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James Williams, Hedgeweek

ESMA revises collateral guidelines for UCITS funds engaged in OTC derivatives trading… JPMAM set to close commodities UCITS…

JP Morgan Asset Management is believed to be preparing to liquidate its JPM Highbridge Diversified Commodities fund as a result of declining assets under management reported Citywire Global this week.

The alternative UCITS fund is due to close on 7th February according to a letter sent out to shareholders. Highbridge Capital, who manage the Luxembourg-domiciled fund, is a hedge fund owned by the US investment bank. Mark Nodelman and Sassan Alizade are lead managers of the fund.
The letter, which was sent on 23rd December, reportedly said: “We have recently been considering the future of this sub-fund in light of its size and limited prospects of significant investment from new investors from the sub-fund’s target markets. Also, Highbridge Capital Management, LLC, the sub-fund’s investment manager, has now decided to no longer offer the strategy of the sub-fund based on the conclusions of a strategic review.” Over a 12-month period between November 2012 and November 2013 the JPM Highbridge Diversified Commodities fund returned -20.2 per cent. Current AuM is believed to be USD3.2million based on data from Lipper IM reported Citywire.
Collateral guidelines for UCITS funds engaged in OTC derivatives trading have been revised by the European Securities and Markets Authority (ESMA) reported Global Custodian this week. In the consultation paper, which ESMA published 20th December 2013, it is to be proposed that UCITS funds that meet the criteria for the definition of Money Market Fund or Short-Term Money Market Fund may receive collateral up to 100 per cent of the UCITS’ net asset value in the form of government securities.
Existing criteria for ETFs and UCITS is that any such fund engaged in OTC derivative trading can only receive 20 per cent of the fund’s NAV in collateral from a single issuer. This limit applies even if the fund deals with multiple counterparties using a basket of collateral. Following requests to amend the guidelines, ESMA will allow UCITS to receive collateral equal to 100 per cent of its NAV provided it qualifies as a money market or short-term money market fund.
Collateral diversification will still apply. The fund will need to receive securities from at least six different issues, while securities from any single issue should not account for more than 30 per cent of the collateral received.
The Central Bank of Ireland this week issued a consultation paper on the publication of a draft UCITS Rulebook wrote law firm Dechert LLP in its latest OnPoint news update. The consultation period will close 28 March 2014.
The Central Bank proposes to replace the existing series of UCITS Notices and Guidance Notes with a single consolidated document, to be called the UCITS Rulebook, containing all of the conditions that the Central Bank imposes on UCITS funds, their management companies and depositaries in addition to the requirements of the UCITS Regulations. 

The UCITS Rulebook is designed to create a consolidated and simplified set of rules that apply to UCITS funds. Dechert notes that the draft UCITS Rulebook follows the same approach adopted by the Central Bank in relation to its implementation of the Alternative Investment Fund Managers Directive, which resulted in the publication of a single rulebook for Alternative Investment Funds (the “AIF Rulebook”) with the aim of creating a “more accessible and readable regulatory framework”.

Dechert wrote that it would produce a more detailed OnPoint that will examine the consultation in greater detail and, in particular, the changes to the existing regulatory framework that are being proposed. Despite the fact that the Central Bank will no longer publish Guidance Notes, it does intend to continue to provide guidance from time to time on its website.

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