The information contained in this Newsletter is of a general nature and does not constitute legal advice

June 2010



Royal Decree 749/2010 (“RD 749/2010”) came into force on 9 June amending Regulation of Law 35/2003 of 4 November on collective investment schemes (“RCIS”) in order to overcome the effects of the financial crisis and to relax the legal regime, three tax regulations to include traded companies in the tax regime applicable to ETFs and the asset securitization funds regime.

The most significant amendments introduced by RD 749/2010 are the following:

1. Commissions and expenses borne by the collective investment scheme (“CIS”) and investors

· The management company of the collective investment scheme (“MCCIS”) may now enter into agreements with investors for the return of commissions, which understanding must be included in the full prospectus of the CIS. It was previously unclear whether rebates could be returned to investors since this could be considered a breach of the general principle of equal treatment of investors.

· The minimum period of linkage to the MCCIS of the maximum net asset value reached when the system used to allocate commissions on results is to allocate the management commission to the fund is changed to three years.

· Management commissions accrued and borne indirectly by investors of an investment fund when it invests in other CIS managed by the same MCCIS will be calculated on the amount effectively charged in relation to the assets invested in these CIS.

· Funds may bear trading commissions, including the provision of investment analysis services. The regulation aims to resolve the issue regarding financial analysis services (original opinions that give investment ideas to managers - “soft commissions”) being provided by brokers together with trading services.

2. Application of the delegation regime of the asset management and management of the CIS to investment companies that are not managed or represented by a MCCIS

3. Amendment to CIS documentation

From now on, the entry into force of the change of control of the MCCIS will not be dependant on the date on which the prospectus is updated. Moreover, investors may exercise their right of separation in the event of significant changes to the legal documentation of the fund on any day of the month following the changes and the shares will be reimbursed at their net asset value on the exercise date of the right.

4. Improvements to the winding-up and liquidation regime for investment funds

· Reimbursements requested by investors and pending payment, which applicable net asset value refers to a date prior to the publication of the winding-up agreement, shall qualify as creditor balances of the fund.

· Prior to drafting the financial statements, the liquidator may distribute the cash obtained as a result of the sale of the securities and assets of the fund to all investors so that they do not have to wait until the end to receive the amounts invested.

5. More assets eligible for investment of financial CIS

· Eligible deposits are extended to include deposits in credit institutions with a registered office located in a Member State of the OECD subject to prudent supervision.

· Investment in foreign private equity companies similar to those set out in Law 25/2005 on private equity companies and their management companies is now allowed. Previously, only investment in Spanish private equity companies was allowed.

6. Risk diversification of financial CIS

· The limit to the investment in assets or financial instruments issued or guaranteed by the same issuer is increased to 35%, which must be included in the prospectus and in all marketing material of the CIS.

· A new investment limit is introduced for shares of a CIS that another CIS may acquire and is set at 25% of the circulated volume of shares held by the CIS which shares are to be acquired.

· Specific assets eligible for investment are excluded from the calculation of the 35% limit established in article 38.6 of the RCIS.

7. Requirements for the investment in derivative financial instruments

· A CIS which management is aimed at obtaining a specific performance objective will not be subject to the limit on premiums paid in the acquisition of options of 10% of the assets of the CIS.

· Specific derivative instruments (volatility or any other asset determined by the CNMV) are excluded from the calculation of the exposure to market risk of the underlying asset associated with the use of financial instruments for the purposes of complying with diversification limits. This will not apply to a CIS which investment policy is based on the investment in a single fund.

8. Marketing of Spanish CIS in the EU

Increase of the 20% limit on investment in assets or financial instruments issued or guaranteed by the same issuer to 35% for a CIS which reproduces or replicates a specific stock market index or a fixed income index, provided that it is justified on the basis of exceptional market grounds.

9. Special provisions applicable to hedge funds

The EUR 50,000 minimum subscription requirement will not apply to investors that qualify as professional investors under article 78 bis. 3 of Law 24/1988 of 28 July on the Securities Market.

10. Investment rules for hedge funds

The obligation of these CIS to invest 60% of their assets in hedge funds with a registered office, or with an MCCIS with a registered office, located in an OECD country, now includes CIS with a registered office, or with an MCCIS with a registered office located in an EU Member State.

11. Creation of special purpose CIS and subfunds (side pockets)

· In specific cases, provided that the depositary is informed, an MCCIS or an investment company may split-off the original CIS, transferring certain liquid assets to a new CIS or subfund, subject to prior notification to the CNMV and publication of the relevant fact.

· The transfer regime set out in Law 35/2003 will be applicable, but the transformation, merger and split-off regime will not.

12. ETFs and exchange traded investment companies

· Exchange traded investment companies are now permitted, and will be included in the ETF regime. For this purpose, Income Tax for Non-Residents, Personal Income Tax and Corporate Income Tax are amended to remove the obligation to withhold or distribute income on account in relation to that realised on the transfer or reimbursement of shares in traded companies.

· Amendment of the requirements for the admission of ETFs to trading on the stock exchange.

13. Real estate CIS regime

· From now on, the main investment aim of real estate CIS can be: (i) REITs, provided that they do not hold shares or units of other real estate CIS and (ii) other real estate CIS, provided that such CIS have not invested over 10% of their assets in other real estate CIS.

· The limit for real estate investment of real estate CIS is reduced from 90% to 80% of the total assets in order to bring it into line with the REITs regime.

14. Amendments to the general conditions for the delegation of asset management and management of the CIS set out in article 68 in order to bring it into line with the regime established in Royal Decree 217/2008

15. MCCIS are not required to form part of FOGAIN (Fondo de Garantia de Inversiones) when providing investment advice services

16. Application of the rules of conduct of Royal Decree 217/2008 to MCCIS that market shares and units of their managed CIS and of other CIS

The information contained in this Newsletter is of a general nature and does not constitute legal advice