2. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX UCITS fund industry in Poland – EU regulations implemented into national legal framework Bartłomiej Kurzeja

3. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX UCITS – what is it? UCITS  Undertakings for Collective Investments in Transferable Securities = polish open-end investment fund Preamble: „collective investment undertakings other than of the closed-ended type which promote the sale of their units to the public in the Community and the sole object of which is investment in transferable securities” EU single internal market  single intenal market for financal services  UCITS o create common legislative framework o keep up with the changing market o provide investor protection o remove obstacles for business with single passport o create uniform brand for better recognition and reputation o create economies of scale with lower costs for investors

4. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX UCITS – brief history (1) UCITS I (85/611/EEC) building blocks o single passport for cross-border marketing and distribution of investment funds o home Member State responsible for authorization & regulation o host Member State responsible for distribution & disclosure UCITS I (85/611/EEC) pitfalls o Definition of „transferable securities” – Preamble: „transferable securities (which are essentially transferable securities officially listed on stock exchanges or similar regulated markets)” o System of investment limits – Article 22.1: „A UCITS may invest no more than 5 % of its assets in transferable securities issued by the same body” o Problems with implementation – local laws

5. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX UCITS – brief history (2) UCITS III o The Management Directive (2001/107/EC) procedure of notification in host Member State introduction of simplified prospectus new services provided my management companies possibility to delegate functions on other entities Capital requirements Organizational requirements o The Product Directive (2001/108/EC) widened investment universe with new assets eligible for UCITS new investment techniques

6. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX UCITS – brief history (3) UCITS IV (2009/65/EC) o KII (Key Investor Information) instead of simplified prospectus o Passport for management companies o UCITS cross-border mergers o Enhanced risk management process

7. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Units of an open – end investment fund Constitute claim of a holder on funds’ net asset value (NAV) Units are divisible Article 83.2 – „Units may not be sold by a unit-holder to a third party” Article 83.3 – „Units may be inherited.” Article 83.4 – „Units may be pledged. The pledgee’s claims may be satisfied from the pledged assets only by way of redemption of units” Article 86.1 – „The units shall be sold and redeemed at a price calculated by dividing the fund’s net asset value by the number of units as determined on the basis of the register of unit-holders on the valuation date.” Article 86.2 – „Sale and redemption of units may be subject to administration fees, if the fund’s articles of association so stipulate and if they define the maximum amount of such fees and the charging method.”

8. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Sale and redemption of units (1) Fund cannot impose restrictions on participation Article 82: „An open-end investment fund shall sell and redeem units at the request of a unit-holder. Upon their redemption, units are cancelled by operation of law” Article 84.3: „An open-end investment fund shall sell and redeem units with the frequency stipulated in the articles of association, but no less frequently than every seven days.” Sale/redemption price o Article 86.1: price o Article 86.2: administration fees Article 88.1: Minimum amount for which units must be purchased in an individual transaction may be specified in fund’s article of association

9. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Frequency of valuation of fund’s assets Article 85: „With the frequency stipulated in the articles of association, but no less frequently than on each day when units are sold and redeemed, the open-end investment fund shall: o (1) carry out a valuation of the fund’s assets; o (2) determine the fund’s net asset value; o (3) determine the selling and redemption price of the units; o (4) determine the fund’s net asset value per unit. Assets Capital = NAV (> PLN2,5 millions) Capital = NAV (> PLN2,5 millions) Liabilities Net asste value per unit = NAV ÷ number of units Register of unit-holders

10. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Sale and redemption of units (2) Article 87.1: „An open-end investment fund shall maintain a register of unit- holders.” Article 87.2: The register of unit-holders shall include in particular: o personal details of unit-holders o number of units o dates and prices at which units were purchased/sold o dates the amounts of the fund’s income paid to the unit-holder o information regarding any powers of attorney granted or revoked by the unit-holder o note concerning any pledge created on the units

11. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Resttictions on sale/redemption of units Restrictions on sale of units by a fund: o Article 84.3: Suspension for 2 weeks, if it is not possible to make a reliable valuation of a material part of the fund’s assets for reasons beyond the fund’s control, o Article 84.3: Susupension may be extended for 2 months with the consent of PFSA. Restrictions on redemption of units by a fund: o Article 89.4: Suspension for 2 weeks, if: it is not possible to make a reliable valuation of a material part of the fund’s assets for reasons beyond the fund’s control, in the preceding two weeks, the aggregate value of the units redeemed or requested to be redeemed by the fund exceeds 10% of the value of the fund’s assets. o Article 89.4: Susupension may be extended for 2 months with the consent of PFSA.

12. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Investment limits (1) Eligible asset Exposure on single issuer (% of assets) Securities issued or guaranteed by the State Treasury, NBP, local government institution, Member State, OECD member 35%* Securities and money market instruments (MMI) admitted to public trading 5% (may be raised to 10% if sum of +5% <40%) Other MMI Non-index derivatives (value of instruments underlying derivative) Bank deposits20% Mortgage bonds25% UCITS funds/subfunds20% Foreign UCI (investing <10% in other funds)20%

13. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Investment limits (2) Eligible asset Exposure on single issuer (% of assets) Securities + MMI + Counterparty risk (mortgage bank) 35% Securities + MMI + Counterparty risk (other issuers) 20% Exposure on single capital group20% Single stock/bond (in case of index fund) 20% (35% on in one issuer) Counterparty risk is a value of unrealized gain on OTC derivative

14. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Investment limits (3) Eligible assetGlobal limit (% of assets) Mortgage bonds80% Foreign UCI (investing <10% in other funds)30% Borrowings10% (NAV) Loans of dematerialised securities30% (NAV)

15. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Loans of dematerialised securities (Article 102) Securities loans enhance return of a fund, Loan may be granted, if: o Fund receives collateral in the form of cash or assets eligible for open-end investment fund, o Value of securities lent ≤ value of collateral during the life of a contract, o Life of a contract ≤ 12 months, o Collateral is registered in fund’s accounts or fund’s depositary receives form documents confirming that collateral has been received, Aggregate value of securities lent ≤ 30% NAV.

16. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Special fund structures – Investment Funds Issuing Units of Various Classes Article 158.1 – An open-end investment fund may sell units which differ in terms of o the administration fees, o fees charged against the fund’s assets. Article 158.2 – If a fund’s units differ in terms of the fees charged against the fund’s assets, the units of a given class shall be sold and redeemed at the price calculated by dividing the value of the fund’s net assets attributable to a given unit class by the number of units of this class as determined on the basis of the register of unit- holders on the valuation date. Article 158.3 – A fund’s articles of association shall define the classes of units sold by the fund and shall specify the rights and obligations attached thereto. Article 158.4 – The units units differing in terms of the fees charged against the fund’s assets may be consolidated only within the same class.

17. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Special fund structures – Umbrella funds (1) Most popular of all eligible „special fund structures”, Fund participants can transfer money between different sub-funds of single umbrella fund without paying tax, With umbrella funds product offer is more straightforward, Article 159.1 – Different sub-funds may apply different investment policies, Article 159.4 – „The sub-funds shall not have legal personality”. Umbrella open-end investment fund Sub-fund 1Sub-fund 2Sub-fund 3

18. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX Special fund structures – Umbrella funds (2) Article 160.2 – The investment limits, rules governing contracting loans and lending securities defined shall be applied individually to the value of each sub-fund’s assets, and in the case of an open-end investment fund, also to the value of the assets of the fund, Article 160.4 – „The assets of all sub-funds shall be valued with the same frequency and with the same valuation methods”, Article 161.1 – „Liabilities of a sub-fund shall be borne only by such sub-fund”, Article 161.3 – „Liabilities of the umbrella fund shall be borne by the individual sub- funds pro rata to the share of their net asset value in the net asset value of the umbrella fund.”, Article 162.1.5, 162.3 – Units in a sub-fund may be converted into units in other sub-funds of single umbrella fund. The conversion shall involve a concurrent o redemption of units in an umbrella fund and o acquisition of units in another sub-fund with the redemption proceeds.

19. Ukraine (nr 46514): Expert Mission on Supervision of Investment Funds` Activities - TAIEX 18 Opened part