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Funds Update - Ireland
Quarterly Update | Jul - Sept 2013

1 Legal

1.1 AIFMD Update 

1.2 European Commission – Money Market Funds Proposals

1.3 EMIR Update

1.4 Central Bank (Supervision and Enforcement) Act 2013

1.5 Regulation D, Rule 506 and "Bad Actor" Rules

1.6 Market Abuse Regulations Endorsed

1.7 Protected Disclosure Bill 2013

1.8 MiFID II and MiFIR

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2 Regulatory

2.1 Authorisation of Regulated Firms, Funds and Intermediaries and Feedback on Impact Based Levies Consultation

2.2 IFIA Paper on Offsetting Financial Assets and Liabilities

2.3 Exchange Traded Funds and Other UCITS Issues Q&A

2.4 Client Asset Regulations and Guidance: Central Bank Consultation

2.5 Regulatory Reporting: Authorised Investment Funds

2.6 Data Protection Update

2.7 EU Own Funds Requirements

2.8 Central Bank: Paper on Loan Origination by Investment Funds

2.9 AIMA Enhanced Statement of Principles

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3 Tax

3.1 Return of Values (Investment Undertakings) Regulations 2013

3.2 FATCA Update

3.3 Budget 2014 

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4 Listing

4.1 Legal Entity Identifiers Requirement for EMIR

4.2 ISE Code of Listing Requirements and Procedures Updated

4.3 Irish Stock Exchange Listing Rules for Real Estate Investment Trusts

 Go to Listing section



1 Legal

1.1 AIFMD Update

The Alternative Investment Fund Managers Directive (2011/61/EU) ("AIFMD") had to be implemented in EU Member States by 22 July 2013. On 16 July 2013 the European Union (Alternative Investment Fund Managers) Regulations 2013 (No. 257 of 2013) gave effect to AIFMD in Ireland and are supplemented by the Central Bank of Ireland’s final AIF Rulebook (published on 19 July 2013) and its updated AIFMD Q&A document and series of AIFMD guidance documents.

There have been a number of developments over the quarter:

(a) On 3 July 2013 the European Securities and Markets Authority ("ESMA") published Guidelines on sound remuneration policies under the AIFMD (ESMA/2013/232). These guidelines apply from 22 July 2013 but are subject to the transitional provisions in the AIFMD. European regulators had to notify ESMA whether they comply or intend to comply with the guidelines, with reasons for non-compliance, within two months of the date of publication by ESMA. Maples have carried out extensive analysis on the scope and applicability of the AIFMD remuneration requirements (and ESMA's remuneration guidelines) to AIFMs and delegates of AIFMs. Please refer to your usual Maples contact if you wish to discuss this further.

(b) In July 2013 the Central Bank published a consultation paper (CP68) on types of AIF under AIFMD including unit trusts, exempt unit trusts, REITs etc and asked for comments by 11 October 2013.

(c) On 18 July 2013 ESMA announced that they had extended the list of Memoranda of Understanding ("MoU") for AIFMD co-operation agreements from 31 to 38, now including Bahamas, Japan, Malaysia, Mexico and the CFTC in the US (ESMA/2013/998).  ESMA also published Guidelines on the model MoU concerning consultation, cooperation and the exchange of information related to the supervision of AIFMD entities.

(d) On 1 August 2013 ESMA published an opinion proposing practical arrangements to address late transposition issues. The scope of the opinion is confined to the provision of collective portfolio management services. The practical arrangements proposed relate to operations under Articles 31, 32 and 33 of the AIFMD (Rights of EU alternative investment fund managers ("AIFMs") to market and manage EU AIFs in the EU), involving one member state that has not transposed the AIFMD.

(e) On 13 August 2013 ESMA published its final guidelines on the key concepts of the AIFMD, which include definitions around what is considered to be an AIF (ESMA/2013/611). The guidelines have been translated into the official languages of the EU. They will enter into force two months following the date of publication. The guidelines cover:

(i) Scope.

(ii) Definitions.

(iii) Purpose.

(iv) Compliance and reporting obligations.

(v) The treatment of investment compartments of an undertaking.

