Circular 1/2019 of the National Securities Market Commission modifying Circular 1/2009 on collective investment scheme investment vocations

OFFICIAL STATE GAZETTE No. 84 Monday, 8 April 2019 Sec. I. Page 35886 I. GENERAL PROVISIONS NATIONAL SECURITIES MARKET COMMISSION 5145 Circular 1/2019, of 28 March, of the National Securities Market Commission modifying Circular 1/2009, of 4 February, on the categories of collective investment institutions according to their investment vocation, partially modified by Circular 3/2011, of 9 June. I Circular 1/2009, of 4 February, of the National Securities Market Commission, defined for the first time the monetary investment vocation. Said Circular was subsequently modified by Circular 3/2011 to, among other modifications, incorporate the harmonized definition of money market funds developed by the European Securities and Markets Authority (ESMA) in its Level 3 guidelines (CESR/10-049), establishing two types: short-term money market funds and money market funds. With the entry into force of Regulation (EU) 2017/1131 of 14 June 2017 on money market funds, it is necessary to modify again the definition of the monetary investment vocations referred to in the annex of Circular 1/2009 to incorporate the types of money market funds contemplated in said Regulation. The objective of Regulation (EU) 2017/1131 on money market funds is to establish common rules in the EU regarding the portfolio composition, eligible assets, maturity, liquidity, and diversification of money market funds, as well as the credit quality of issuers and money market instruments in which they invest, to avoid disparities in investor protection levels and prevent and mitigate any potential contagion risk derived from possible abrupt and massive withdrawals by investors. These common rules include a typology of money market funds that must be incorporated into Circular 1/2009, of 4 February, mentioned above, which constitutes the subject of this Circular. Coinciding with the adaptation required by Regulation (EU) 2017/1131, and considering the high number, assets, and heterogeneity according to portfolio duration of funds classified in the Euro fixed income category, it is considered appropriate to create a new category of collective investment institutions (CII) based on their investment vocation, breaking down the aforementioned category into two: Short-term Euro fixed income and Euro fixed income. The objective is to provide more precise information to participants regarding interest rate risk, differentiating the two investment vocations based on portfolio duration, including in the short-term Euro fixed income vocation CIIs with a duration of up to 1 year and in the Euro fixed income vocation CIIs with a duration exceeding 1 year, both having the possibility of having a maximum foreign exchange risk exposure of 10%. In any case, those CIIs that currently have a monetary vocation and do not fit the monetary investment vocations defined by Regulation (EU) 2017/1131 will be included in the new short-term Euro fixed income vocation. Likewise, since the characteristics of CIIs with a specific non-guaranteed return objective are different from those of CIIs that replicate/reproduce an index and listed CIIs (despite all of them carrying out passive management), it is taken advantage of to split the passive management CII category into two: CII that replicates an index (which replaces the denomination of passive management CII) and CII with a specific non-guaranteed return objective. Furthermore, the normative reference of listed CIIs included in the definition of the new investment vocation of CII that replicates an index in the Annex is updated, becoming Article 79 of the UCITS Regulation (RIIC). The Circular consists of a single provision and a single transitional provision. cve: BOE-A-2019-5145 Verifiable at http://www.boe.es

OFFICIAL STATE GAZETTE No. 84 Monday, 8 April 2019 Sec. I. Page 35887 The single provision modifies Circular 1/2009, of 4 February, replacing the annex that collects the investment vocations. For its part, the single transitional provision establishes the regime applicable to CIIs registered with short-term monetary or monetary vocation to adapt to the vocations established in this new Circular. In this sense, the first paragraph of Article 6.1 of Regulation (EU) 2017/1131 imposes that the denomination "money market fund" or "MMF" may only be used by those CIIs that have been authorized in accordance with said Regulation, adding that the third paragraph of the same article states that any other CII may not present characteristics essentially similar to those contemplated by the Regulation for money market funds; this obliges all CIIs that currently have the "Short-term monetary" or "Monetary" vocation, either to adjust to what is provided in the Regulation, remaining classified in one of the monetary vocations it foresees; or otherwise, to adapt their vocation to one of the remaining ones established in the Annex of the Circular. The single transitional provision also establishes the regime applicable to CIIs registered with Euro fixed income vocation and duration up to one year, which must modify their prospectus and key investor information document to include the short-term Euro fixed income vocation. Likewise, the regime applicable to CIIs registered with passive management CII vocation is collected, which must modify their prospectus and key investor information document to include the vocation that corresponds to them, if applicable. In exercise of the powers conferred and in accordance with the authorization collected in section 2 of Article 30 of Law 35/2003, of 4 November, on Collective Investment Institutions, the Council of the National Securities Market Commission, in agreement with the Council of State, in its meeting of 28 March 2019, prior report of the Advisory Committee, has ordered the following: Single Provision. Modification of Circular 1/2009, of 4 February, of the National Securities Market Commission, on the categories of collective investment institutions according to their investment vocation, partially modified by Circular 3/2011, of 9 June. The annex of Circular 1/2009, of 4 February, of the National Securities Market Commission, on the categories of collective investment institutions according to their investment vocation, is modified, which remains as follows:

