The UCITS Directive also contains detailed provisions setting out the assets which are eligible for investment by UCITS. Revision of the UCITS Directive (“UCITS 3”) has expanded this list beyond transferable securities to include money market instruments, units of UCITS and other collective investment undertakings as well as banking deposits. The amendments also allow UCITS managers to manage index-replicating UCITS and to make greater use of derivatives. Financial derivative instruments may not only be used for the purposes of hedging, but also to increase return.
The UCITS Directive is not a Lamfalusy Directive. However Article 53a of the Directive 85/611/EEC confers delegated powers to the European Commission to clarify definitions in the UCITS Directive in order to ensure its uniform application throughout the European Union. In this context, the Commission decided to make use of its powers in Article 53a to clarify the meaning and the scope of the definitions included in the Directive as regards transferable securities, money market instruments and other liquid financial assets as well as how these definitions apply to certain financial instruments.