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Dubai Financial Services Authority (DFSA): Contents

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  • Part 6 Rules Specific to Specialist Classes of Domestic Funds

    • Guidance

      1. Article 17 of the Law confers on the DFSAG the power to prescribe any type of Domestic FundG (i.e. a Public FundG , an Exempt FundG , or a Qualified Investor FundG ) as a "specialist class" of a Domestic FundG and in so doing apply any requirements as are suitable for that specialist class of FundsG . This Part sets out the requirements that apply to such a FundG by virtue of being a specialist class of FundG .
      2. Most of the requirements that are set out in this part as applying to specialist classes of Domestic FundsG are generally in addition to the core requirements that apply to every Domestic FundG (see CIR Part 4). Further, depending on whether it is a Public FundG , an Exempt FundG , or a Qualified Investor FundG , the additional requirements in CIR Part 5 of this module would also apply to a specialist class of FundG .
      3. A Qualified Investor FundG may be constituted as a specialist class of a Domestic FundG without being subject to most of the detailed requirements that would normally apply to such specialist classes of FundsG . However, there are some requirements which need to be met as the obligation to do so arises under the general provisions applicable to certain specialist classes of FundsG , regardless of whether such FundsG are Public FundsG , Exempt FundsG or Qualified Investor FundsG . An example is a FundG constituted as an Islamic FundG . While some of the detailed requirements such as the appointment of a Shari'a Supervisory BoardG do not apply to the Fund ManagerG of an Islamic Qualified Investor FundG (see IFR 6.2.1), the other general requirements such as ensuring compliance with Shari'aG requirements continue to apply to such FundsG and the Fund ManagerG .
      4. The only specialist class requirements in this chapter that apply to a Qualified Investor FundG are those in Rule 13.6.3 and section 13.7 (Umbrella Funds).
      Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
      [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

    • CIR 13 Additional Requirements for Specialist Funds

      • CIR 13.1 Application to Qualified Investor Funds

      • CIR 13.1A Fund of Funds

        • CIR 13.1A Guidance

          See CIR Rule 3.1.3 for the definition of a Fund of FundsG .

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
          [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

          • CIR 13.1.1A

            (1) A FundG manager of a Fund of FundsG may not invest in:
            (a) another Fund of FundsG ;
            (b) a Feeder FundG ;
            (c) any FundG which is dedicated to investment in a number of FundsG ;
            (d) any FundG which is dedicated to investment in a single FundG or in a single investment trust; and
            (e) any Sub-FundG of an Umbrella FundG or Sub-FundG of any other FundG which is equivalent to a FundG within (a) to (d).
            (2) Not more than 25% in value of the Fund PropertyG is to consist of UnitsG in anyone FundG .
            (3) For the purpose of (1) and (2), each Sub-FundG of an Umbrella FundG and of an equivalent FundG is to be treated as if it were a separate FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]

      • CIR 13.2 Feeder Funds

        • CIR 13.2 Guidance

          See CIR Rule 3.1.4 for the definition of a Feeder FundG .

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • CIR 13.2.1

          (1) A Fund ManagerG of a Feeder FundG must ensure that the Fund PropertyG of a Feeder FundG , except where otherwise provided in the RulesG in this chapter, only consists of:
          (a) UnitsG or DebenturesG of a single Master FundG ; or
          (b) in the case of a Feeder FundG which is a Public FundG , UnitsG or DebenturesG of an eligible Master FundG .
          (2) A Master FundG is eligible for the purposes of (1)(b) only if:
          (a) the borrowing of the Master FundG does not exceed 200% of the net asset value of the Master FundG or the market value of the UnitsG of the Master FundG at the mid-value share price;
          (b) the UnitsG in or DebenturesG of the Master FundG are regularly OfferedG for purchase and sale by at least three market makers who are recognised or registered as members of an ExchangeG or an exchange regulated by a Financial Services RegulatorG ;
          (c) the Feeder FundG owns not more than 20% of the UnitsG (or of any class of UnitsG in or of the DebenturesG or of any class of DebenturesG ) of the Master FundG ; and
          (d) the Master FundG has no limit on its duration.
          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • CIR 13.2.2

          A Fund ManagerG of a Feeder FundG must also ensure that the Feeder FundG invests in a Master FundG only if:

