UCITS
UCITS - or "undertakings for the collective investment in transferable securities" - are regulated European investment funds, generally aimed at retail investors. UCITS funds must meet strict criteria as to how they are set up, managed and marketed, and as to the portfolio of asset a UCITS fund is allowed to invest in: There are concentration limits and other criteria which ensure diversity of risk; assets must be liquid, there should be very limited use of leverage and the fund must ensure it has diverse exposure to trading counterparties, banks and so on.
The most recent UCITS legislation is UCITS V, (2014/91/EU (EUR Lex)).
From Article 1(2) of 85/611/EEC (EUR Lex) Council Directive (85/611/EEC) of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS)
- For the purposes of this Directive, and subject to Article 2, UCITS shall be undertakings:
- the sole object of which is the collective investment in transferable securities and/or in other liquid financial assets referred to in Article 19(1) of capital raised from the public and which operates on the principle of risk-spreading and
- the units of which are, at the request of holders, re-purchased or redeemed, directly or indirectly, out of those undertakings' assets. Action taken by a UCITS to ensure that the stock exchange value of its units does not significantly vary from their net asset value shall be regarded as equivalent to such re-purchase or redemption.
===UCITS V=== On 23 July 2014 the European Union adopted 2014/91/EU (EUR Lex) on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards depositary functions, remuneration policies and sanctions.
This directive introduces new rules on UCITS depositaries, such as the entities eligible to assume this role, their tasks, delegation arrangements and the depositaries’ liability as well as general remuneration principles that apply to fund managers.
The depositary as a specific function under UCITS legislation (rather as it does under AIFMD). The depositary may delegate its functions to a third party custodian - as to which see sub-custodian.