Oversight August 2012 simmons-simmons.com elexica.com ESMA Guidelines on ETFs and Hong Kong Introduction On 25 July 2012 the European Securities and Markets Authority (ESMA), the European Union s securities regulator, released its latest report and consultation paper which outlines new Guidelines on exchange traded funds and other UCITS products (Guidelines). The purpose of the Guidelines is to strengthen investor protection by providing guidance on the information that should be given to investors about index-tracking UCITS and UCITS exchange traded funds (ETFs), together with specific rules which will be applicable to UCITS when entering into over-thecounter (OTC) derivative transactions and efficient portfolio management techniques. The Guidelines also set out the criteria for financial indices in which UCITS may invest. UCITS (undertakings for collective investment in transferable securities) are those funds which may be passported across all 27 member states of the European Union having only been authorised in their home member state subject to compliance with UCITS Directive. The popularity of UCITS extends beyond the European Union in Hong Kong (as at the end of 2011) some 75% of funds authorised by the Securities and Futures Commission (SFC) for retail distribution are Luxemburg, Irish or United Kingdom domiciled UCITS. In addition, of the 93 ETFs listed on The Stock Exchange of Hong Kong Limited (SEHK) almost a third are cross listed UCITS ETFs. Notwithstanding the prevalence of UCITS in Hong Kong, Hong Kong is known to have a vigorous regulatory regime, which for ETFs and other funds authorised under the Securities and Futures Ordinance (SFO) is primarily set out in the SFC s Code on Unit Trusts and Mutual Funds (Code) as well as various guidelines and frequently asked questions (FAQs). This regime has developed significantly in recent years, with the last significant update to the Code in mid-2010. The SFC has since then refined its approach to the requirements applicable to synthetic ETFs which at present comprise over half of the total ETFs listed on the SEHK. This Oversight compares ESMA s approach under the Guidelines to the evolving approach of the SFC to ETF regulation. Status and Compliance with the Guidelines The Guidelines will apply to European Union member state regulators, UCITS management companies and UCITS which are self managed investment companies. The Guidelines have been issued under Article 16 of the ESMA Regulation. As detailed in Article 16(3) of the ESMA Regulation, competent authorities and financial markets participants must make every effort to comply with the Guidelines. Where the Guidelines are applicable, European regulators must notify ESMA whether they intend to comply with the Guidelines, and if not provide reasons for non-compliance. The Guidelines come into force two months from publication of the Guidelines on the ESMA website. Whilst the Guidelines will certainly have an impact on UCITS ETFs and index-tracking UCITS, and can be quite onerous in places, many of the most problematic suggestions of the Securities and Markets Stakeholder Group
have not been taken on board. As a result, UCITS ETF providers can take comfort from the fact that in the final Guidelines: there are no references to limitations on the distribution of complex products to retail investors there is no difference in treatment between synthetic and physical UCITS ETFs there is no obligation for UCITS ETFs using the synthetic replication method to use a non-affiliated swap counterparty there is no cap on the percentage of a UCITS or UCITS ETF that could be put out to loan, and there are no particular obligations placed on the securities lending agent. The approach adopted by ESMA in the Guidelines differs from that adopted by the SFC (and the SEHK) with regard to ETFs in Hong Kong. Since the Code was updated the SFC has required, whenever the name of a synthetic ETF listed on the SEHK is mentioned in the prospectus or advertising materials a statement (*this is a synthetic ETF) and the SEHK also requires an x to be included at the beginning of each such synthetic ETF s stock name so as to clearly distinguish physical and synthetic ETFs listed in Hong Kong. Further, the rules applicable to intermediaries conduct the SFC s Code of Conduct for Persons Licenced by or Registered with the Securities and Futures Commission, have been significantly tightened with regard to derivative products which would include synthetic ETFs. Under these rules distributors and brokers must assess and characterize retail investors i.e. non-professional investor (as defined under the SFO), in respect of their knowledge of derivatives before dealing in the relevant synthetic ETFs. Whilst the new Chapter 8.8 of the Code governing structured funds, including synthetic ETFs, states that the manager and the issuer of a financial derivative instrument (i.e. a swap counterparty) must be independent of each other, like the Guidelines, the Code does not prevent the swap counterparty to a synthetic ETF being within the same financial group (although as indicated, in