Insights

Introduction

The ETF market in Europe has grown remarkably over the past five years, with net assets rising from nearly EUR 970 billion in 2020 to EUR 1.45 trillion by the end of 2023¹. Investors are increasingly drawn to ETFs for their efficiency and flexibility, fueling innovation and the rise of actively managed UCITS ETFs, which combine the agility of active management with the structural benefits of ETFs.

Luxembourg being the second-largest centre for ETFs in Europe with some EUR 358 billion assets under management² is now reinforcing its position as a leading ETF hub through key regulatory developments aimed at enhancing its appeal to fund managers and investors. Recent initiatives include the exemption of actively managed UCITS ETFs from the subscription tax starting in 2025 and the introduction of a more flexible transparency regime for actively managed UCITS ETFs. These changes, supported by the Luxembourg parliament and regulator, highlight the country’s commitment to fostering innovation and competitiveness in the evolving ETF landscape.

I. Luxembourg regulatory developments

The Luxembourg investment fund industry in close collaboration with legislators and regulators took a number of initiatives aimed at enhancing Luxembourg’s attractiveness for ETFs. On 11 December 2024, the Luxembourg parliament endorsed the bill of law 8414 exempting actively managed UCITS ETFs from subscription tax, starting from 2025, which will be elaborated further on. The new law extends the subscription tax exemption currently applicable to passively managed UCITS ETFs to actively managed UCITS ETFs.

Following the above, on 19 December 2024, the Luxembourg regulator CSSF published an updated version of its FAQ concerning the Luxembourg Law of 17 December 2010 on undertakings for collective investment, providing for the possibility to defer the disclosure of an actively managed UCITS ETF portfolio composition, which will be elaborated further on.

The new transparency regime represents a safe harbour for actively managed UCITS ETF strategies. Efficient approval process of ETF products has been implemented.

II. Relaxation of Portfolio Transparency Rules

UCITS whose units are traded on a regulated market or Multilateral Trading Facility with at least one market maker which ensures that the stock exchange value of the UCITS units does not significantly vary from the net asset value qualify as « Actively Managed UCITS ETFs ». To be able to accomplish this task, market makers hedge the risk and usually receive the portfolio composition.

In accordance with IOSCO principles on ETFs, Management Companies shall publish the portfolio holdings of Actively Managed UCITS ETFs on a monthly basis, with a maximum time lag of one month, instead of daily like before. The new transparency regime represents a safe harbour for Actively Managed UCITS ETFs and it enables Management Companies to better protect their proprietary information and prevent other market participants from being able to replicate their investment strategy.

The relaxation of portfolio transparency rules is accompanied by a set of principles and good practices. These include guidelines for transmitting portfolio composition files to authorized participants and market makers at the same time and using the same secure communication channel, omitting intraday transactions, to ensure confidentiality.

The Prospectus shall disclose the frequency and related time lag of the portfolio publication and where it will be disclosed.

Ideally Management Companies use several authorised participants and market makers and impose on them contractually, confidentiality obligations. Management Companies shall be able to demonstrate steps undertaken to ensure that the offer prices/bids of the authorised participants and market makers are acceptable.

Management Companies shall implement procedures to comply with the Market Abuse Regulation.

III. Abolition of subscription tax

The bill of law 8414 amended, amongst other things, Articles 175 and 176 of the Law of 17 December 2010 on undertakings for collective investment, in this way exempting actively managed UCITS ETFs from the annual subscription tax. The exemption is applicable from 1 January 2025. It is worth mentioning that passively managed UCITS ETFs already benefit from such exemption.

Based on the current CSSF regulatory practice, the same UCITS fund can have ETF and non-ETF sub-funds and/or share classes. Therefore, both ETF sub-funds and/or ETF share classes can benefit from the abolition of the subscription tax.

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[1] ALFI | Association of the Luxembourg fund industry
[2] CSSF/EFAMA, Q2 2024

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