced that would require the fund to be liquidated once they are breached? If yes, what would such limits be? Please evaluate benefits and costs for all stakeholders involved. Yes, a time limit that would require the fund to be liquidated should be introduced. We suggest a time limit of three years. (13) Regarding deferred redemption, would quantitative thresholds and time limits better ensure fairness between different investors? How would such a mechanism work and what would be the appropriate limits? Please evaluate benefits and costs for all the stakeholders involved. The tool deferred redemption should not be introduced for UCITS. According to Art. 84(1) of the UCITS Directive a UCITS shall repurchase or redeem its units at the request of any unit-holder. The only derogation from the this general (daily) redemption right of the unitholder should be the temporary suspension in exceptional cases (Art. 84(2) UCITS Directive). (14) What is the current market practice when using side pockets? What options might be considered for side pockets in the UCITS Directive? What measures should be developed to ensure that all investors interests are protected? Please evaluate benefits and costs for all the stakeholders involved. The current German Investment law (Investmentgesetz InvG ) doesn t provide for the creation of side pockets by UCITS management companies. This is due to the fact that the UCITS Directive remains silent on the question whether it is possible for the management company to create side pockets or not. We would welcome a clarification in the UCITS Directive that a management company is allowed to create side pockets. However, the creation of side pockets should be subject to the following requirements: Since Art. 1(5) of the UCITS Directive prohibits that UCITS may transform themselves into Non-UCITS, illiquid assets can only be transferred to a fund the sole object of which is its liquidation in the best interests of the investors. The amount of illiquid assets which can be transferred is limited (maximum 30 percent of the UCITS value). The depositary or an independent auditor should validate the criteria adopted for valuation of the assets in the remaining UCITS and of those transferred to the liquidation fund at the time of the transfer. Unitholders should be provided with appropriate information on the creation of side pockets. Furthermore, if side pockets-provisions were included in UCITS VI, it should also be clarified that the investment limits as set out in the UCITS fund rules or under the applicable law may be exceeded as a result of the set-up of side pockets. (15) Do you see a need for liquidity safeguards in ETF secondary markets? Should the ETF provider be directly involved in providing liquidity to 8

9 secondary market investors? What would be the consequences for all the stakeholders involved? Do you see any other alternative? Sollte von der Branche beantwortet werden. (16) Do you see a need for common rules (including time limits) for execution of redemption orders in normal circumstances, i.e. in other than exceptional cases? If so, what would such rules be? We would welcome a clarification within which time limits redemption requests should be executed (daily, weekly, fortnightly). In our view redemption requests should be executed daily (except for bank holidays). Depositary passport Box 5 (1)What advantages and drawbacks would a depositary passport create, in your view, from the perspective of: the depositary (turnover, jobs, organization, operational complexities, economies of scale..), the fund (costs, cross border activity, enforcement of its rights ), the competent authorities (supervisory effectiveness and complexity..), and the investor (level of investor protection)? From the perspective of a competent authority, a depositary passport would impair the regulatory supervision as well as the supervisory cooperation. Furthermore, a depositary passport would impede the oversight and control functions of a depositary. It would be more complicated for a depositary to perform these duties if the fund is situated in another Member State (e.g. with regard to the ITinfrastructure). In our view a depositary passport would create more drawbacks than advantages and should therefore not be introduced. (2)If you are a fund manager or a depositary, do you encounter problems stemming from the regulatory requirement that the depositary and the fund need to be located in the same Member State? If you are a competent authority, would you encounter problems linked to the dispersion of supervisory functions and responsibilities? If yes, please give details and describe the costs (financial and non-financial) associated with these burdens as well as possible issues that a separation of fund and depositary might create in terms of regulatory oversight and supervisory cooperation. If a depositary passport were to be introduced, the competent authorities would encounter problems linked to the dispersion of supervisory functions and responsibilities. According to Article 5(2) of the UCITS Directive a common fund shall be authorized only if the competent authorities of its home Member State have approved the application of the management company to manage that common fund, the fund rules and the choice of the depositary. If a depositary passport were to be introduced and a management company provides the collective portfolio management on a cross-border basis for a fund, there would be three different competent authorities involved since neither the depositary, the management company nor the fund have to be located in the same Member State. This might complicate the approval process of the fund rules because the competent authorities of the UCITS home Member State have to liaise with two different competent 9

