After months of wrangling the European Commission is expected to say derivatives can be used for limited borrowing and leverage in certain Europe-wide funds. This will be a boon for the derivatives industry, especially because it was feared that European regulators were attempting to tighten the rules. "This is what the industry was hoping for," said one equity derivatives structurer. Calls to the Commission were not returned by press time.
A group of national regulators known as the Contact Committee is due to meet with the European Commission this week and are expected to give the most favorable interpretation of the rule, known as UCITS 3 (Undertakings for Collective Investment in Transferable Securities). Officials familiar with the EC say that preliminary meetings show the body is likely to approve the committee's work.
The dispute over what types and how many derivatives can be used in UCITS funds centers around whether a specific paragraph that says collective investment vehicles can use derivatives should be seen in the wider context of UCITS 3, which says funds cannot borrow or leverage.