Hong Kong it cannot be the same entity), provided for non-ucits it is a substantial financial institution as interpreted by the SFC in its FAQ. However the approach of the SFC to securities lending is in practice more restrictive. Usually ETFs authorized by the SFC must obtain prior approval of the SFC prior to engaging in any securities lending, repurchase transaction or similar OTC transactions as well as giving Hong Kong unitholders not less than one months prior notice. Index-Tracking UCITS The Guidelines set out the information that should be provided to investors who are investing in index-tracking UCITS, defined by ESMA to mean: UCITS the strategy of which is to replicate or track the performances of an index or indices eg through synthetic or physical replication. Whilst most investors currently understand ETFs to be funds that track or replicate an index or indices, ESMA has sought to apply certain rules to all funds that replicate an index even if they are not traded on an exchange. This is useful as it will not penalise issuers whose funds are traded on an exchange and is not unlike the Hong Kong regime where both unlisted index funds and ETFs are authorised under the same Chapter 8.6 of the Code (although some additional requirements apply to ETFs). However, the new disclosure obligations in the Guidelines will, in particular, make the production of a two page key investor information document (KIID) even harder (see below). The prospectus of index-tracking UCITS should set out a succinct description of the indices in which the UCITS are investing as well as information on their underlying components. It would not be necessary for UCITS management companies to keep an updated prospectus with an exact composition of the index provided that investors have access to a link to a website where the exact composition of the index can be disclosed. In addition, investors must be made aware of information which demonstrates how the index will be tracked as well as the impact of the chosen method will have on their exposure to the underlying index and counterparty risk. Such information should also be summarised in the KIID. This is similar to Hong Kong in that the Code requires the prospectus to be up to date and for the weightings of the top 10 largest constituents to be stated as of a date within a mouth of the prospectus. This information must also be set out in the Hong Kong KIID equivalent, the Product Key Facts Statement (KFS). The prospectus should include further information on the anticipated level of tracking error in normal market conditions as well as a description of factors that are likely to affect the ability of index-tracking UCITS to track indices performance, eg transaction costs, small illiquid components and dividend re-investment. The size of the tracking error should be stated in the annual and half-yearly reports of the index-tracking UCITS. The annual report should further highlight and explain if there is a difference between the anticipated and realised tracking error of the relevant period. These measures should go towards improving the transparency surrounding index composition and therefore investors should be better informed about the exposure of these UCITS. Fortunately the anticipated level of tracking error to be inserted is not required to be a hard limit. However, it is noteworthy that ESMA did not impose a harmonised calculation methodology for the annual tracking difference or tracking error. In France, for instance, the tracking error is calculated using a sliding 52 week average using the data from each Friday, whilst other jurisdictions permit tracking error to be based on monthly averages. This could mean that issuers in different jurisdictions (but with the same performance) may present different figures for their tracking error which will not assist investors who wish to compare different funds tracking the same index. In Hong Kong, by contrast, the SFC does not prescribe any methodology for determining tracking error, which the Code does not state must be disclosed (although the SFC may require this nonetheless). 2
UCITS ETFs Identifier and Specific Disclosure Pursuant to the Guidelines, any UCITS ETFs should carry an identifier and be labelled UCITS ETF to make it more easy to identify by investors. The identifier does not need to be translated into national languages. The identifier UCITS ETF should be used in its name, fund rules or instrument of incorporation, prospectus, KIID and marketing communications. UCITS which do not comply with the definition of an ETF cannot be marketed as such. The UCITS ETF s policy on portfolio transparency and information on where the portfolio can be obtained, including, if applicable, where the net asset value is published, should be disclosed clearly in the prospectus, KIID and marketing communications. Whilst most issuers will be focusing on the corporate work and reporting obligations that will be required for it to change its name to include the label UCITS ETF, there are 3 parts of the definition of UCITS ETF that are worth pointing out: UCITS ETF can be