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Dubai Financial Services Authority (DFSA): Contents

Dubai Financial Services Authority (DFSA)
Laws
Rulebook Modules
Prudential — Investment, Insurance Intermediation and Banking Module (PIB) [VER33/02-19]
Sourcebook Modules
Consultation Papers
Policy Statements
DFSA Codes of Practice
Amendments to Legislation
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Financial Markets Tribunal
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  • PIB A5.7 Collective Investment Fund Risk Capital Requirement

    • PIB A5.7 Guidance

      This section presents the method for the calculation of Collective Investment FundG Risk Capital RequirementG for the purpose of PIB Rule 5.9.1(b).

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A5.7.1

      An Authorised FirmG which calculates its Collective Investment FundG Risk Capital RequirementG in accordance with PIB Rule 5.9.1(b) must apply the RulesG in this section.

      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A5.7.2

      An Authorised FirmG must calculate its Collective Investment FundG Risk Capital RequirementG by:

      (a) identifying all applicable positions in FundsG within the scope of the requirement, including notional positions derived from certain instruments;
      (b) identifying the positions in FundsG which will be subject to the risk Capital RequirementsG specified under this section;
      (c) converting on a daily basis net positions in every FundG to the Authorised Firm'sG base currency at the prevailing spot foreign exchange rate;
      (d) calculating a Collective Investment FundG Risk Capital RequirementG for each individual position in a FundG ; and
      (e) summing the resultant Capital RequirementsG calculated in (d).
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • PIB A5.7.3

      (1) For the purposes of PIB Rule A5.7.2, an Authorised FirmG must calculate its Collective Investment FundG Risk Capital RequirementG for all Trading BookG positions in FundsG , unless they are covered under one of the FundG look through methods and included in the risk Capital RequirementG calculations for the relevant underlying InvestmentsG or subject to an Option Risk Capital RequirementG .
      (2) An Authorised FirmG must also calculate its Collective Investment FundG Risk Capital RequirementG for notional positions arising from Trading BookG positions in options or warrants on FundsG .
      Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Calculation of the Collective Investment Fund Risk Capital Requirement

      • Calculation of the Collective Investment Fund Risk Capital Requirement Guidance

        There are two main approaches for calculating the Collective Investment FundG Risk Capital RequirementG . The first approach involves directly calculating a risk Capital RequirementG for any position in any FundG . The second approach involves using a look-though method which involves calculating the risk Capital RequirementsG for the positions or ExposuresG in underlying assets or investments of the FundG , using the relevant or applicable risk Capital RequirementG calculation methods. As the name suggests, a look-through method involves looking through the FundG to identify the underlying positions and trying to calculate the capital required to address the risk of loss arising from volatility in market prices of such underlying positions.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A5.7.4

        Without prejudice to other provisions in this section, a position in a FundG is subject to a Collective Investment FundG risk capital charge (General Market RiskG and Specific RiskG ) of 32%, subject to Rules PIB A5.7.5 and PIB A5.7.6.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Look Through Methods

      • PIB A5.7.5

        An Authorised FirmG may determine the Collective Investment FundG Risk Capital RequirementG for positions in FundsG , using the standard Collective Investment FundG look-through method, provided the relevant positions meet the criteria set out in PIB Rule A5.7.6.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A5.7.6

        An Authorised FirmG may use the standard FundG look-through method, only if the positions are in FundsG which meet the following eligibility criteria:

        (a) the Fund'sG prospectus or equivalent document must include:
        (i) the categories of assets the FundG is authorised to invest in;
        (ii) if investment limits apply, the relative limits and the methodologies to calculate them;
        (iii) if leverage is allowed, the maximum level of leverage; and
        (iv) if investment in OTC financial derivatives or repo-style transactions are allowed, a policy to limit Counterparty RiskG arising from these transactions;
        (b) the FundG must publish half-yearly accounts and annual reports to enable an assessment to be made of the assets and liabilities, income and operations over the reporting period;
        (c) the UnitsG of the FundG are redeemable in cash, out of the Fund'sG assets, on a daily basis at the request of the UnitholderG ;
        (d) investments in the FundG must be segregated from the assets of the Fund ManagerG ; and
        (e) there must be adequate risk assessment, by the investing firm, of the FundG .
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A5.7.7

        [Not currently in use]

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Standard Collective Investment Fund Look Through Method: General

      • PIB A5.7.8

        In the case of an Authorised FirmG being aware of the underlying assets or investments of the FundG on a daily basis, the Authorised FirmG may look through to those underlying investments in order to calculate the Market Risk Capital RequirementG (General Market RiskG and Specific RiskG ) for those positions in accordance with the methods set out in the relevant section of PIB chapter 5 for calculating the relevant Market Risk Capital RequirementG .

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

      • PIB A5.7.9

        In this method, positions in FundsG must be treated as positions in the underlying investments of the FundG . NettingG is permitted between positions in the underlying investments of the FundG and other positions held by the Authorised FirmG , as long as the Authorised FirmG holds a sufficient quantity of UnitsG to allow for redemption/creation in exchange for the underlying investments.

        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]

    • Standard Collective Investment Fund Look Through Method: Index or Basket Funds

      • PIB A5.7.10

        (1) An Authorised FirmG may calculate the risk Capital RequirementsG for positions in FundsG in accordance with the methods set out in various sections of PIB chapter 5 applicable to various underlying assets or investments, on assumed positions representing those necessary to replicate the composition and performance of the externally generated index or fixed basket of equities or debt securities, subject to the following conditions:
        (a) the Fund'sG mandate is to replicate the composition and performance of an externally generated index or fixed basket of equities or debt securities; and
        (b) a minimum correlation of 0.9 between daily price movements of the FundG and the index or basket of equities or debt securities it tracks, exists over the previous six month period.
        (2) Correlation as referred to in (1)(b) means the correlation coefficient between daily returns on the FundG and that on the index or basket of equities or debt securities it tracks.
        Derived from RM111/2012 (Made 15th October 2012). [VER20/12-12]