(vi) Guidelines on "collective investment undertaking".

(vii) Guidelines on "raising capital".

(viii) Guidelines on "number of investors".

(ix) Guidelines on "defined investment policy".

(f) On 20 August 2013 ESMA published an opinion (dated 13 August 2013) it has submitted to the European Commission about draft regulatory technical standards ("RTS") required under Article 4(4) of AIFMD to determine types of AIFMs. The opinion is a response to the Commission's July 2013 letter in which the Commission raised concerns about the approach ESMA had adopted towards differentiating between open and closed-ended AIFs in draft RTS.

The opinion presents the arguments supporting the original approach followed by it in Article 1(2)(a) of the draft RTS submitted to the Commission in April 2013, including on the compatibility of that approach with level 1 and 2 AIFMD provisions. ESMA does not consider that the solution proposed by the Commission is the only reasonable way of interpreting the AIFMD provisions. However, in order to ensure a timely implementation of the AIFMD provisions and move the process forward, ESMA has submitted an amended version of the draft RTS for the Commission's consideration, which are contained in Annex I to the opinion.

ESMA believes that the revised RTS address the Commission's concerns, while retaining flexibility to take account of existing market practice. The key element for the identification of an open-ended AIF on the basis of the revised RTS is the existence of repurchases or redemptions of the AIF’s shares or units prior to the commencement of its liquidation phase or wind-down, provided that the repurchases or redemptions happen at the investors’ request. The revised RTS also clarify that certain decreases in the capital of the AIF do not qualify as repurchases or redemptions for the purpose of the definition.

(g) On 30 September 2013 the Central Bank published a fourth edition of the AIFMD Q&A. Amendments have been made to questions in relation to registered AIFMs (ID1020), transitional arrangements (ID1022), non-EU AIFMs (ID1029, ID1030, ID 1046), Irish AIFMs (ID 1050).  New questions on AIFM ManCos (ID 1061) and safekeeping of assets (ID 1064) are also included.

(h) On 1 October 2013 ESMA published final guidelines on the reporting obligations for AIFMs (ESMA/2013/1339). They require AIFMs to regularly report certain information to national supervisors and clarify provisions of AIFMD on the required information. ESMA has also published an opinion that proposes introducing additional periodic reporting including such information as Value-at-Risk of AIFs or the number of transactions carried out using high frequency algorithmic trading techniques.

The guidelines will be translated into the official languages of the EU. National competent authorities then have two months from the date of the publication of the translations on ESMA’s website, to confirm to ESMA whether they comply or intend to comply with the guidelines by incorporating them into their supervisory practices.

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1.2  European Commission - Money Market Funds Proposal

On 4 September 2013 the draft "Proposal for a Regulation of the European Parliament and of the Council on Money Market Funds" (the "Draft Regulation") was officially released by the Commission. It contains a radical set of new regulatory measures that will apply to European money market funds ("MMFs"), both in the context of UCITS and also funds within the scope of the AIFMD.

Among the measures, the most significant is the proposal to require MMFs that operate with a constant net asset value ("CNAV") to establish and maintain a capital buffer of at least 3% of the total value of the MMF’s assets. The only amendments that have been made to the unofficially released April 2013 version in this regard is that the 3% buffer will be re-assessed three years following the implementation of the Draft Regulation and also the introduction of a three year ramp-up period for the phased introduction of the buffer.

As the Draft Regulation is being presented as a regulation, once finalised, it will be directly effective in EU Member States 20 days after its publication in the Official Journal.

There is a transitional period of six months following the entry into force for all existing MMFs to comply with the Draft Regulation and a ramp-up period for the phased introduction of the NAV Buffer.

The European Parliament has announced that it will consider the Draft Regulation at its 14 to 17 April 2014 plenary session. This may be subject to change.