          (a) the Fund ManagerG of the Master FundG is regulated by a Financial Services RegulatorG ;
          (b) the Master FundG is itself registered or authorised by a Financial Services RegulatorG and is itself subject to independent oversight;
          (c) the investment objectives of the Master FundG have been disclosed in detail in the ProspectusG of the Feeder FundG ;
          (d) it has made available to prospective UnitholdersG in the Feeder FundG copies of the ProspectusG and the last audited annual reports and accounts of the Master FundG ; and
          (e) the Fund ManagerG of the Master FundG has waived any initial charges which it is otherwise entitled to make in relation to the acquisition of UnitsG in its FundG .
          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • CIR 13.2.3

          Where the Feeder FundG invests in a Master FundG managed by the same Fund ManagerG or by an associated or related company, the Fund ManagerG of the of the Feeder FundG must ensure that the Master FundG in which the investment is being made does not charge subscription or redemption fees on account of the investment; and commission or rebates received by the Fund ManagerG of the Feeder FundG , by virtue of the investment into the Master FundG , must be paid into the property of the Feeder FundG .

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

      • CIR 13.3 Private Equity Funds

        • CIR 13.3 Guidance

          See CIR Rule 3.1.6 for the definition of a Private Equity FundG .

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Investment Committee

          • CIR 13.3.1

            (1) A Fund ManagerG of a Private Equity FundG is not required to appoint an Eligible CustodianG for the FundG pursuant to CIR Rule 8.2.2 where it meets the requirements in (2) and (3).
            (2) A Fund ManagerG of a Private Equity FundG must call a meeting of UnitholdersG to vote on the election of at least three experts who are independent of the Fund ManagerG to sit on an investment committee of the FundG .
            (3) The committee members in (2) must not involve themselves in the day to day management of the FundG but are appointed to review investment opportunities.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 13.3.1 Guidance

              1. The DFSAG expects Fund ManagersG of Private Equity FundsG to have proper regard to best practice standards or guidance issued by the DFSAG as well as leading international trade bodies in relation to such FundsG .
              2. Experts are persons whose profession, expertise or reputation gives authority to a statement or opinion made by that person in relation to the subject matter of the statement or opinion.
              3. Where a Private Equity FundG appoints an investment committee pursuant to CIR Rule 13.3.1(2), the annual report of that FundG must also include a report by that committee (see CIR Rule 9.4.7(1)).
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
              [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.3.2

            A Fund ManagerG of a Private Equity FundG must ensure that:

            (a) unless the purpose of the FundG is to invest in a single venture or undertaking, it does not invest more than 25% of the FundG in one such venture or undertaking; and
            (b) it does not invest in companies which are Related PartiesG in relation to the FundG or the Fund ManagerG , except where it does so in compliance with the requirements in CIR Rule 8.3.2.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM195/2016 (Made 7th December 2016). [VER22/02-17]

          • CIR 13.3.3

            Where the Fund ManagerG of a Private Equity FundG intends to invest in any venture, the Fund ManagerG must ensure that it makes adequate arrangements for the undertaking of due diligence in respect of that venture including investigating its corporate governance standards.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.3.4

            If a Fund ManagerG of a Private Equity FundG has placed a PersonG on the board of the UndertakingG in which it is investing, it must take reasonable steps to ensure that it manages conflicts and follows good corporate governance.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

      • CIR 13.4 Property Funds

        • CIR 13.4 Guidance

          See CIR Rule 3.1.7 for the definition of a Property FundG .

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Permitted Form and Listing

          • CIR 13.4.1

            (1) A Fund ManagerG of a Domestic FundG which is a Property FundG must use only a Closed-ended legal structure for the investment vehicle, unless it is an Exempt FundG or a Qualified Investor FundG .
            (2) In the case of a Property FundG which is or intends to be a Public FundG , the Fund ManagerG :
            (a) may only use either an Investment CompanyG or Investment TrustG as the investment vehicle of the FundG ;
            (b) must ensure that it is listed and traded on an Authorised Market InstitutionG or is listed and traded on an exchange in a Recognised JurisdictionG within 3 years from the date on which the UnitsG of the FundG are first OfferedG to the public or any other shorter period as specified in the Fund'sG ProspectusG ; and
            (c) must ensure that the ConstitutionG of the FundG includes provisions that deal with:
            (i) the manner in which the issue and redemption of UnitsG of the FundG will be made to ensure that the FundG is Closed endedG ; and
            (ii) if applicable, the circumstances in which any Private PlacementsG may be made.
            (3) If the offer document or marketing material of a Property FundG which is an Exempt FundG or QIFG states that it intends to be listed and traded on an Authorised Market InstitutionG , or on an exchange in a Recognised JurisdictionG , it must:
            (a) be registered as a Public CompanyG ;
            (b) list and trade its UnitsG on the exchange specified in its offer document or marketing material within 3 years of its registration; and
            (c) during the period pending its listing and trading, comply with all the requirements applicable to a Public FundG other than the requirements relating to:
            (i) the independent oversight function; and
            (ii) the issue of a Public Fund ProspectusG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

            • CIR 13.4.1 Guidance

              See Article 18A of the Law for the definitions of Open-ended Fund and Closed-ended Fund.