10 authorities (the competent authorities of the management company s home MS and the one of the depositary s home MS). Also the division of the responsibilities between the competent authorities of the UCITS home MS and the one of the depositary s home MS would be very difficult: The depositary s oversight and control functions are closely linked to the constitution and functioning of the UCITS. Since rules which relate to the constitution and functioning of the UCITS fall under the responsibility of the UCITS home MS, a depositary passport would entail problems with regard to the different interpretation of the depositary s oversight and control functions according to the relevant national law by the competent authorities involved (competent authorities of the UCITS home MS and competent authorities by the depositary s home MS). (3)In case a depositary passport were to be introduced, what areas do you think might require further harmonization (e.g. calculation of NAV, definition of a depositary s tasks and permitted activities, conduct of business rules, supervision, harmonization or approximation of capital requirements for depositaries )? In our view a depositary passport shouldn t be introduced. (4)Should the depositary be subject to a fully-fledged authorization regime specific to depositaries or is reliance on other EU regulatory frameworks (e.g. credit institutions or investment firms) sufficient in case a passport for depositary functions were to be introduced? Please refer to answer to question 3. (5)Are there specific issues to address for the supervision of a UCITS where the depositary is not located in the same jurisdiction? Please refer to answer to question Liquidity and redemptions in relation to MMFs Money Market Funds Box 6 (1)What role do MMFs play in the management of liquidity for investors and in the financial markets generally? What are close alternatives for MMFs? Please give indicative figures and/or estimates of cross-elasticity of demand between MMFs and alternatives. n.a. (2)What type of investors are MMFs mostly targeting? Please give indicative figures. Please see the attached table. (3)What types of assets are MMFs mostly invested in? From what type of issuers? Please give indicative figures. Please see the attached table. 10

11 (4)To what extent do MMFs engage in transactions such as repo and securities lending? What proportion of these transactions is open-ended and can be recalled at any time, and what proportion is fixed-term? What assets do MMFs accept as collateral in these transactions? Is the collateral marked-to-market daily and how often are margin calls made? Do MMFs engage in collateral swap (collateral upgrade/downgrade) trades on a fixed-term basis? 2 out of 30 MMF (data available only for mutual funds) engage in securities lending (in total, 1,76% of the total AuM held by all 24 MMF are affected). Among the 2 MMF which exhibit securities lending, the engagement in securities lending differs significantly (2,2% of AuM and 47,2% of AuM). 2 out of 30 MMF (data available only for mutual funds) engage in repos (both as recipients; in total, 0,46% of the total AuM held by all 24 MMF are affected). Among the 2 MMF which exhibit securities lending, the engagement in repos differs significantly (1,9% of AuM and 38,0% of AuM). (5)Do you agree that MMFs, individually or collectively, may represent a source of systemic risk ('runs' by investors, contagion, etc ) due to their central role in the short term funding market? Please explain. Yes, due to their size and their vulnerability to runs MMF may represent a source of systemic risk. Both, on an individual level and due to possible spill over effects also on a collective level. Hereby, C-NAV funds are of special importance. (6)Do you see a need for more detailed and harmonised regulation on MMFs at the EU level? If yes, should it be part of the UCITS Directive, of the AIFM Directive, of both Directives or a separate and self-standing instrument? Do you believe that EU rules on MMF should apply to all funds that are marketed as MMF or fall within the European Central Bank's definition15? Any further regulation on MMF should base upon the funds identified by the CESR Guidelines s.t. all these MMF (UCITS and non-ucits) are covered by a new regulation. This is of special importance for the purpose of mitigating systemic risks caused by MMF. (7)Should a new framework distinguish between different types of MMFs, e.g.: maturity (short term MMF vs. MMF as in CESR guidelines) This depends on the content of further regulation. E.g. at present, C-NAV funds can only be launched as STMMF. Any regulation on C-NAV funds must therefore add to the STMMF regulation. Valuation and Capital Box 7 11