listed on a multi-lateral trading facility (MTF) - note that this is currently only the case in Germany (and not in France, the United Kingdom, Italy or The Netherlands) it is only necessary to have one market maker, and there is no obligation for a UCITS ETF to have an indicative net asset value. Fortunately there is no additional requirement to identify the means of replication (in the name) and so the use of this identifier should strengthen the brand image of this category of UCITS. Hong Kong s Code prescribes that index funds names must reflect the nature of an index fund and that the words index, tracking and/or tracker are expected to be included. This requirement is disapplied for ETFs provided that the relevant ETF s name is not misleading or deceptive. In practice most local ETFs listed on the SEHK include ETF in their names. There is no requirement for the name of the ETF to allude to the strategy adopted, although as mentioned above, all references to synthetic ETF s names must be qualified by a statement that it is a synthetic ETF. Although the Code does not mention market makers, it is the SFC s policy to require any ETF authorized by it and approved for listing on the SEHK to ensure that there is at all times at least one market maker. Under Appendix I to the Code all ETFs must publish an estimated net asset value or reference underlying portfolio value. Treatment of secondary market investors The Guidelines seek to ensure uniform conditions for secondary market investors of UCITS ETFs that want to redeem their shares or units. Where shares or units of a UCITS ETF have been purchased on a secondary market and are not redeemable from the ETF, the Guidelines require that a warning should be contained in the prospectus and marketing communications of the ETF to the effect that: UCITS ETF s units/shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units/shares on a secondary market with the assistance of an intermediary (eg a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units/shares and may receive less than the current net asset value when selling them. This disclosure requirement is not dissimilar in substance to what the SFC generally expects to see in the prospectus of an ETF listed on the SEHK. However Guideline 23 of the Guidelines goes on to provide that if investors have acquired units or shares on the secondary market, and subsequently, the stock exchange value of the units or shares of the UCITS ETF significantly varies from the net asset value, investors should be allowed to sell them directly back to the UCITS ETF. Where this situation arises, information should be communicated to the regulated market indicating that the UCITS ETF is open for direct redemptions. It is unclear as to how this requirement will work in practice given that an ETF provider will usually not be in a position to know who holds units or shares in the secondary market and there is no clear definition of significant variation of the net asset value. At the moment, the only indicative example cited by the Guidelines is the absence of a market maker. On this point we believe that ESMA should issue further guidance (in the form of guidelines or a Q&A). We also think that it would be appropriate for ESMA to harmonise the relevant direct sale process which each UCITS ETF issuer needs to disclose in its prospectus. For without any clear guidance from ESMA each UCITS ETF issuer will have to invent its own process, which will, inevitably lead to differing solutions. There is nothing akin to Guideline 23 in Hong Kong. However the SFC does make clear in its FAQ 14 that it would generally seek to require participating dealers to process creation or redemption requests from third party investors save for in certain limited exceptional circumstances. Efficient Portfolio Management (EPM) Techniques ESMA s intention is to improve the quality of information provided to investors by UCITS entering into EPM techniques. EPM techniques for these purposes, means securities lending and repo/reverse repo transactions. ESMA s view is that investors are not always aware of the use of EPM techniques by UCITS even though these can represent a large proportion of a UCITS assets. In terms of improving the quality of information provided, the Guidelines provide that the Prospectus should inform investors clearly of the UCITS intention to use EPM techniques, including: 3
