On 20 June 2024, the CSSF has released an update on its Frequently Asked Questions concerning Circular CSSF 02/77 on protection of investors in case of NAV calculation errors, non-compliance with investment rules and other types of errors at UCI level (which will be replaced by Circular CSSF 24/856 on 1st January 2025) and the FAQ on the Law of 17 December 2010 relating to UCI.
New “T+1” Settlement Cycle
In the context of moving the standard settlement cycle from T+2 to T+1 amongst others in the United States, UCITS may be facing operational challenges, including from an investment compliance perspective, resulting notably from timing gaps between the settlement cycles on the asset side (securities transactions) and on the liability side (subscriptions/redemptions).
Indeed, most securities transactions in the United States, as well as other jurisdictions (Canada and Mexico) have followed a T+2 settlement cycle. This means that transactions settle two business days after the trade date. For instance, if you sold shares of X stock on Monday, the transaction would be completed, or "settled," on Wednesday.
With effect from end of May 2024, most securities transactions in those jurisdictions have moved from a standard settlement cycle of T+2 to T+1. This change implicates that securities transactions will settle just one business day after the trade date. So, if you sell shares of X stock on Monday, the transaction will now settle on Tuesday instead of Wednesday.
CSSF Updates FAQs
The updated FAQs provide detailed guidance on CSSF’s expectations for investment compliance under these new circumstances.
The clarifications have been included in the following FAQs:
- Circular CSSF 02/77 FAQ: addition of question 4.a and modification of question 4 (now 4.b).
The FAQ suggests that compliance measures may include shortening the UCITS settlement cycle, using cash management solutions, diversifying bank accounts, considering temporary borrowings, and exploring extended settlement periods. UCITS must ensure continuous adherence to investment restrictions and manage any passive breaches resulting from timing gaps.
- Law of 17 December 2010 FAQ: revision of question 1.14 (version 19).
The new version of the question 1.14 broadens the conditions under which the 20% limit on ancillary liquid assets may be temporarily breached. Previously limited to exceptionally unfavorable market conditions like the September 11 attacks or the Lehman Brothers bankruptcy, the new guidelines now include any exceptional circumstances, providing greater flexibility to protect investor interests.
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