Central Bank relaxes rules on Brazilian sovereign debt
Until recently, a UCITS generally could only invest up to 35% of its net asset value in securities issued or guaranteed by any non-OECD government issuer (other than Singapore). As a result of submissions made by Arthur Cox, the Central Bank has now permitted an Irish fund to invest up to 100% of its assets in securities issued or guaranteed by the Government of Brazil, provided the issues are of investment grade.
This change represents a significant opportunity for Irish funds that want to extend their product range to include higher exposure to sovereign debt from certain non-OECD issuers. It is expected that the list of non-OECD issuers will be extended shortly by the Central Bank to include another BRIC country.
Clarification in relation to Rule 144A securities
UCITS Notice 9.4 provides that Rule 144A securities that are issued with an undertaking to register with the SEC in the US within one year of issue should be treated like any other eligible transferable security that is listed or traded on a recognised stock exchange or regulated market for the purposes of the UCITS Regulations. UCITS 9.4 also provides that a UCITS may not invest more than 10% of its net asset value in aggregate in Rule 144A securities that are not issued with an undertaking to register with the SEC within one year of issue (the "10% Aggregate Limit"). In response to submissions made by Arthur Cox, the Central Bank has clarified that if a Rule 144A security issued without an undertaking to register with the SEC within one year of issue is listed or traded on a stock exchange or regulated market outside of the US, and that stock exchange or regulated market is a recognised market for the purposes of the UCITS Regulations, the Rule 144A security can be treated like any other eligible, listed or traded, transferable security for the purposes of the UCITS Regulations. These Rule 144A securities will not be subject to the 10% Aggregate Limit. The International Capital Markets Association, or ICMA, is an example of a recognised regulated market on which certain Rule 144A securities are traded. This means that an Irish fund may now be able to invest more than 10% of its net asset in these Rule 144A securities, subject of course to the issuer diversification limits.
These two changes illustrate the pragmatic approach taken by the Central Bank to fund promoters' issues and the usefulness of making individual submissions to the Central Bank.
Other developments - Registration of a UCITS in Australia
We successfully completed the registration of an Irish UCITS investment company for public marketing in Australia which included the preparation of an "Australian Disclosure Document" in compliance with the applicable Australian law.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.