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
              [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Self-custody of Real Property for Public Funds

          • CIR 13.4.2

            (1) A Fund ManagerG of a Public Property FundG is not required to appoint an Eligible CustodianG under CIR Rule 8.2.2(2) for Real PropertyG if the Fund ManagerG :
            (a) acts as custodian of the Real PropertyG ;
            (b) has in place adequate systems and controls to ensure the proper segregation and protection of the Real PropertyG ; and
            (c) has in place effective arrangements which ensure that the real Property is not available to creditors if the Fund ManagerG becomes insolvent.
            (2) The systems and controls referred to in (1)(b) must, as a minimum, ensure that:
            (a) legal title to the Real PropertyG is registered in the name of the FundG ;
            (b) the Fund ManagerG identifies, manages and monitors any conflicts of interest that may arise due to it acting as custodian of the Real PropertyG ;
            (c) the Fund ManagerG clearly designates the employees who are responsible for safeguarding the ownership rights of the FundG over any Real PropertyG including but not limited to:
            (i) safekeeping title deeds and other legally relevant documents relating to the Real PropertyG ; and
            (ii) ensuring that legal title to the Real PropertyG is registered in the name of the FundG ; and
            (d) the employees referred to in (c) are not required to carry out duties and functions which may conflict with their duties and functions referred to in that paragraph.
            [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 13.4.2 Guidance

              1. A Fund ManagerG of a Public Property FundG may itself act as custodian of Real PropertyG if it has in place adequate systems and controls to ensure the segregation and protection of the Real PropertyG . This option only applies for Real PropertyG (defined as land or buildings, whether freehold or leasehold, where the unexpired term of any lease exceeds 20 years). It does not permit the Fund ManagerG to act as custodian of Property Related AssetsG such as SharesG in a Body CorporateG which invests in Real PropertyG or Units in another Property FundG .
              2. In identifying, managing and monitoring conflicts of interest that may arise due to it acting as custodian, the Fund ManagerG must take into account that it is required under the Law to give priority to Unitholders'G interests if there is a conflict between its own interests and the interests of UnitholdersG .
              3. If a Fund ManagerG decides to act as custodian of Real PropertyG as permitted under this Rule, it must disclose in the Fund's Prospectus that it acts as custodian, the additional risks that may arise due to it acting as custodian, and how it has addressed those risks (see CIR Rule 14.4.4A).
              [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

        • Self-custody of Real Property for Exempt Funds

          • CIR 13.4.2A

            A Fund ManagerG of an Exempt Property FundG is not required to appoint an Eligible CustodianG under CIR Rule 8.2.2(2) for Real PropertyG if the Fund ManagerG :

            (a) acts as custodian of the Real PropertyG ; and
            (b) has in place effective arrangements which ensure that the Real PropertyG is not available to creditors if the Fund Manager becomes insolvent.
            [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 13.4.2A Guidance

              Under this Rule, the arrangements must be legally effective to ensure that the Real PropertyG is not available to creditors if the Fund ManagerG becomes insolvent. This might involve, for example, the use of trust arrangements or registration of title in the name of the FundG . This option only applies to custody of Real PropertyG and not, for example, to Property Related AssetsG .