12 (1) What factors do investors consider when they make a choice between CNAV and VNAV? Do some specific investment criteria or restrictions exist regarding both versions? Please develop. For institutional investors there should not be a huge difference. Yet especially for retail investors, CNAV funds give the expectation of redeeming at par on the false belief that MMF shares are a risk-free cash equivalent. VNAV could therefore lower investor expectations that MMFs are impervious to losses, and the potential for heightened run risk when a fund fails to live up to those expectations. It will condition investors to understand that markets fluctuate so that a decline in market prices does not necessarily signal an imminent default on portfolio securities, and will reduce the uncertainty on the quality of portfolio assets, as this will be reflected in the VNAV. CNAV also give expectation on sponsor guarantees. Yet, the implicit guarantor does not internalize the cost of its defection from the implicit arrangement. (2) Should CNAV MMFs be subject to additional regulation, their activities reduced or even phased out? What would the consequences of such a measure be for all stakeholders involved and how could a phase-out be implemented while avoiding disruptions in the supply of MMF? Yes. We consider it as best way to require full variability in NAV (i.e. marked-tomarket valuation) for all funds. As the difference in investment and investor base between VNAV and CNAV seems not to be huge (even not fully investigated at this point of time) we would not expect significant disruptions. (3) Would you consider imposing capital buffers on CNAV funds as appropriate? What are the relevant types of buffers: shareholder funded sponsor funded or other types? What would be the appropriate size of such buffers in order to absorb first losses? For each type of the buffer, what would be the benefits and costs of such a measure for all stakeholders involved? We would prefer to strengthen the investment fund character of the products rather than imposing bank like regulation. That is in an investment fund, investors bear the full investment risk and have to bear the losses and gains from the dayto-day variation in NAV. Capital requirements as a second best solution should be imposed to the manager / sponsor. The capital requirement for the explicit commitment must be high enough to fully protect the funds. Otherwise there are similar incentives to run would face shareholders in a fund that is perceived to be at risk of losses that exceed its capital buffer. (4) Should valuation methodologies other than mark-to-market be allowed in stressed market conditions? What are the relevant criteria to define "stressed market conditions"? What are your current policies to deal with such situations? The German Investment Law, does not provide for different valuation methods for stressed market conditions. Changing valuation seems to counter the principle of 12

13 equal treatment. Redemption fees (which may applied generally) for the benefit of the funds may be a way to internalize costs for redeeming investors. (5) What type of internal policies does a UCITS use in order to face liquidity constraints? If you are an asset manager, please provide also information specific to your business. We require a comprehensive liquidity management framework (stress test, internal limits based on redemption expectiations ) in order to prevent liquidity shortages. Emergency plans should be in place to deal with constraints. Liquidity and redemptions Box 8 (1)Do you think that the current regulatory framework for UCITS investing in money market instruments is sufficient to prevent liquidity bottlenecks such as those that have arisen during the recent financial crisis? If not, what solutions would you propose? Please refer to answer to question no. 2. (2)Do you think that imposing a liquidity fee on those investors that redeem first would be an effective solution? How should such a mechanism work? What, if any, would be the consequences, including in terms of investors confidence? We are not in favor of imposing a liquidity fee on those investors that redeem first. When investing in a MMF investors expect that they can redeem their units on a daily basis. MMFs therefore serve as a substitute for bank deposits. Imposing a liquidity fee on those investors that redeem first would contradict this expectation. In order to prevent liquidity difficulties due to investor runs it would be more useful to add liquidity constraints, i.e. stricter requirements for the weighted average maturity (WAM) and weighted average life (WAL). (3)Different redemption restrictions may be envisaged: limits on share repurchases, redemption in kind, retention scenarios et. Do you think that they represent viable solutions? How should they work concretely (length and proportion of assets concerned) and what would be the consequences, including in terms of investors confidence? Please refer to answer to question no. 2. (4)Do you consider that adding liquidity constraints (overnight and weekly maturing securities) would be useful? How should such a mechanism work and what would be the proposed proportion of the assets that would have to comply with these constraints? What would be the consequences, including in terms of investors confidence? Please refer to answer to question no. 2. (5)Do you think that the three options (liquidity fees, redemption restrictions and liquidity constraints) are mutually exclusive or could be adopted together? 13

