Commission Directive 2010/42/EUShow full title

CHAPTER III MASTER-FEEDER STRUCTURES

SECTION 1 Agreement and internal conduct of business rules between feeder UCITS and master UCITS

Subsection 1 Content of the agreement between master UCITS and feeder UCITS

Article 8 Access to information

Member States shall require that the agreement between the master UCITS and the feeder UCITS referred to in the first subparagraph of Article 60(1) of Directive 2009/65/EC includes the following with regard to access to information:

(a)

how and when the master UCITS provides the feeder UCITS with a copy of its fund rules or instruments of incorporation, prospectus and key investor information or any amendment thereof;

(b)

how and when the master UCITS informs the feeder UCITS of a delegation of investment management and risk management functions to third parties in accordance with Article 13 of Directive 2009/65/EC;

(c)

where applicable, how and when the master UCITS provides the feeder UCITS with internal operational documents, such as its risk management process and its compliance reports;

(d)

what details of breaches by the master UCITS of the law, the fund rules or instruments of incorporation and the agreement between the master UCITS and the feeder UCITS the master UCITS shall notify the feeder UCITS of and the manner and timing thereof;

(e)

where the feeder UCITS uses financial derivative instruments for hedging purposes, how and when the master UCITS will provide the feeder UCITS with information about its actual exposure to financial derivative instruments to enable the feeder UCITS to calculate its own global exposure as envisaged by point (a) of the second subparagraph of Article 58(2) of Directive 2009/65/EC;

(f)

a statement that the master UCITS informs the feeder UCITS of any other information-sharing arrangements entered into with third parties and where applicable, how and when the master UCITS makes those other information-sharing arrangements available to the feeder UCITS.

Article 9 Basis of investment and divestment by the feeder UCITS

Member States shall require that the agreement between the master UCITS and the feeder UCITS referred to in the first subparagraph of Article 60(1) of Directive 2009/65/EC includes the following with regard to the basis of investment and divestment by the feeder UCITS:

(a)

a statement of which share classes of the master UCITS are available for investment by the feeder UCITS;

(b)

the charges and expenses to be borne by the feeder UCITS, and details of any rebate or retrocession of charges or expenses by the master UCITS;

(c)

if applicable, the terms on which any initial or subsequent transfer of assets in kind may be made from the feeder UCITS to the master UCITS.

Article 10 Standard dealing arrangements

Member States shall require that the agreement between the master UCITS and the feeder UCITS referred to in the first subparagraph of Article 60(1) of Directive 2009/65/EC includes the following with regard to standard dealing arrangements:

(a)

coordination of the frequency and timing of the net asset value calculation process and the publication of prices of units;

(b)

coordination of transmission of dealing orders by the feeder UCITS, including, where applicable, the role of transfer agents or any other third party;

(c)

where applicable, any arrangements necessary to take account of the fact that either or both UCITS are listed or traded on a secondary market;

(d)

where necessary, other appropriate measures to ensure compliance with the requirements of Article 60(2) of Directive 2009/65/EC;

(e)

where the units of the feeder UCITS and the master UCITS are denominated in different currencies, the basis for conversion of dealing orders;

(f)

settlement cycles and payment details for purchases or subscriptions and repurchases or redemptions of units of the master UCITS including, where agreed between the parties, the terms on which the master UCITS may settle redemption requests by a transfer of assets in kind to the feeder UCITS, notably in the cases referred to in Article 60(4) and (5) of Directive 2009/65/EC;

(g)

procedures to ensure enquiries and complaints from unit-holders are handled appropriately;

(h)

where the fund rules or instruments of incorporation and prospectus of the master UCITS give it certain rights or powers in relation to unit-holders, and the master UCITS chooses to limit or forego the exercise of all or any such rights and powers in relation to the feeder UCITS, a statement of the terms on which it does so.

Article 11 Events affecting dealing arrangements

Member States shall require that the agreement between the master UCITS and the feeder UCITS referred to in the first subparagraph of Article 60(1) of Directive 2009/65/EC includes the following with regard to events affecting dealing arrangements:

(a)

the manner and timing of a notification by either UCITS of the temporary suspension and the resumption of repurchase, redemption, purchase or subscription of units of that UCITS;

(b)

arrangements for notifying and resolving pricing errors in the master UCITS.

