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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
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  • CIR 13.6.3

    A Fund Manager of a Hedge 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 a Qualified Investor Fund;
    (b) the Prospectus of the Fund contains, in addition to the disclosure required under CIR chapter 14, 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 health warning in the Prospectus to alert prospective Unitholders to the facts 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;
    (c) the Person appointed as the prime broker qualifies as an Eligible Custodian;
    (d) the agreement between the prime broker and the Fund Manager contains mandatory contractual provisions that:
    (i) prohibit the prime broker from using as collateral the assets of the Fund to an extent exceeding 140% of the Fund's indebtedness to the prime broker at any given time; and
    (ii) create an irrevocable right in favour of the Fund that enables any indebtedness of the Fund to the prime broker to be set off against any amounts that are owing by the prime broker to the Fund, including in the event of the insolvency of the prime broker; and
    (e) the Fund Manager has in place adequate valuation procedures to mark positions to market daily in order to meet on an ongoing basis the restriction referred to in (d)(i) relating to the limit to which the prime broker may use as collateral the assets of the Fund.
    Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
    [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]