For further details please see our client update, EU Money Market Fund Regulation: Initial Assessment

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1.3 EMIR Update 

The European Market Infrastructure Regulation ("EMIR") (the Regulation on OTC derivatives, central counterparties ("CCPs") and trade repositories) (Regulation 648/2012) came into effect on 16 August 2012. The European Commission has adopted implementing legislation based on technical standards drafted by ESMA in respect of most aspects of EMIR. These measures began to come into effect on 15 March 2013 on a phased basis. Recent developments this quarter are as follows:

(a) On 12 July 2013 ESMA launched a discussion paper on the RTS to implement EMIR requirements regarding the obligation to centrally clear OTC derivatives. The consultation focused on which classes of OTC derivatives need to be centrally cleared and the phase-in periods for the counterparties concerned. ESMA published responses received on 17 September 2013 and will use these to draft its technical standards on the clearing obligation, which will be presented in future public consultations.

(b) ESMA also published two delegated Regulations made under EMIR relating to exempted entities and fees charged by ESMA to trade repositories.

(c) On 17 July 2013 ESMA published a consultation paper on draft RTS on contracts having a direct, substantial and foreseeable effect within the EU and non-evasion of provisions of EMIR. It set out the conditions where EMIR's provisions on central clearing and risk mitigation techniques will apply to OTC derivatives by two non-EU counterparties that have a direct, substantial and foreseeable effect in the EU. ESMA published the responses it received on 17 September 2013 and the Commission is due to receive the draft RTS from ESMA by 15 November 2013.

(d) On 8 August 2013 ESMA published its final report to the Commission proposing that the start date for reporting exchange traded derivatives to trade repositories be postponed by one year to January 2015.

(e) In September 2013 ESMA published its advice to the Commission on the equivalence of the regulatory regimes of certain non-EU countries under EMIR. ESMA has assessed the equivalence of the regulatory regimes of Australia, Hong Kong, Japan, Singapore, Switzerland and the US. The third country rules were compared with EMIR requirements for central clearing, reporting, CCPs, trade repositories and non-financial counterparties as well as risk mitigation techniques for uncleared trades. Its second set of advice on the equivalence of regulatory regimes comprises equivalence assessments of the regimes of Canada, South Korea, and India and was published on 2 October 2013.

(f) Third country CCPs that want to continue to offer clearing services directly to EU clearing members had to apply for ESMA recognition by 15 September 2013.

(g) ESMA also updated its EMIR implementation timetable in September 2013. The key change relates to the registration of the first trade repositories. ESMA will now not make first registration decisions before 7 November 2013. Consequently, counterparties’ reporting to trade repositories is not expected to start before 12 February 2014. The timeline also suggests that the first authorisation by a national competent authority of a CCP is not expected until at least 15 October 2013.

(h) Further, a delegated Regulation (Regulation 876/2013) containing RTS on colleges for CCPs relating to EMIR was published in the EU's Official Journal. The RTS set out in the delegated Regulation, which are required under Article 18 of EMIR, address the operational organisation and governance of supervisory colleges that must be set up to scrutinise the application of a CCP for authorisation under EMIR.  It will enter into force on the twentieth day following publication in the Official Journal.

(i) The following three new risk mitigation techniques for funds trading in non-cleared OTC derivatives took from 15 September 2013: (i) the requirement to formalise dispute resolution procedures; (ii) portfolio reconciliations; and (iii) portfolio compression.

(j) The International Swaps and Derivatives Association's ("ISDA") Portfolio Reconciliation EMIR Operations Guidance Note and related documents (July 2013) provides operational guidance for the portfolio reconciliation and dispute resolution obligations. On 20 August 2013, ISDA published a 2013 EMIR Portfolio Reconciliation, Dispute Resolution and Disclosure Standard Amendment Agreement. On 10 September 2013, it published the Dodd-Frank March Protocol to EMIR Top Up Agreement for parties, who have already adhered to the ISDA March 2013 Dodd-Frank Protocol, to agree changes to comply with the portfolio reconciliation and dispute resolution requirements under EMIR.

Maples have a note on EMIR: Update and assessment of its impact for investment funds which is available on request.

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1.4 Central Bank (Supervision and Enforcement) Act 2013

The Central Bank (Supervision and Enforcement) Act 2013 (the "Act") which strengthens the powers of the Central Bank to regulate, supervise and take action against regulated financial entities (including investment firms) was enacted on 11 July 2013. The Minister for Finance, Michael Noonan commenced all sections of the Act from 1 August 2013 with the exception of section 72 (which was commenced on 1 September 2013). Section 72 gives the Financial Services Ombudsman the power to name financial service providers who have at least three complaints against them substantiated.