Article 12 Standard arrangements for the audit report

Member States shall require that the agreement between the master UCITS and the feeder UCITS referred to in the first subparagraph of Article 60(1) of Directive 2009/65/EC includes the following with regard to standard arrangements for the audit report:

(a)

where the feeder UCITS and the master UCITS have the same accounting years, the coordination of the production of their periodic reports;

(b)

where the feeder UCITS and the master UCITS have different accounting years, arrangements for the feeder UCITS to obtain any necessary information from the master UCITS to enable it to produce its periodic reports on time and which ensure that the auditor of the master UCITS is in a position to produce an ad hoc report on the closing date of the feeder UCITS in accordance with the first subparagraph of Article 62(2) of Directive 2009/65/EC.

Article 13 Changes to standing arrangements

Member States shall require that the agreement between the master UCITS and the feeder UCITS referred to in the first subparagraph of Article 60(1) of Directive 2009/65/EC includes the following with regard to changes to standing arrangements:

(a)

the manner and timing of notice to be given by the master UCITS of proposed and effective amendments to its fund rules or instruments of incorporation, prospectus and key investor information, if these details differ from the standard arrangements for notification of unit-holders laid down in the master UCITS fund rules, instruments of incorporation or prospectus;

(b)

the manner and timing of notice by the master UCITS of a planned or proposed liquidation, merger, or division;

(c)

the manner and timing of notice by either UCITS that it has ceased or will cease to meet the qualifying conditions to be a feeder UCITS or a master UCITS respectively;

(d)

the manner and timing of notice by either UCITS that it intends to replace its management company, its depositary, its auditor or any third party which is mandated to carry out investment management or risk management functions;

(e)

the manner and timing of notice of other changes to standing arrangements that the master UCITS undertakes to provide.

Article 14 Choice of the applicable law

1. Member States shall ensure that where the feeder UCITS and the master UCITS are established in the same Member State, the agreement between the master UCITS and the feeder UCITS referred to in the first subparagraph of Article 60(1) of Directive 2009/65/EC provides that the law of that Member State shall apply to the agreement and that both parties agree to the exclusive jurisdiction of the courts of that Member State.

2. Member States shall ensure that where the feeder UCITS and the master UCITS are established in different Member States, the agreement between the master UCITS and the feeder UCITS referred to in the first subparagraph of Article 60(1) of Directive 2009/65/EC provides that the applicable law shall be either the law of the Member State in which the feeder UCITS is established or that it shall be that of the Member State in which the master UCITS is established and that both parties agree to the exclusive jurisdiction of the courts of the Member State whose law they have stipulated to be applicable to the agreement.

Subsection 2 Content of the internal conduct of business rules

Article 15 Conflicts of interest

Member States shall ensure that the management company's internal conduct of business rules referred to in the third subparagraph of Article 60(1) of Directive 2009/65/EC shall include appropriate measures to mitigate conflicts of interest that may arise between the feeder UCITS and the master UCITS, or between the feeder UCITS and other unit-holders of the master UCITS, to the extent that these are not sufficiently addressed by the measures applied by the management company in order to meet requirements of Articles 12(1)(b) and 14(1)(d) of Directive 2009/65/EC and Chapter III of Commission Directive 2010/43/EU of 1 July 2010 implementing Directive 2009/65/EC of the European Parliament and of the Council as regards organisational requirements, conflicts of interest, conduct of business, risk management and content of the agreement between a depositary and a management company(1).

Article 16 Basis of investment and divestment by the feeder UCITS

Member States shall ensure that the management company's internal conduct of business rules referred to in the third subparagraph of Article 60(1) of Directive 2009/65/EC shall include at least the following with regard to the basis of investment and divestment by the feeder UCITS:

(a)

a statement of which share classes of the master UCITS are available for investment by the feeder UCITS;

(b)

the charges and expenses to be borne by the feeder UCITS, and details of any rebate or retrocession of charges or expenses by the master UCITS;

(c)

where applicable, the terms on which any initial or subsequent transfer of assets in kind may be made from the feeder UCITS to the master UCITS.

