FESE note on the review of the UCITS Eligible Assets Directive (EAD)

In the context of the Savings and Investments Union (SIU), FESE supports efforts to enhance the attractiveness of EU capital markets and ensure regulatory clarity as the UCITS Eligible Assets Directive (EAD) is reviewed. FESE sets out its key messages on the liquidity presumption under UCITS; investment concentration limits; indirect commodity exposure via ETCs; and disincentives to centrally clear SFTs.

Retain the listing-based presumption of liquidity

FESE calls for retaining the existing presumption that listing on a regulated market demonstrates liquidity and negotiability, rather than replacing it with a mandatory, multi-factor assessment carried out ex-ante and on an ongoing basis. Such a change would raise compliance costs, discourage new listings, and risk divergent national interpretations fragmenting cross-border investment — including a possible two-tier bond market disadvantaging smaller or sustainable bonds. FESE is concerned that institutional funds’ reliance on listed closed-ended AIFs to access alternative assets means losing the presumption could disqualify many such structures from UCITS eligibility. FESE suggests instead distinguishing structural from cyclical illiquidity and recognising liquidity-support programmes.

Ease the “5/10/40 Rule”

FESE considers the concentration limits for transferable securities and money market instruments under Article 52 of the UCITS Directive too restrictive, including proposals extending the 10% limit to all eligible asset classes. The rule discourages capital inflows into issuers, prompts distortive sales near reporting dates, and disadvantages active managers against unrestricted passive strategies. FESE recommends aligning instead with the more permissive Article 53 regime, allowing concentrations of 20% or 35% under certain conditions.

Preserve access to indirect commodity exposure via ETCs

FESE cautions against a rigid “look-through” approach to the final underlying asset, which could unduly restrict UCITS investors’ access to commodities via exchange-traded commodities (ETCs) and derivatives — instruments that offer diversification, hedging and transparency benefits in a MiFID II-regulated environment. FESE recommends targeted amendments to Article 50(2) of the UCITS Directive and Article 8 of the UCITS EAD to confirm eligibility, rather than imposing a rigid look-through requirement.

Remove disincentives to centrally clearing SFTs

FESE highlights an inconsistency between banking regulation, which recognises CCPs’ risk-reducing function, and funds regulation (UCITS Directive and MMFR), which retains strict collateral limits that discourage central clearing of securities financing transactions (SFTs). Despite relief under EMIR 3.0, FESE calls for targeted changes:

Counterparty limits: amend Article 52(2) UCITS Directive and Article 17 MMFR to exclude centrally cleared transactions, including SFTs, from counterparty limits.

Collateral re-use: amend Article 15(2) MMFR to allow pledging of reverse-repo collateral for CCP margin, and Article 14(b) MMFR/Article 52 UCITS Directive to permit re-use of cash collateral likewise.

Conclusion

Overall, FESE argues that strict criteria, limitations and unnecessary disincentives risk reducing the flexibility and appeal of UCITS funds. Its recommended changes — retaining the listing-based presumption, easing the 5/10/40 Rule, clarifying ETC eligibility, and removing clearing barriers — support the SIU’s goals of deeper, more efficient EU capital markets and greater retail and cross-border investment.