• FUNDS 12.3.9 FUNDS 12.3.9

    A Fund Manager of a Fund may only grant to a prime broker authority to combine the assets of the Fund with any other assets held by or available to the prime broker as collateral for any financing activities to be undertaken by the prime broker where, and so long as, all the following conditions are met:

    (a) the Fund is an Exempt Fund or Qualified Investor Fund;
    (b) the Prospectus of the Fund contains, in addition to the disclosure required under Rule 49, the following mandatory disclosure and warnings:
    (i) the identity and profile of the prime broker, including where it is located and how it is regulated;
    (ii) the services which the prime broker provides to the Fund and the nature and extent to which the prime broker has the power and authority to combine the assets of the Fund with any other assets held by or available to the prime broker as collateral for any financing activities undertaken by the prime broker; and
    (iii) a prominent warning in the Prospectus to alert prospective Unitholders to the fact that:
    (A) the Fund's appointed prime broker has the power and authority to use as collateral the assets of the Fund in conjunction with any other assets held by or available to the prime broker; and
    (B) where the prime broker uses Fund assets as collateral pursuant to the above power, the Unitholders may lose all the assets of the Fund in the event of the insolvency of the prime broker; and
    (c) the Person appointed as the prime broker qualifies as an Eligible Custodian.

    • Guidance

      1. If the prime broker holds the legal title to the Fund assets, the prime broker must, in any event, qualify as an Eligible Custodian. However, even if a prime broker does not hold the legal title to the Fund assets, Rule 12.3.9 requires it to meet the Eligible Custodian requirements in certain circumstances. This is where it has the power to use Fund assets as collateral for its financing activities (e.g. by having a charge over the Fund assets) in conjunction with any other assets held by or available to it.
      2. In relation to the matters referred to in Rules 12.3.8 and 12.3.9 and in relation to management of Fund investments, the Regulator expects Fund Managers of Funds to have proper regard to international developments relating to such Funds.