Article 17 Standard dealing arrangements

Member States shall ensure that the management company's internal conduct of business rules referred to in the third subparagraph of Article 60(1) of Directive 2009/65/EC shall include at least the following with regard to standard dealing arrangements:

(a)

coordination of the frequency and timing of the net asset value calculation process and the publication of prices of units;

(b)

coordination of transmission of dealing orders by the feeder UCITS, including, if applicable, the role of transfer agents or any other third party;

(c)

where applicable, any arrangements necessary to take account of the fact that either or both UCITS are listed or traded on a secondary market;

(d)

appropriate measures to ensure compliance with the requirements of Article 60(2) of Directive 2009/65/EC;

(e)

where the feeder UCITS and the master UCITS are denominated in different currencies, the basis for conversion of dealing orders;

(f)

settlement cycles and payment details for purchases and redemptions of units of the master UCITS including, where agreed between the parties, the terms on which the master UCITS may settle redemption requests by a transfer of assets in kind to the feeder UCITS, notably in the cases referred to in Article 60(4) and (5) of Directive 2009/65/EC;

(g)

where the fund rules or instruments of incorporation and prospectus of the master UCITS give it certain rights or powers in relation to unit-holders, and the master UCITS chooses to limit or forego the exercise of all or any such rights and powers in relation to the feeder UCITS, a statement of the terms on which it does so.

Article 18 Events affecting dealing arrangements

Member States shall ensure that the management company's internal conduct of business rules referred to in the third subparagraph of Article 60(1) of Directive 2009/65/EC shall include at least the following with regard to events affecting dealing arrangements:

(a)

the manner and timing of notification by either UCITS of the temporary suspension and the resumption of the repurchase, redemption or subscription of units of UCITS;

(b)

arrangements for notifying and resolving pricing errors in the master UCITS.

Article 19 Standard arrangements for the audit report

Member States shall ensure that the management company's internal conduct of business rules referred to in the third subparagraph of Article 60(1) of Directive 2009/65/EC shall include at least the following with regard to standard arrangements for the audit report:

(a)

where the feeder UCITS and the master UCITS have the same accounting years, the coordination of the production of their periodic reports;

(b)

where the feeder UCITS and the master UCITS have different accounting years, arrangements for the feeder UCITS to obtain any necessary information from the master UCITS to enable it to produce its periodic reports on time and which ensure that the auditor of the master UCITS is in a position to make an ad hoc report on the closing date of the feeder UCITS in accordance with the first subparagraph of Article 62(2) of Directive 2009/65/EC.

SECTION 2 Liquidation, merger or division of the master UCITS

Subsection 1 Procedures in the event of a liquidation

Article 20 Application for approval

1. Member States shall require the feeder UCITS to submit to its competent authorities no later than two months after the date on which the master UCITS informed it of the binding decision to liquidate, the following:

(a) where the feeder UCITS intends to invest at least 85 % of its assets in units of another master UCITS in accordance with Article 60(4)(a) of Directive 2009/65/EC:

(i)

its application for approval for that investment;

(ii)

its application for approval of the proposed amendments to its fund rules or instrument of incorporation;

(iii)

the amendments to its prospectus and its key investor information in accordance with Articles 74 and 82 of Directive 2009/65/EC, respectively;

(iv)

the other documents required pursuant to Article 59(3) of Directive 2009/65/EC;

(b) where the feeder UCITS intends to convert into a UCITS that is not a feeder UCITS in accordance with Article 60(4)(b) of Directive 2009/65/EC:

(i)

its application for approval of the proposed amendments to its fund rules or instrument of incorporation;

(ii)

the amendments to its prospectus and its key investor information in accordance with Articles 74 and 82 of Directive 2009/65/EC, respectively;

(c) where the feeder UCITS intends to be liquidated, a notification of that intention.

2. By way of derogation from paragraph 1, where the master UCITS informed the feeder UCITS of its binding decision to liquidate more than five months before the date at which the liquidation will start, the feeder UCITS shall submit to its competent authorities its application or notification in accordance with one of the points (a), (b) or (c) of paragraph 1 at the latest three months before that date.

3. The feeder UCITS shall inform its unit-holders of its intention to be liquidated without undue delay.

Article 21 Approval

1. The feeder UCITS shall be informed within 15 working days following the complete submission of the documents referred to in points (a) or (b) of Article 20(1) respectively, whether the competent authorities have granted the required approvals.

2. On receiving the competent authorities’ approval pursuant to paragraph 1, the feeder UCITS shall inform the master UCITS of it.