a detailed description of the risks involved in EPM techniques (including counterparty risk and potential conflicts of interest) a detailed description of the impact the EPM techniques will have on performance disclosure of the policy regarding direct and indirect operational costs/fees arising from EPM techniques, and disclosure of the identity of the entities to which the direct and indirect costs and fees are paid, and an indication of whether these are related parties to the UCITS manager or the depositary. Where Hong Kong authorised ETFs utilse EPM techniques, the SFC would generally require similar disclosure. Its FAQ 22 prescribe disclosure concerning where fees are paid and if the securities lending agent is an affiliate of the manager of the ETF. In addition the SFC expects to see a description in the prospectus of the selection criteria for the relevant counterparties and the form and nature of the collateral. It also requires a maximum level of the fund s net asset value available for EPM techniques. The annual report of a UCITS should also contain details of the following: the exposure obtained through EPM techniques the identity of the counterparties to the EPM techniques the type and amount of collateral received by the UCITS to reduce counterparty exposure, and the revenues arising from EPM techniques for the entire reporting period (plus direct and indirect operational costs and fees incurred). Additionally, ESMA has sought to strengthen and harmonise the conditions attached to EPM techniques and, in particular, the ability to recall assets. The Guidelines provide that UCITS should be able at any time to recall any security that has been lent out or to terminate any securities lending arrangement that has been entered into. While the above requirement currently applies only to securities lending, managers will be disappointed with this outcome which goes against market practice and prevents UCITS from entering into term securities lending transactions. Unlike Hong Kong, the Guidelines also require revenues arising from EPM techniques, net of direct and indirect operating costs and fees, to be returned to the UCITS. As such, managers will be required to return revenues back to funds that they were previously permitted to retain. ESMA s view is that, on the basis asset managers do not take any risk when carrying out EPM activities, there is no justification for them keeping this revenue stream. While the change will be positive for investors, it may deprive managers of a not insignificant revenue stream (to the extent that affiliated securities lending agents are no longer able to charge a fee for their services). Ultimately, the change may increase the cost charged by managers for providing an EPM service. The foregoing fee issue has not been explicitly addressed by the SFC and so it will be interesting to see whether the SFC adopts on the same approach. Financial Derivatives Instruments (FDIs) The Guidelines set out requirements on: the level of the diversification of UCITS investment portfolio, and the treatment of the counterparties of OTC FDIs. In terms of diversification, where a UCITS enters into a total return swap or invests in other FDIs with similar characteristics, the assets held by the UCITS should comply with the investment limits of the UCITS Directive. The underlying exposures of the FDIs should be taken into account in calculating the investment limits set out in Article 52 of the UCITS Directive. As such managers may have to adapt the composition of a UCITS investment portfolio to reflect the Guidelines on diversification. There is no equivalent look through approach under the Code for Hong Kong funds although the permitted underlying of the FDIs must be consistent with the relevant fund s investment policies. ESMA has previously highlighted particular concerns where a UCITS enters into swaps which are not passively managed by the counterparty and the contract includes some discretionary elements (eg where the counterparty selects assets backing the swap from an eligible pool) or where the swap is managed completely within the discretion of the counterparty without a clear objective methodology. To address such concerns, the Guidelines provide that, where a counterparty has discretion over the composition/management of the UCITS investment portfolio or of the underlying of the FDIs, the agreement between it and the UCITS should be considered as an investment management delegation arrangement. This would therefore need to comply with the UCITS requirements on delegation. UCITS with total return swaps or similar FDIs in its portfolio will need to consider whether there is any delegation and ensure that the terms of such delegation are compliant. Hong Kong at present does not have any formal requirements which would classify a swap or FDI counterparty as a delegated investment manager although the intention of the Code is that Chapter 8.8 (Structured Funds) should only apply to index funds (including synthetic ETFs) whilst Chapter 8.9 (Funds that invest in FDIs) should not apply to passively managed funds although most of its requirements do not apply to UCITS anyway. In the event a similar structure were to be proposed for authorisation under the SFO in Hong Kong, it is likely the SFC would adopt the same approach as set out in the Guidelines. Disclosure requirements have been introduced where UCITS enters into total return swaps or similar FDIs in the prospectus, as follows: information on the underlying strategy and composition of the investment portfolio or index information on counterparties and risk of default detail on the extent to which counterparties assume discretion over composition/management of the investment portfolio, and 4