              [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

        • Alternative Custody Arrangements for Real Property in Certain Jurisdictions

          • CIR 13.4.2B

            (1) If a Fund ManagerG wishes to rely on CIR Rule 8.2.2(3)(a)(ii), or a TrusteeG of an Investment TrustG wishes to rely on CIR Rule 8.2.3(b), to make alternative arrangements for the purposes of those Rules, it may do so only if the requirements in (2) and (3) are met.
            (2) The Fund ManagerG or, in the case of an Investment TrustG , the TrusteeG , for the purpose of meeting the legal or regulatory requirements in relation to the ownership of Real PropertyG applicable in the jurisdiction in which the Real PropertyG is situated, may implement alternative arrangements for safekeeping where the arrangements:
            (a) in the case of an Investment TrustG , enable the TrusteeG to continue to control the Fund PropertyG ; and
            (b) in all cases:
            (i) do not enable the Fund ManagerG to have unfettered control of the Fund PropertyG ; and
            (ii) are in accordance, where applicable, with the requirements in Rules CIR 13.4.6 to CIR 13.4.11.
            (3) If the Fund ManagerG or, in the case of an Investment TrustG , the TrusteeG , implements arrangements in accordance with (2), it must satisfy the DFSAG that the arrangements have the effect specified in (2) and are legally effective in the DIFCG and in the jurisdiction where the Real PropertyG is situated.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 13.4.2B Guidance

              1. CIR Rule 13.4.2B applies in limited situations such as where legal title to Real Property cannot be held in a GCC country due to an applicable law in another jurisdiction. It enables Fund ManagersG and TrusteesG to find suitable alternative arrangements to those mandated under Rule CIR 8.2.2(2) and CIR 8.2.3(b) for the safekeeping of Real PropertyG . In such situations appropriate use of declarations of trust, indemnities and resolutions may produce an acceptable alternative. The DFSAG has previously permitted such alternative arrangements by way of waiver and modification to earlier provisions preceding the enactment of Rule CIR 8.2.2(2) and CIR 8.2.3(b).
              2. Note that in relation to an Investment CompanyG or Investment PartnershipG , CIR Rule 8.2.2 requires a Fund ManagerG to delegate the activity of Providing CustodyG to an Eligible CustodianG . In relation to an Investment TrustG , CIR Rule 8.2.3(b) also permits a TrusteeG to delegate the activity of Providing CustodyG to an Eligible CustodianG .
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
              [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

        • Investment Committee

          • CIR 13.4.3

            (1) A Fund ManagerG of a Property FundG must, subject to (2), call a meeting of UnitholdersG to vote on the election of at least three experts who are independent of the Fund ManagerG to sit on an investment committee of the FundG .
            (2) A Fund ManagerG of a FundG which is constituted as an Investment TrustG need not appoint an investment committee.
            (3) The committee members in (1) are appointed to review investment opportunities and must not involve themselves in the day to day management of the FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Investments

          • CIR 13.4.4

            (1) A Fund ManagerG must, subject to (2), ensure that the assets of a Property FundG , except where otherwise provided in the RulesG in this section, consist only of any or all of:
            (a) Real PropertyG ;
            (b) Property Related AssetsG ; or
            (c) Units in another Property FundG ; and
            (d) cash, government and public SecuritiesG , up to a maximum of 40%.
            (2) The requirements in (1) do not apply to a Fund ManagerG during the initial 6 month period of the Fund'sG operation and in any case, will be subject to any other time period set out in the ProspectusG or as approved by a Special ResolutionG of the UnitholdersG .
            (3) A Fund ManagerG must ensure that:
            (a) Property Related AssetsG of a Public Property FundG :
            (i) are listed and traded on an ExchangeG which is provided for in the ProspectusG of the FundG ; or
            (ii) if not listed and traded as specified in (i), are approved and reviewed regularly by the investment committee of the FundG to ensure that they are sufficiently liquid and can be accurately valued; and
            (b) the Property Fund does not grant any Person an option to acquire any property included in the Fund.
            (4) The Fund ManagerG or, where appointed, the TrusteeG , must, subject to (5), ensure that the FundG holds good marketable legal and beneficial title in all its Real PropertyG , whether directly or via Special Purpose VehiclesG controlled by the FundG . The FundG may hold such title as joint tenants or tenants-in-common with one or more third parties provided that the FundG must hold the majority interest and control and have the freedom to dispose of its interest.
            (5) Any special arrangement entered into in respect of Fund PropertyG for the purposes of Islamic finance arrangements where the legal title to the property is held by a financial institution will be acceptable for the purposes of (4) provided information relating to such arrangements either disclosed in the ProspectusG of the FundG or approved by Special ResolutionG of UnitholdersG .
            (6) The Fund ManagerG and, if appointed, the TrusteeG , must take all reasonable care to ensure that the Fund ManagerG arranges adequate property insurance and public liability insurance coverage in relation to the Real PropertyG of a FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 13.4.4 Guidance

