Further to the publication of two consultation papers on the use
of share classes by UCITS (in December 2014 and April 2016), ESMA
released its final Opinion on UCITS share classes on 30 January
2017 ("Opinion").
In this Opinion, ESMA focuses on the possibility for UCITS to
use derivative overlays at share class level, while subjecting this
practice to compliance with four principles: (i) common investment
objective, (ii) non-contagion, (iii) pre-determination and (iv)
transparency.
As regards the first principle, ESMA is of the opinion that
hedging arrangements at share class level are not compatible with
the requirement for a fund to have a common investment objective.
The only exception is for currency-risk hedging arrangements. As a
consequence, other derivative strategies such as duration hedging
or beta hedging are not permitted at share class level for UCITS.
Other main rules stemming from these four principles and affecting,
in particular currency hedged
