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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Collective Investment Rules (CIR) [VER25/07-19]
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  • CIR 13.6.3

    A Fund ManagerG of a Hedge FundG may only grant to a prime broker authority to combine the assets of the FundG 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 FundG is an Exempt FundG or a Qualified Investor FundG ;
    (b) the ProspectusG of the FundG 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 FundG and the nature and extent to which the prime broker has the power and authority to combine the assets of the FundG 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 ProspectusG to alert prospective UnitholdersG to the facts that:
    (A) the Fund'sG appointed prime broker has the power and authority to use as collateral the assets of the FundG in conjunction with any other assets held by or available to the prime broker; and
    (B) where the prime broker uses FundG assets as collateral pursuant to the above power, the UnitholdersG may lose all the assets of the FundG in the event of the insolvency of the prime broker;
    (c) the PersonG appointed as the prime broker qualifies as an Eligible CustodianG ;
    (d) the agreement between the prime broker and the Fund ManagerG contains mandatory contractual provisions that:
    (i) prohibit the prime broker from using as collateral the assets of the FundG to an extent exceeding 140% of the Fund'sG indebtedness to the prime broker at any given time; and
    (ii) create an irrevocable right in favour of the FundG that enables any indebtedness of the FundG to the prime broker to be set off against any amounts that are owing by the prime broker to the FundG , including in the event of the insolvency of the prime broker; and
    (e) the Fund ManagerG 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 FundG .
    Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
    [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

    • CIR 13.6.3 Guidance

      1. If the prime broker holds the legal title to the FundG assets, the prime broker must, in any event, qualify as an Eligible CustodianG . However, even if a prime broker does not hold the legal title to the FundG assets, CIR Rule 13.6.3(c) requires it to meet the Eligible CustodianG requirements in certain circumstances. This is where it has the power to use FundG assets as collateral for its financing activities (e.g. by having a charge over the FundG assets) in conjunction with any other assets held by or available to it.
      2. In relation to the matters referred to in Rules CIR 13.6.1 and CIR 13.6.2 and in relation to management of Hedge FundG investments, the DFSAG expects Fund ManagersG of Hedge FundsG to have proper regard to best practice standards and guidance set out in CIR App 8, DFSA's Hedge Fund Code of Practice as well as international developments relating to Hedge FundsG .
      Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
      [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]