3. The feeder UCITS shall take necessary measures to comply with the requirements of Article 64 of Directive 2009/65/EC as soon as possible after the competent authorities have granted the necessary approvals pursuant to Article 20(1)(a) of this Directive.

4. Where the payment of liquidation proceeds of the master UCITS is to be executed before the date on which the feeder UCITS is to start to invest in either a different master UCITS pursuant to Article 20(1)(a) or in accordance with its new investment objectives and policy pursuant to Article 20(1)(b), the competent authorities of the feeder UCITS shall grant approval subject to the following conditions:

(a) the feeder UCITS shall receive the proceeds of the liquidation:

(i)

in cash; or

(ii)

some or all of the proceeds as a transfer of assets in kind where the feeder UCITS so wishes and where the agreement between the feeder UCITS and master UCITS or the internal conduct of business rules and the binding decision to liquidate provide for it;

(b) any cash held or received in accordance with this paragraph may be re-invested only for the purpose of efficient cash management before the date on which the feeder UCITS is to start to invest either in a different master UCITS or in accordance with its new investment objectives and policy.

Where point (a)(ii) of the first subparagraph applies, the feeder UCITS may realise any part of the assets transferred in kind for cash at any time.

Subsection 2 Procedures in the event of a merger or division

Article 22 Application for approval

1. Member States shall require that the feeder UCITS submits to its competent authorities, no later than one month after the date on which the feeder UCITS received the information of the planned merger or division in accordance with the second subparagraph of Article 60(5) of Directive 2009/65/EC, the following:

(a) where the feeder UCITS intends to continue to be a feeder UCITS of the same master UCITS:

(i)

its application for approval thereof;

(ii)

where applicable, its application for approval of the proposed amendments to its fund rules or instrument of incorporation;

(iii)

where applicable, the amendments to its prospectus and its key investor information in accordance with Articles 74 and 82 of Directive 2009/65/EC, respectively;

(b) where the feeder UCITS intends to become a feeder UCITS of another master UCITS resulting from the proposed merger or division of the master UCITS or where the feeder UCITS intends to invest at least 85 % of its assets in units of another master UCITS not resulting from the merger or division:

(i)

its application for approval of that investment;

(ii)

its application for approval of the proposed amendments to its fund rules or instruments of incorporation;

(iii)

the amendments to its prospectus and its key investor information in accordance with Articles 74 and 82 of Directive 2009/65/EC, respectively;

(iv)

the other documents required pursuant to Article 59(3) of Directive 2009/65/EC;

(c) where the feeder UCITS intends to convert into a UCITS that is not a feeder UCITS in accordance with Article 60(4)(b) of Directive 2009/65/EC:

(i)

its application for approval of the proposed amendments to its fund rules or instrument of incorporation;

(ii)

the amendments to its prospectus and its key investor information in accordance with Articles 74 and 82 of Directive 2009/65/EC, respectively;

(d) where the feeder UCITS intends to be liquidated, a notification of that intention.

2. For the purpose of the application of points (a) and (b) of paragraph 1 the following should be taken into account:

The expression ‘continues to be a feeder UCITS of the same master UCITS’ refers to cases where:

(a) the master UCITS is the receiving UCITS in a proposed merger;

(b) the master UCITS is to continue materially unchanged as one of the resulting UCITS in a proposed division.

The expression ‘becomes a feeder UCITS of another master UCITS resulting from the merger or division of the master UCITS’ refers to cases where:

(a) the master UCITS is the merging UCITS and, due to the merger, the feeder UCITS becomes a unit-holder of the receiving UCITS;

(b) the feeder UCITS becomes a unit-holder of a UCITS resulting from a division that is materially different to the master UCITS.

3. By way of derogation from paragraph 1, in cases where the master UCITS provided the information referred to in or comparable with Article 43 of Directive 2009/65/EC to the feeder UCITS more than four months before the proposed effective date, the feeder UCITS shall submit to its competent authorities its application or notification in accordance with one of the points (a) to (d) of paragraph 1 of this Article at the latest three months before the proposed effective date of the merger or division of the master UCITS.

4. The feeder UCITS shall inform its unit-holders and the master UCITS of its intention to be liquidated without undue delay.