For further details please see our client update, The Central Bank (Supervision and Enforcement) Act 2013.

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1.5 Regulation D, Rule 506 and "Bad Actor" Rules

Regulation D of the US Securities Act of 1933 allows some companies to offer and sell their securities without having to register the securities with the Securities and Exchange Commission ("SEC").  One such exemption is Rule 506. Under the new Rule 506(d) (effective from 23 September 2013) an issuer will be unable to rely on any Rule 506 exemption for an offering if any person covered by the rule was involved in a "disqualifying event" (convicted felon/subject to SEC sanction etc.). This will potentially affect directors, investment managers/promoters and shareholders holding more than 20% of voting rights of the fund who will have to certify that they are not "bad actors" in order to avail of the exemption.

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1.6 Market Abuse Regulations Endorsed

On 10 September 2013 the European Parliament voted to formally endorse the European Commission's proposal for a new Regulation on insider dealing and market manipulation to align with the final political agreement on MiFID II/MiFIR.

The new Regulation aims to strengthen the current market abuse framework to attempt to ensure market integrity and investor protection. The European Parliament has stated that the "…new framework will ensure regulation keeps pace with market developments, strengthens the fight against market abuse across commodity and related derivative markets, reinforces the investigative and administrative sanctioning powers of regulators and harmonises certain key elements while reducing administrative burdens on SME issuers where possible."

Once the Regulation is adopted, it would apply from 24 months after its entry into force.

For more details on the new Regulation, please email your usual Maples and Calder contact.

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1.7 Protected Bill Disclosure 2013

In July 2013 the Protected Disclosure Bill 2013 was introduced into the Dail which aims to protect whistleblowers on a cross sectoral basis. Once enacted workers will be able to raise concerns regarding potential wrongdoing in the workplace in the knowledge that they can avail of certain protections if they are penalised by their employer or suffer any detriment for doing so.

Amongst the protections in the Bill is possible compensation of up to five years' remuneration where the whistleblower is unfairly dismissed for making a protected disclosure.

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1.8 MiFID ll and MiFIR

The European Parliament is set to review MiFID II and MiFIR legislative proposals during its plenary sessions between 9 and 12 December 2013. There is still a degree of uncertainty surrounding the texts including the 4% and 8% thresholds with regard to dark pool trading so the reviews may be pushed out even further. The earliest effective date of MiFID II and MiFIR would be quarter one in 2016.

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2 Regulatory

2.1 Authorisation of Regulated Firms, Funds and Intermediaries and Feedback on Impact Based Levies Consultation

The Central Bank has published a consultation paper on Authorisation of Regulated Firms, Funds and Intermediaries ("CP 67") which includes proposed new service standards for authorisation activities across various sectors. The Central Bank has asked for comments by 28 October 2013.

CP 67 sets out proposed:

(a) Improvements to the authorisation processes applied to firms, funds and intermediaries to improve efficiency and timeliness of response (the Central Bank is moving to online applications and automated workflows).

(b) New service standards (encompassing new target turnaround times) for authorisation activities across a variety of sectors and the proposed dates for their introduction.

The Central Bank have also published their feedback statement on CP 61 – Consultation on Impact Based Levies and other Levy Related Matters which includes estimated levies payable for 2013 and proposes the deferral of application fees until 2014 to allow for further consultation on this issue.

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2.2 IFIA Paper on Offsetting Financial Assets and Liabilities

Following amendments to IFRS 7 and IAS 32 and the Financial Accounting Standards Board’s update ASU 2011-11, the IFIA's Technical Committee have prepared a paper to assist preparers of financial statements review their current systems and netting arrangements, to evaluate the impact the new disclosures may have on their current processes, and internal controls that are in place to track, gather and analyse the information needed to comply with the new disclosure requirements.

