The Open-Ended Undertakings for Collective Investment Law of 2012 (L.78(I)/2012) (the “Law”) regulates the operation and supervision of open-ended undertakings for collective investment in transferrable securities (“UCITS”) in Cyprus.
The Law implements into Cyprus law:
– EU Directive 2009/65/EC, on the coordination of laws, regulations and administrative provisions relating to UCITS and;
– Articles 11 and 13 of the EU Directive 2010/78/EC, as regards the authority of the European Banking Authority, the European Insurance and Occupation Pensions Authority and the European Securities and Markets Authority.
In addition, the Law implements:
– Commission Regulation 583/2010, as regards key investor information and conditions to be met when providing key investor information or the prospectus in a durable medium other than paper or by means of a website and;
– Commission Regulation 584/2010, as regards the form and content of the standard notification letter and UCITS attestation, the use of electronic communication between competent authorities for the purpose of notification, and procedures for on-the-spot verifications and investigations and the exchange of information between competent authorities
Definition of a UCITS Fund
UCITS fund is defined as an undertaking:
– Whose sole purpose is the collective investment of capital raised from the public in transferable securities and/or other liquid financial instruments, as included in section 40 (1) of the Law and as listed below (Investment Policy of UCITS).
– Operates on the principle of risk spreading.
– Which its units can be redeemed or repurchased at the request of the investor, directly or indirectly, out of the undertaking’s assets.
The following are not regarded as UCITS, pursuant to the Law:
– Closed ended undertakings for collective investment.
– An undertaking for collective investment which raises capital without promoting the sale of their units to the public within the European Union or any part of it.
– An undertaking for collective investment, the units of which may only be sold to the public of third countries, pursuant to the terms of their constitutional documents.
– An undertaking for collective investment, whose investment and borrowing policy, as prepared in accordance with the law of their home member state, does not fulfil the requirements of Chapter VII (obligations concerning the investment policies of UCITS) and Article 83 (borrowing requirements) of Directive 2009/65/EC.
UCITS may take the form a Common Fund or a Variable Capital Investment Company (“VCIC”).
– A Common Fund is a contractual vehicle that does not have a legal personality and is represented through the management company, who acts on behalf of the unitholders and it exercises all rights deriving from the assets in the Common Fund.
– The VCIC is a corporate vehicle, that is incorporated in accordance with Cyprus Corporate Law (Chapter 113) as a limited liability company, and it could be internally or externally managed.
Investment Policy of UCITS
UCITS may invest their funds in any of the following:
– Transferable securities and money market instruments that are admitted to trading or are the object of trading on a regulated market in the Republic or another member state of the EU, which is defined as a “a multilateral system operated and/or managed by a market operator, which brings together or facilitates the bringing together of multiple third‑party buying and selling interests in financial instruments – in the system and in accordance with its nondiscretionary rules – in a way that results in a contract, in respect of the financial instruments admitted to trading under its rules and/or systems, and which is authorised and functions regularly”.
– Transferable securities and money market instruments that are the object of trading on another regulated market of a member state, which operates regularly and is recognised and open to the public.
– Transferable securities and money market instruments that are admitted to trading or are the object of trading on a regulated market in a third country, that operates regularly and its open to the public.
– Recently issued transferable securities on the condition that they will be admitted into trading within one year from the date of issue.
– Units of authorised UCITS or another collective undertaking, which are subject to prudential supervision and comply with specific requirements as included in the Law (Section 40.1.e of the Law)
– Deposits to credit institutions, that are payable on demand or that provide the entitled of withdrawal within 12 months.
– Financial derivative instruments that are the object of trading on a regulated market or over the counter (“OTC”) derivatives, provided that the underlying of such derivative consists of indices, interest rates, foreign exchange or currencies; the counterparties are institutions subject to prudential supervision and belong to categories that have been approved by Cyprus Securities and Exchange Commission and; the OTC derivatives are subject to daily valuations and can be sold, liquidated or cancelled by an offsetting transaction at any time and at fair price.
– Money market instruments, except those trading on a regulated market, whose issuer is subject to regulations for the protection of investors and their funds.