"ANNEX Investment Vocations Vocation Definition Short-term MMF with constant net asset value of public debt. CIIs authorized as money market funds (MMF) in accordance with Regulation (EU) 2017/1131 on money market funds, depending on the category to which they belong in each case. Short-term MMF with low volatility net asset value. Short-term MMF with variable net asset value. Standard MMF with variable net asset value. Short-term Euro fixed income. CIIs that, having not been classified as monetary, meet the following requirements: Absence of total exposure to equity. Portfolio duration equal to or less than 1 year. Maximum 10% of total exposure in foreign exchange risk. Euro fixed income. Absence of total exposure to equity. Portfolio duration exceeding one year. Maximum 10% of total exposure in foreign exchange risk. cve: BOE-A-2019-5145 Verifiable at http://www.boe.es

OFFICIAL STATE GAZETTE No. 84 Monday, 8 April 2019 Sec. I. Page 35888 Vocation Definition International fixed income. Absence of total exposure to equity. Possibility of having more than 10% of total exposure in foreign exchange risk. Mixed Euro fixed income. Less than 30% of total exposure to equity. The sum of investments in equity securities issued by entities established outside the euro area, plus exposure to foreign exchange risk, will not exceed 30%. Mixed international fixed income. Less than 30% of total exposure to equity. The sum of investments in equity securities issued by entities established outside the euro area, plus exposure to foreign exchange risk, may exceed 30%. Mixed Euro equity. Between 30% and 75% of total exposure to equity. The sum of investments in equity securities issued by entities established outside the euro area, plus exposure to foreign exchange risk, will not exceed 30%. Mixed international equity. Between 30% and 75% of total exposure to equity. The sum of investments in equity securities issued by entities established outside the euro area, plus exposure to foreign exchange risk, may exceed 30%. Euro equity. More than 75% of total exposure to equity. At least 60% of total exposure to equity issued by entities established in the euro area. Maximum 30% of total exposure in foreign exchange risk. International equity. More than 75% of total exposure to equity not having been classified as Euro equity. CII that replicates an index. CIIs that replicate or reproduce an index, including listed CIIs of Article 79 of the RIIC. CII with specific non-guaranteed return objective. CIIs that have a specific non-guaranteed return objective. Guaranteed fixed return. CII for which there is a third-party guarantee that ensures the investment plus a fixed return. Guaranteed variable return. CII with the guarantee of a third party that ensures the recovery of the initial investment plus a possible total or partially linked amount to the evolution of equity instruments, currency, or any other asset. It also includes any CII with the guarantee of a third party that ensures the recovery of the initial investment and carries out active management of part of the assets. Partial guarantee. CII with a specific maturity return objective, linked to the evolution of equity instruments, currency, or any other asset, for which there is a third-party guarantee that ensures the recovery of a percentage lower than 100% of the initial investment. It also includes any CII with the guarantee of a third party that ensures the recovery of a percentage lower than 100% of the initial investment and carries out active management of part of the assets. Absolute return. CII that sets as a management objective, not guaranteed, to achieve a certain periodic return/risk. For this purpose, it follows absolute value techniques, "relative value", dynamic. Global. CII whose investment policy does not fit into any of the vocations mentioned above." Single Transitional Provision. CIIs that, upon the entry into force of this Circular, have short-term monetary or monetary vocation must modify the prospectus and the key investor information document to adapt their vocation to one of those established in the Annex collected in the Single Provision of this Circular. cve: BOE-A-2019-5145 Verifiable at http://www.boe.es

OFFICIAL STATE GAZETTE No. 84 Monday, 8 April 2019 Sec. I. Page 35889 CIIs that have Euro fixed income vocation and duration up to 1 year must modify the prospectus and the key investor information document to adapt their vocation to short-term Euro fixed income within one year from the entry into force of this Circular. CIIs that have passive management CII vocation must modify the prospectus and the key investor information document to adapt their vocation to CII that replicates an index or CII with specific non-guaranteed return objective, as applicable, within one year from the entry into force of this Circular. CIIs with a specific non-guaranteed return objective registered before the entry into force of this Circular, which have limitations on the subscription of participations or shares after said date, are not obliged to comply with the provisions of the previous paragraph, without prejudice to recording the modification of their investment vocation in the next update of the prospectus and key investor information document that must be carried out. Single Final Provision. Entry into force. This Circular shall enter into force the day following its publication in the "Official State Gazette". Madrid, 28 March 2019.–The President of the National Securities Market Commission, Sebastián Albella Amigo. cve: BOE-A-2019-5145 Verifiable at http://www.boe.es http://www.boe.es OFFICIAL STATE GAZETTE D. L.: M-1/1958 - ISSN: 0212-033X