if relevant, identification of the counterparty as an investment manager. The first two of the bullets above are existing Hong Kong requirements. The Guideline also set out the following disclosure to be included in a UCITS annual report: detail on the underlying exposure obtained through FDI identity of counterparties, and the type and amount of collateral received by the UCITS to reduce counterparty exposure. Appendix E to the Code, which sets out the required contents of financial reports of authorised funds in Hong Kong, does not include specific provisions relating to FDIs, although where collateral exceeding 30% of the fund s net asset value is held then the nature of the collateral, the identity of the counterparty, the value of the fund secured and the relevant credit ratings must be disclosed in the Hong Kong reports. Collateral management ESMA s intention has been to introduce clear, qualitative and quantitative criteria for the collateral to be received by UCITS in the context of both EPM techniques and OTC transactions. Certain aspects of the existing Guidelines on Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS (Ref. CESR110-788) are amended. All assets received by UCITS through EPM techniques will be classed as collateral and will need to comply with the criteria set out in the Guidelines. A number of these follow the existing guidelines, but some requirements are new or amended. Each is summarised below. Liquidity any collateral received other than cash should be highly liquid and traded on a regulated market or MTF with transparent pricing so that it is capable of being sold quickly at close to its presale valuation (Article 56 of the UCITS Directive should be complied with ie limit on holding of shares etc, issued by a single body) Valuation collateral should be valued at least on a daily basis and assets that exhibit high price volatility should not be accepted as collateral unless suitably conservative haircuts are in place Issuer credit quality collateral received should be of high quality Correlation collateral should be issued by an entity that is independent from the counterparty and be expected not to display a high correlation with the performance of the counterparty Collateral diversification collateral received should be sufficiently diversified in terms of country, markets and issuers. (Note that there is a presumption of sufficient diversification in certain circumstances.) Where the UCITS is exposed to more than one counterparty, different baskets of collateral should be aggregated for purposes of the 20% exposure limit to a single issuer Risks linked to the management of collateral, eg operational and legal risks, should be identified, managed and mitigated by the risk management process Where there is title transfer, the collateral should be received by the UCITS depositary. For other types of arrangement, the collateral can be held by a third party custodian which is subject to prudential supervision and unrelated to the provider of collateral Collateral should be capable of being fully enforced by the UCITS at any time without counterparty approval Non-cash collateral should not be sold/reinvested/pledged, and Cash collateral received should only be: Placed on deposit with certain prescribed entities Invested in high-quality government bonds Used for reverse repo trades provided the transactions are with prudentially supervised credit institutions and the UCITS is able to recall the full amount of cash on an accrued basis at any time Invested in short term money market funds, and Reinvested cash collateral should be diversified in accordance with the same diversification requirements as apply to non-cash collateral. In Hong Kong Chapter 8.8(e) of the Code sets out the collateral requirements applicable to passively managed structured funds, including ETFs listed on the SEHK. These are broadly similar to those listed above. In terms of diversification, the requirements applicable to all funds investments under Chapter 7 of the Code apply to collateral. With regard to collateral which is not held by way of title transfer, eg a pledge, Chapter 8.8(e)(vii) of the Code requires that the collateral must still be controlled by the fund s custodian. The Guidelines also state that the Risk exposures to a counterparty arising from OTC FDI and EPM techniques should be combined when calculating the counterparty risk limits under the UCITS Directive. If a UCITS is receiving collateral for at least 30% of its assets, it needs to have an appropriate stress testing policy (as prescribed in the Guidelines). Regular stress test should be carried out under normal and exceptional liquidity conditions. UCITS should have a clear documented haircut policy for each class of assets received as collateral (taking account of the credit standing, price volatility, and outcome of stress tests), and should justify each decision applying/not applying haircuts to particular classes of assets. The prospectus should clearly inform investors of the collateral policy of the UCITS, including permitted type of collateral, level of collateral, haircut policy and, where applicable, reinvestment policy. 5