Article 23 Approval

1. The feeder UCITS shall be informed within 15 working days following the complete submission of the documents referred to in Article 22(1)(a) to (c) respectively, whether the competent authorities have granted the required approvals.

2. Upon receipt of the information that the competent authorities have granted approval according to paragraph 1, the feeder UCITS shall inform the master UCITS of it.

3. After the feeder UCITS has been informed that the competent authorities have granted the necessary approvals pursuant to Article 22(1)(b) of this Directive, the feeder UCITS shall take the necessary measures to comply with the requirements of Article 64 of Directive 2009/65/EC without undue delay.

4. In the cases of Article 22(1)(b) and (c) of this Directive, the feeder UCITS shall exercise the right to request repurchase and redemption of its units in the master UCITS in accordance with the third subparagraph of Article 60(5) and Article 45(1) of Directive 2009/65/EC, where the competent authorities of the feeder UCITS have not granted the necessary approvals required pursuant to Article 22(1) of this Directive by the working day preceding the last day on which the feeder UCITS can request repurchase and redemption of its units in the master UCITS before the merger or division is effected.

The feeder UCITS shall also exercise this right in order to ensure that the right of its own unit-holders to request repurchase or redemption of their units in the feeder UCITS according to Article 64(1)(d) of Directive 2009/65/EC is not affected.

Before exercising the right referred to in the first subparagraph, the feeder UCITS shall consider available alternative solutions which may help to avoid or reduce transaction costs or other negative impacts for its own unit-holders.

5. Where the feeder UCITS requests repurchase or redemption of its units in the master UCITS, it shall receive one of the following:

(a) the repurchase or redemption proceeds in cash;

(b) some or all of the repurchase or redemption proceeds as a transfer in kind where the feeder UCITS so wishes and where the agreement between the feeder UCITS and the master UCITS provides for it.

Where point (b) of the first subparagraph applies, the feeder UCITS may realise any part of the transferred assets for cash at any time.

6. The competent authorities of the feeder UCITS shall grant approval on the condition that any cash held or received in accordance with paragraph 5 may be re-invested only for the purpose of efficient cash management before the date on which the feeder UCITS is to start to invest either in the new master UCITS or in accordance with its new investment objectives and policy.

SECTION 3 Depositaries and auditors

Subsection 1 Depositaries

Article 24 Content of the information-sharing agreement between depositaries

The information-sharing agreement between the depositary of the master UCITS and the depositary of the feeder UCITS referred to in Article 61(1) of Directive 2009/65/EC shall include the following:

(a)

the identification of the documents and categories of information which are to be routinely shared between both depositaries, and whether such information or documents are provided by one depositary to the other or made available on request;

(b)

the manner and timing, including any applicable deadlines, of the transmission of information by the depositary of the master UCITS to the depositary of the feeder UCITS;

(c)

the coordination of the involvement of both depositaries, to the extent appropriate in view of their respective duties under national law, in relation to operational matters, including:

(i)

the procedure for calculating the net asset value of each UCITS, including any measures appropriate to protect against the activities of market timing in accordance with Article 60(2) of Directive 2009/65/EC;

(ii)

the processing of instructions by the feeder UCITS to purchase, subscribe or request the repurchase or redemption of units in the master UCITS, and the settlement of such transactions, including any arrangement to transfer assets in kind;

(d)

the coordination of accounting year-end procedures;

(e)

what details of breaches by the master UCITS of the law and the fund rules or instrument of incorporation the depositary of the master UCITS shall provide to the depositary of the feeder UCITS and the manner and timing of their provision;

(f)

the procedure for handling ad hoc requests for assistance from one depositary to the other;

(g)

identification of particular contingent events which ought to be notified by one depositary to the other on an ad hoc basis, and the manner and timing in which this will be done.

Article 25 Choice of the applicable law

1. Member States shall ensure that where the feeder UCITS and the master UCITS have concluded an agreement in accordance with Article 60(1) of Directive 2009/65/EC, the agreement between the depositaries of the master UCITS and the feeder UCITS provides that the law of the Member State applying to that agreement in accordance with Article 14 of this Directive shall also apply to the information-sharing agreement between both depositaries and that both depositaries agree to the exclusive jurisdiction of the courts of that Member State;

2. Member States shall ensure that where the agreement between the feeder UCITS and the master UCITS has been replaced by internal conduct of business rules in accordance with the third subparagraph of Article 60(1) of Directive 2009/65/EC, the agreement between the depositaries of the master UCITS and the feeder UCITS provides that the law applying to the information-sharing agreement between both depositaries shall be either that of the Member State in which the feeder UCITS is established or, where different, that of the Member State in which the master UCITS is established, and that both depositaries agree to the exclusive jurisdiction of the courts of the Member State whose law is applicable to the information-sharing agreement.