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2.3 Exchange Traded Funds and Other UCITS Issues Q&A

On 11 July 2013 ESMA published an updated "Questions and Answers on ESMA’s guidelines on ETFs and other UCITS issues". This follows the publication of the original Q&A document in March 2013. The updated Q&A contains additional questions and answers on the sections of the guidelines relating to (i) the information to be inserted in the prospectus; (ii) secondary markets; (iii) financial derivatives instruments; (iv) collateral management; and (v) financial indices.

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2.4 Client Asset Regulations and Guidance: Central Bank Consultation

On 2 August 2013 the Central Bank published a consultation paper (CP 71) on Client Asset Regulations and Guidance, which will replace the existing Client Asset Requirements (issued 1 November 2007). The Central Bank wants to streamline the regime and make it easier to understand.

The protection of client assets is a regulatory priority for the Central Bank. Deficiencies in firms’ client asset systems and controls can have serious consequences for clients and counterparties, as well as causing reputational damage to the Irish financial market. The Client Asset Regulations and Guidance aim to enhance the client asset regime by minimising the risk of loss or misuse of client assets while a firm is a going concern and in the event of the insolvency of a firm to return those assets to clients as efficiently and cost effectively as possible.

The closing date for submissions is 31 October 2013.

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2.5 Regulatory Reporting: Authorised Investment Funds 

The Central Bank issued a guidance note on 1 August 2013 for all Irish authorised investment funds and their service providers. The purpose of the guidance is to provide information and direction to the funds' board of directors, management company or general partner, as applicable, on the reporting requirements relating to the extension of the Central Bank's Online Reporting System to investment funds.

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2.6 Data Protection Update

The EU Justice Commissioner Viviane Reding has called for an assessment of the US Safe Harbor arrangement following revelations of data security breaches. Her report is expected before year end but it needs unanimous buy in within the Commission which industry expects will lead to a watered down memorandum with little impact on the current arrangements.

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2.7 EU Own Funds Requirements

On 17 July 2013, the European Banking Authority issued a consultation paper on draft RTS on the own funds requirements for investment firms based on fixed overheads under the Capital Requirements Regulation ("CRR"). The proposal will affect AIFMs and UCITS management companies as well as investment firms under CRR.  The draft RTS aim to harmonise the calculation of capital requirements for investment firms with limited authorisation to provide investment services and the conditions under which competent authorities can make adjustments to such requirements. Responses to the consultation paper were due by 30 September 2013.

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2.8 Central Bank: Paper on Loan Origination by Investment Funds

On 19 July 2103 the Central Bank published a discussion paper on Loan Origination by Investment Funds. The paper set out a range of issues to be considered if investment funds are to source assets directly by originating loans. It also contains questions on which the Central Bank would welcome views from industry. The Central Bank asked for comments by 13 September 2013.

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2.9 AIMA Enhanced Statement of Principles

The Alternative Investment Management Association ("AIMA") has published a paper "Regulating Capital Markets: AIMA’s Policy Principles" which builds on its 2009 policy platform in which AIMA offered its support for improved transparency, unified global standards, manager authorisation and supervision, aggregated short position disclosure to regulators and new policies to reduce settlement failure.

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3 Tax

3.1 Return of Values (Investment Undertakings) Regulations 2013

A new tax reporting requirement for Irish funds was introduced in July 2013 pursuant to the Return of Values (Investment Undertakings) Regulations 2013.  The new reporting regime requires Irish investment funds to provide certain information to the Irish Revenue Commissioners ("Revenue") about the fund and certain of its investors.  The requirement to provide this information only applies in respect of Irish resident, non-exempt investors or investors who have not provided the appropriate Revenue approved non-resident or exempt-resident declaration forms. Large penalties can arise in the case of non-compliance with these filing requirements.

Irish funds should consider if they have an obligation to report and consult with their tax compliance agent. In particular, funds should assess whether they have adequate existing declaration forms in place in respect of non-resident investors or exempt Irish investors as failure to have such forms will lead to a requirement to file and penalties can also arise. 

For further details please see our client update, Tax Registration and Filing Obligations for Irish Investment Funds: 2013 Update.