The collateral haircut requirement for domestic Hong Kong ETFs (i.e. excluding cross listed UCITS ETFs) was significantly revised by the SFC in August 2011. Relevant synthetic ETFs were required to top up the collateral to at least 100% collateralisation. Where the collateral is in the form of equity securities the SFC now requires the market value to be equivalent to at least 120% of the gross counterparty risk exposure. Indices The Guidelines published by ESMA seek to strengthen the legal framework applicable to financial indices with the professed aim of ensuring better protection for investors. ESMA, in publishing its Guidelines, is apparently seeking to impose safeguards which will limit the complexity of financial indices to which UCITS are exposed. A UCITS should disclose clearly in its prospectus when it intends to make use of the increased diversification limits referred to in Article 53 of the UCITS Directive which allow up to 35% of the relevant index to be in securities of a single issuer in exceptional market conditions, together with a description of the exceptional conditions concerned. ESMA has sought to clarify the treatment of commodity indices; where a UCITS invests (eg through a derivative) in a commodity index, the index should consist of different commodities. ESMA have emphasised that sub categories of the same commodity should be treated as the same commodity for diversification purposes so, for example, different grades of oil such as WTI Crude oil or Brent Crude should be considered as a single category removing some of the granularity that has been available to commodity and managed futures funds through the use of sub-indices. There is however an exception; if sub categories of the same indices are not highly correlated (based on a prescribed correlation calculation methodology), they should not be treated as the same commodity. In order for a UCITS to be able to demonstrate that the index satisfies the criteria for financial indices set out in Article 53 of UCITS Directive and Article 9 of the Eligible Assets Directive, ESMA have laid down 3 evidential requirements: First, an index should have a clear, single objective in order to represent an adequate benchmark for the market; second, the universe of the index components and the basis on which these components are selected for the strategy should be clear to investors and competent authorities; and third, if cash management is included as part of the index strategy, the UCITS should be able to demonstrate that this does not affect the objective nature of the index calculation. A further potentially problematic provision of the Guidelines for some ETF providers and/or strategy-based index funds states that, where an index has been created on the request of one or a limited number of market participants, this index will not be considered as being an adequate benchmark of a market. The Guidelines also specify other situations in which a financial index should not be invested in by a UCITS: where the methodology for the selection and rebalancing of components for financial indices is not based on a set of predetermined rules and objective criteria if an index provider accepts payments from potential index components for inclusion in the Index, and where the methodology of the index permits backfilling ie retrospective changes to previously published index values. What constitutes an acceptable index in Hong Kong is set out in Chapter 8.6(e) of the Code. Although ultimately subject to the SFC s discretion, the criteria for acceptability include the relevant index being clearly defined, broadly based (an index with a single security weighting in excess of 40% or with the top 5 securities weighting in excess of 75% would generally be considered unacceptable), liquid and transparent. In particular the Code requires an index to be objectively calculated and rules based with a published methodology. In practice the SFC requires the index provider to be independent of an ETF s manager and the index to be generally available for use of third parties. Although the Code does not contemplate commodities indices or funds which are physical commodities ETFs, the SFC has authorised physical gold ETFs which benchmark the LBMA gold fixing price. Rebalancing The rebalancing frequency and its effects on the costs within the strategy will be required to be disclosed in the prospectus. Importantly the Guidelines indicate that if a rebalancing frequency prevents investors from being able to replicate the financial index, the UCITS should not invest in such an index. Indices which are rebalanced on an intra-day or daily basis are, it seems, to be treated as ineligible on this basis. This has potentially significant repercussions for providers of certain strategy indices including but not limited to managed futures and commodity strategies that have, often to accommodate the otherwise ineligible commodity component, had to structure their products using eligible financial indices. Despite arguments in the ESMA consultation that daily or more frequent rebalancing of such indices in fact reduces tracking