On 28 July 2017, the CSSF published a press release relating to its work with regard to closet index tracking. This follows a statement issued by the European Security Market Authority (ESMA) dated 2 February 2016 which provided details on its supervisory work on potential closet index tracking (see previous Fund News article).
The CSSF performed its own investigations on the basis of ESMA's statement. Apart from the quantitative measures used by ESMA (i.e. Active Share, Tracking Error and R2), the CSSF included qualitative criteria such as the actual management style and the disclosure to investors.
As a result, the CSSF was not able to identify any UCITS domiciled in Luxembourg which qualifies as closet index tracker, except for one isolated case still under scrutiny.
Nevertheless, the CSSF acknowledges the fact that investor disclosure on the use of a benchmark can be improved for some of the funds under review. Accordingly, the concerned management companies were asked by the CSSF to increase the level of disclosure in both the key investor information document (KIID) and the prospectus. The CSSF recalls that the disclosure in relation to the use of any benchmark by the UCITS should be indicated in the KIID under the section "objectives and investment policy" as well as the value of the benchmark used and should include a reference to any flexibility with regards to the benchmark used, if any. Those disclosures should also be mentioned in the prospectus itself.
The CSSF press release is available at the following web link.
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