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3.2 FATCA Update

As set out in our previous updates, the US Foreign Account Tax Compliance Act ("FATCA") requires foreign financial institutions ("FFIs") to report information on accounts held by US persons (individuals and entities) and US controlled foreign entities.

On 12 July 2013, the US Internal Revenue Service ("IRS") introduced a six-month extension in terms of when withholding will begin under FATCA.

The IRS also announced the opening of the FATCA registration system on 19 August 2013. This will enable FFIs to register and obtain a global intermediary identification number ("GIIN"). FFIs are requested to submit the required information online as final on or after 1 January 2014 – no GIINs will be issued before this date. Between now and 31 December 2013, FFIs are permitted to establish their online account, input preliminary information, refine such information and become familiar with the system.

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3.3 Budget 2014

The Irish Budget and Finance Bill timeframe have been brought forward to an earlier date this year and the Budget will be announced on 15 October 2013. The Maples Tax Group will publish a financial services industry specific briefing following the Budget which will include details of any changes affecting Irish investment funds.

For further information please see our client update, Irish Budget 2014

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4 Listing

4.1 Legal Entity Identifiers Requirement for EMIR

Following the implementation of EMIR all counterparties to a derivative contract must report details of any derivative contract to a registered or recognised trade repository.

As a consequence of the financial crisis, international regulators recognised the importance of a Legal Entity Identifier ("LEI") to improve transparency in financial data systems. A LEI is a unique 20-character alphanumeric code which will be assigned to all entities that are counterparties to financial transactions and any legal entity that enters into a financial transaction. This includes any UCITS, qualifying investor alternative investment funds, offshore funds and structured finance vehicles that enter into derivative contracts under EMIR.

The global standard setter, the Central Operating Unit ("COU"), is not yet established so a pre-LEI code will be issued by the ISE. The Central Bank of Ireland has sponsored the ISE's pre-Local Operating Unit ("LOU") status for the issuance of a LEI.

For further details please see our client update, Legal Entity Identifiers requirement for EMIR

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4.2 ISE Code of Listing Requirements and Procedures Updated

The Irish Stock Exchange (the "ISE") issued a revised Code of Listing Requirements and Procedures to coincide with the implementation of the AIFMD on 22 July 2013. The Code is effective from that date. The revised rules take into account recent regulatory developments and market changes and have been aligned with the AIFMD, simplified and restructured based on domicile to allow for easier navigation.

Key changes:

(a) Removal of the requirement to produce interim accounts.

(b) Removal of the requirement for a prime broker or counterparty to have a specified credit rating.

(c) Investment managers and depositaries which meet the requirements of AIFMD will be deemed automatically suitable as the revised rules now place greater emphasis on existing regulation.

(d) The requirement for NAV publication has been changed from quarterly to yearly.

(e) The rules now allow for greater flexibility in relation to an applicant's dividend policy.

(f) Restrictions on transfer and compulsory redemption are permitted in any circumstances where such restriction is in the best interests of the applicant or its unit-holders as a whole.

(g) Property fund rules have been amended and QIAIFs are no longer required to comply with the additional ISE property rules.

(h) Listing application documents will now be accepted the day before listing rather than 48 hours in advance. This allows issuers more flexibility in filing documents; furthermore these can now be filed electronically.

For further details please see our client update, Update to the ISE Code of Listing Requirements and Procedures

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4.3 Irish Stock Exchange Listing Rules for Real Estate Investment Trusts

The Finance Bill 2013 introduced a tax regime for REITs. One of the conditions to qualify for the REIT tax regime is that the REIT must have its shares listed on the main market of a recognised stock exchange in an EU Member State. In light of this, the ISE has created a listing regime for REITs. The new REITs Rules of the ISE were published on 5 July 2013 and are effective from that date.

On 17 July 2013 the ISE launched a guide to REITS covering a range of areas including:

(i) the main features of REITs;
(ii) how REITs are taxed;
(iii) how to invest in REITs; and
(iv) what to expect as a shareholder of REITs.

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© Maples and Calder 2013

This update is intended to provide only general information for the clients and professional contacts of Maples and Calder. It does not purport to be comprehensive or to render legal advice.

Contacts

Dublin

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