Article 26 Reporting of irregularities by the depositary of the master UCITS

The irregularities referred to in Article 61(2) of Directive 2009/65/EC which the depositary of the master UCITS detects in the course of carrying out its function under the national law and which may have a negative impact on the feeder UCITS shall include, but are not limited to:

(a)

errors in the net asset value calculation of the master UCITS;

(b)

errors in transactions for or settlement of the purchase, subscription or request to repurchase or redeem units in the master UCITS undertaken by the feeder UCITS;

(c)

errors in the payment or capitalisation of income arising from the master UCITS, or in the calculation of any related withholding tax;

(d)

breaches of the investment objectives, policy or strategy of the master UCITS, as described in its fund rules or instrument of incorporation, prospectus or key investor information;

(e)

breaches of investment and borrowing limits set out in national law or in the fund rules, instruments of incorporation, prospectus or key investor information.

Subsection 2 Auditors

Article 27 Information-sharing agreement between auditors

1. The information-sharing agreement between the auditor of the master UCITS and the auditor of the feeder UCITS referred to in Article 62(1) of Directive 2009/65/EC shall include the following:

(a) the identification of the documents and categories of information which are to be routinely shared between both auditors;

(b) whether the information or documents referred to in point (a) are to be provided by one auditor to the other or made available on request;

(c) the manner and timing, including any applicable deadlines, of the transmission of information by the auditor of the master UCITS to the auditor of the feeder UCITS;

(d) the coordination of the involvement of each auditor in the accounting year-end procedures for the respective UCITS;

(e) identification of matters that shall be treated as irregularities disclosed in the audit report of the auditor of the master UCITS for the purposes of the second subparagraph of Article 62(2) of Directive 2009/65/EC;

(f) the manner and timing for handling ad hoc requests for assistance from one auditor to the other, including a request for further information on irregularities disclosed in the audit report of the auditor of the master UCITS.

2. The agreement referred to in paragraph 1 shall include provisions on the preparation of the audit reports referred to in Article 62(2) and Article 73 of Directive 2009/65/EC and the manner and timing for the provision of the audit report for the master UCITS and drafts of it to the auditor of the feeder UCITS.

3. Where the feeder UCITS and the master UCITS have different accounting year-end dates, the agreement referred to in paragraph 1 shall include the manner and timing by which the auditor of the master UCITS is to make the ad hoc report required by the first subparagraph of Article 62(2) Directive 2009/65/EC and to provide it and drafts of it to the auditor of the feeder UCITS.

Article 28 Choice of the applicable law

1. Member State shall ensure that where the feeder UCITS and the master UCITS have concluded an agreement in accordance with Article 60(1) of Directive 2009/65/EC, the agreement between the auditors of the master UCITS and the feeder UCITS provides that the law of the Member State applying to that agreement in accordance with Article 14 of this Directive shall also apply to the information-sharing agreement between both auditors and that both auditors agree to the exclusive jurisdiction of the courts of that Member State.

2. Member States shall ensure that where the agreement between the feeder UCITS and the master UCITS has been replaced by internal conduct of business rules in accordance with the third subparagraph of Article 60(1) of Directive 2009/65/EC, the agreement between the auditors of the master UCITS and the feeder UCITS provides that the law applying to the information-sharing agreement between both auditors shall be either that of the Member State in which the feeder UCITS is established or, where different, that of the Member State in which the master UCITS is established, and that both auditors agree to the exclusive jurisdiction of the courts of the Member State whose law is applicable to the information-sharing agreement.

SECTION 4 Manner of providing the information to unit-holders

Article 29 Manner of providing the information to unit-holders

Member States shall ensure that the feeder UCITS provides the information to unit-holders pursuant to Article 64(1) of Directive 2009/65/EC in the same manner as prescribed by Article 7 of this Directive.

(1)

See page 42 of this Official Journal.