14 We think that only the option of liquidity constraints should be used. Liquidity fees and redemptions restrictions would be contrary to investors expectation of MMFs because they expect that they can redeem their units on a daily basis. (6)If you are a MMF manager, what is the weighted average maturity (WAM) and weighted average life (WAL) of the MMF you manage? What should be the appropriate limits on WAM and WAL? Non applicable. [Box 9 sollte komplett von der Branche beantwortet werden.] Long-term investments Box 10 (1)What options do retail investors currently haven when wishing to invest in long-term assets? Do retail investors have an appetite for long-term investments? Do fund managers have an appetite for developing funds that enable retail investors to make long-term investments? Sollte von der Branche beantwortet werden. (2)Do you see a need to create a common framework dedicated to long-term investments for retail investors? Would targeted modifications of UCITS rules or a stand-alone initiative be more appropriate? When implementing the AIFMD many Member States will also adopt product rules for AIF with long-term investments that are marketed to retail investors. In our view experiences with these national product rules should be awaited before starting an initiative for promoting long-term investments for retail investors. If an initiative would be started in future, a stand-alone initiative would be more appropriate. Long-term investments, which provide a low level of liquidity, don t fit into the UCITS framework because UCITS are open-ended funds the units of which shall be redeemed at the request of the unitholder. To comply with this redemption criterion a UCITS must therefore invest into liquid assets. (3)Do you agree with the above list of possible eligible assets? What other type of asset should be included? Please provide definitions and characteristics for each type of asset. Please refer to answer to question no. 2. (4)Should a secondary market for the assets be ensured? Should minimum liquidity constraints be introduced? Please give details. Please refer to answer to question no. 2. (5)What proportion of a fund s portfolio do you think should be dedicated to such assets? What would be the possible impacts? 14

15 Please refer to answer to question no. 2. (6)What kind of diversification rules might be needed to avoid excessive concentration risks and ensure adequate liquidity? Please give indicative figures with possible impacts. Please refer to answer to question no. 2. (7)Should the use of leverage or financial derivative instruments be banned? If not, what specific constraints on their use might be considered? Please refer to answer to question no. 2. (8)Should a minimum lock-up period or other restrictions on exits be allowed? How might such measures be practically implemented? Please refer to answer to question no. 2. (9)To ensure high standards of investor protection, should parts of the UCITS framework be used, e.g. management company rules or depositary requirements? What other parts of the UCITS framework are deemed necessary? Please refer to answer to question no.2. (10) Regarding social investments only, would you support the possibility for UCITS funds to invest in units of EuSEF? If so, under what conditions and limits? In our view it should not be possible for UCITS to invest in units of EuSEF, because this would contradict the main features of UCITS. UCITS funds are open-ended funds the units of which shall be redeemed at the request of the unitholder. To comply with this redemption criterion a UCITS must therefore invest into liquid assets. Since units of EuSEF provide a low level of liquidity, it shouldn t be possible for UCITS to invest into them. 9. UCITS IV Improvement 9.1. Self-managed investment companies 9.2. Master-feeder structures 9.3 Fund mergers 9.4 Notification procedure 9.5. Alignment with with the AIFM Directive Box 11 (1) Do you think that the identified areas (points 1 to 4) require further consideration and that options should be developed for amending the respective provisions? Please provide an answer on each separate topic with the possible costs / benefits of changes for each, considering the impact for all stakeholders involved. 15

16 We are fine with the identified areas. (2) Regarding point 5, do you consider that further alignment is needed in order to improve consistency of rules in the European asset management sector? If yes, which areas in the UCITS framework should be further harmonized so as to improve consistency between the AIFM Directive and the UCITS Directive? Please give details and the possible attached benefits and costs. According to Art. 9(7) of the AIFMD AIFM shall either have additional own funds or hold a professional indemnity insurance to cover potential professional liability risks. This requirement should also be applied to UCITS management companies. Furthermore, Art. 12 (organizational and conflicts of interest rules) and Art. 14 (conduct rules) of the UCITS Directive should be aligned with Art. 12 (General principles), Art. 14 (Conflicts of interest) and Art. 18 (General principles). However, the alignment should take into account that UCITS are a retail product. Therefore a provision as provided for in Art. 12(1) subpara. 2 (preferential treatment) of the AIFMD should not be included in the UCITS VI Directive. Finally, the requirements of Art. 16 AIFMD (Liquidity management) should also be applied to UCITS. 16