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COMMITTEE OF EUROPEAN SECURITIES REGULATORS
Date: 20 December 2010 Ref.: CESR/10-1318

GUIDELINES

Selection and presentation of performance scenarios in the Key Investor Information document (KII) for structured UCITS

CESR, 11-13 avenue de Friedland, 75008 Paris, France - Tel +33 (0)1 58 36 43 21, web site: www.cesr.eu

Executive Summary The revised UCITS Directive (2009/65/EU)requires, for structured UCITS (including capitalprotected and guaranteed UCITS) and other comparable UCITS, the use of prospective scenarios. Article 36 of the Commission Regulation No 583/2010 implementing the Directive as regards key investor information (KII) elaborates on this general requirement. In order to ensure comparability between structured UCITS, CESR has developed guidelines with a viewto harmonising the selection and presentation of scenarios. The guidelines cover the factors to be taken into account when choosing the scenarios, such as the features of the formula (e.g. a knock-out feature or a guarantee with a conditional floor) and on the link between the market conditions and the outcome for the investor. There is also guidance on how the scenarios themselves should bepresented, including on the choice between using tables or graphs. Finally, the annex contains examples of performance scenarios using a table- or graph-based presentation.

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Introduction

The revised UCITS Directive (2009/65/EU)1, which must be implemented in all Member States by 1 July 2011, requires, for structured UCITS (including capital-protected and guaranteed UCITS) and other comparableUCITS, the use of prospective scenarios as presentation of past performance is not relevant2. Article 36 of the Commission Regulation (EU) No 583/2010 implementing the Directive as regards key investor information provides that: 1. “The [key investor information document] for structured UCITS shall not contain the "Past performance" section. For the purposes of this Section, structured UCITSshall be understood as UCITS which provide investors, at certain predetermined dates, with algorithm-based payoffs that are linked to the performance or to the realization of price changes or other conditions, of financial assets, indices or reference portfolios or UCITS with similar features. 2. For structured UCITS, the section entitled "objectives and investment policy" of the [key investorinformation document] shall include an explanation of how the formula works or how the pay-off is calculated. The explanation referred to in paragraph 2 shall be accompanied by an illustration, showing at least three scenarios of the UCITS' potential performance. Appropriate scenarios shall be chosen to show the circumstances in which the formula may generate a low, a medium or a high return, including,where applicable, a negative return for the investor. The scenarios referred to in paragraph 3 shall enable the investor to understand fully all the effects of the calculation mechanism embedded in the formula. They shall be presented in a way that is fair, clear and not misleading, and that is likely to be understood by the average retail investor. In particular, they shall not artificiallymagnify the importance of the final performance of the UCITS. 5. The scenarios referred to in paragraph 3 shall be based on reasonable and conservative assumptions about future market conditions and price movements. However, whenever the formula exposes investors to the possibility of substantial losses, such as a capital guarantee that functions only under certain circumstances, these losses shall beappropriately illustrated, even if the probability of the corresponding market conditions is low. 6. The scenarios referred to in paragraph 3 shall be accompanied by a statement that they are examples that are included to illustrate the formula, and do not represent a forecast of what might happen. It shall be made clear that the scenarios shown may not have an equal probability of occurrence”....
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