error and that indices do not all lend themselves to frequent rebalancing, ESMA seems to regard replicability (the ability of investors to replicate the index) as an inviolable requirement for eligibility of a financial index. Although, as mentioned above, the SFC does expect an index to be liquid (i.e. investible), a number of PRC A-Share indices have been approved by the SFC and PRC A-Shares are not investible by most non-prc investors. In addition the Code does not stipulate any rules concerning frequency of rebalancing of an acceptable index. Disclosure The Guidelines state that, if the index provider does not provide the full calculation methodology which would enable investors to replicate the financial index, a UCITS should not invest in such financial indices. This information, together with information on the performance of the index should be made freely available to investors. 6
The Guidelines go further in requiring that UCITS should also not invest in financial indices unless their constituents together with their respective weightings are published free of charge. This information should be made freely available to investors and potential investors and should cover the previous period since the last rebalancing as well as including all levels of the index. ESMA clearly rejected arguments from providers that full position disclosure amounted to proprietary information and it may be difficult for some managers to make full position level information available although there is some crumb of comfort offered in the feedback statement to the effect that a certain delay in publishing this information may be possible. The Guidelines in this regard codify what is also the SFC s existing practice when authorising ETFs in Hong Kong. Conclusion The Guidelines have been described by ESMA as being aimed at strengthening investor protection and harmonising regulatory practices across an important European Union fund sector. The Guidelines seek to achieve this by increasing disclosure of UCITS, clarifying the requirements applicable to the management of collateral and setting out requirements for eligible indices in which UCITS may invest. These are important developments for UCITS. In many ways the changes enunciated by the Guidelines were presaged by the SFC s evolving policies towards structured funds and ETFs offered in Hong Kong from 2010 onwards, although certain requirements (for example with regard to the acceptability of an index) have long been in place in Hong Kong. As the Guidelines can be seen as a tightening of regulation, there is to an extent a convergence of regulatory regimes between the European Union and Hong Kong. Given the strength of the UCITS brand in Hong Kong, it will be interesting to see if the regulatory developments set out in the Guidelines will prompt further refinement or change in the SFC s approach and policy towards ETFs listed on the SEHK. To find out more, contact: Hong Kong 13th Floor One Pacific Place 88 Queensway Hong Kong T +852 2868 1131 F +852 2810 5040 Hong Kong Paul Li T +852 2583 8269 E paul.li@simmons-simmons.com Rolfe Hayden T +852 2583 8302 E rolfe.hayden@simmons-simmons.com Eva Chan T +852 2583 8216 E eva.chan@simmons-simmons.com Maureen Gleeson T +852 2583 8236 E maureen.gleeson@simmons-simmons.com Beatrice Jiang T +852 2583 8273 E beatrice.jiang@simmons-simmons.com United Kingdom Neil Simmonds T +44 207 825 3151 E neil.simmonds@simmons-simmons.com France Ian Rogers T +33 1 53 29 16 22 E ian.rogers@simmons-simmons.com Germany Jochen Kindermann T +49 69 90 74 54 44 E jochen.kindermann@simmons-simmons.com Italy Enrico Leone T +39 02 72 5051 E enrico.leone@simmons-simmons.com elexica.com is the award winning online legal resource of Simmons & Simmons Simmons & Simmons LLP 2012. All rights reserved, and all moral rights are asserted and reserved. This document is for general guidance only. It does not contain definitive advice. SIMMONS & SIMMONS and S&S are registered trade marks of Simmons & Simmons LLP. Simmons & Simmons is an international legal practice carried on by Simmons & Simmons LLP and its affiliated practices. Accordingly, references to Simmons & Simmons mean Simmons & Simmons LLP and the other partnerships and other entities or practices authorised to use the name Simmons & Simmons or one or more of those practices as the context requires. The word partner refers to a member of Simmons & Simmons LLP or an employee or consultant with equivalent standing and qualifications or to an individual with equivalent status in one of Simmons & Simmons LLP s affiliated practices. For further information on the international entities and practices, refer to simmons-simmons.com/legalresp Simmons & Simmons LLP is a limited liability partnership registered in England & Wales with number OC352713 and with its registered office at CityPoint, One Ropemaker Street, London EC2Y 9SS. It is authorised and regulated by the Solicitors Regulation Authority. A list of members and other partners together with their professional qualifications is available for inspection at the above address. 039 aug12 oversight_esma