              1. CIR Rule 13.4.4(5) enables Fund ManagersG and TrusteesG to use certain Islamic structures such as ijara for property financing which require the legal ownership of the real property to be held by the financial institution providing the financing.
              2. CIR Rule 13.4.4.(5) does not require individual transactions to be specified in the ProspectusG or approved by Special ResolutionG of UnitholdersG . Instead, it would be sufficient for general information relating to such arrangements, such as their legal effect, to be included in the ProspectusG , failing which UnitholderG approval by Special ResolutionG will be required. Similarly, UnitholdersG can by Special ResolutionG grant general approval for use of such Islamic financing arrangements, obviating the need for each specific transaction to be separately approved.
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Borrowing

          • CIR 13.4.5

            (1) The Fund ManagerG of a Public Property FundG may borrow either directly or through its Special Purpose VehicleG for financing investment or operating purposes, but aggregate borrowings must not at any time exceed 50% of the gross value of the FundG .
            (2) The Fund ManagerG of a FundG may pledge the Fund'sG assets to secure borrowings under (1).
            (3) In the event that the borrowing limit under (1) is exceeded, the Fund ManagerG must inform the TrusteeG (if appointed), the UnitholdersG and the DFSAG of the magnitude of the breach, the cause of the breach, and the proposed method of rectification. The Fund ManagerG must use its best endeavours to reduce as soon as reasonably possible the excess borrowings.
            (4) All borrowings by the FundG must be conducted at arm's length.
            (5) Borrowings by any Special Purpose VehiclesG held by the FundG must be aggregated for the purpose of calculating borrowings of the FundG for the purposes of this RuleG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM137/2014 (Made 21st August 2014). [VER17/06-14]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 13.4.5 Guidance

              The gross asset value of a FundG should be calculated as the total value of the Fund PropertyG , based on the most recent valuation under CIR Rule 8.4.1(1), but without making the deductions provided for in the other paragraphs of that Rule.

              [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

        • Joint Ownership Arrangement

          • CIR 13.4.6

            The Fund ManagerG must ensure that when a joint ownership arrangement is entered into, the FundG has a majority stake or holding in respect of that arrangement, that is, more than 50% ownership and control in each property at all times.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.4.7

            (1) In making any joint ownership investment under CIR Rule 13.4.6, the Fund ManagerG must:
            (a) be able to demonstrate that the arrangement, including the decision to own less than a 100% interest in the property, is in the interests of the UnitholdersG ; and
            (b) must obtain a legal opinion in accordance with (2).
            (2) The legal opinion referred to in (1)(b) must include:
            (a) a description of the significant terms of the joint ownership arrangement;
            (b) a statement whether the FundG will have a good and marketable legal and beneficial interest in the property;
            (c) a description of the equity and profit sharing arrangements of the parties to the agreement;
            (d) a statement that the relevant contract and joint ownership arrangements are legal, valid, binding and enforceable under applicable law;
            (e) a statement that all necessary licences and consents required in the location where the subject property is located have been obtained by the FundG or its Special Purpose VehicleG ;
            (f) any restriction on divestment by the FundG of its interest, in whole or in part, in the property; and
            (e) if applicable, the implication of foreign rules and regulations that may prohibit full ownership of the property by the FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.8

            The Fund ManagerG must ensure that:

            (a) proper due diligence is conducted in identifying restrictions and constraints that may limit a Fund'sG direct ownership of a 100% interest in a property; and
            (b) the liability of, or assumed by, the FundG does not exceed the percentage of its interest in the joint ownership arrangement and there is to be no assumption of unlimited liability by the FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.4.9

            The Fund ManagerG must disclose to UnitholdersG ;

            (a) the ownership structure of the property interest and the material terms thereof, including restrictions on divestments and the impact or implication of such restrictions on the divestment value of the interest in the property;
            (b) the identity, background and ownership of the remaining legal and beneficial owners in the property, transactional history of these owners with the FundG in relation to the property;
            (c) financial, remuneration, fee-sharing or other material arrangements that have been or will be entered into between the FundG and the other owners of that property or their associates;
            (d) a summary of the contents of the legal opinion in CIR Rule 13.4.7(1)(b) in relation to the property; and
            (e) where appropriate:
            (i) the nature of restrictions on foreign ownership and the duration of them, and the impact of such restrictions on the operations and financial position of the FundG as a whole;
            (ii) the Valuer'sG opinion and evaluation of the impact of such prohibitions on the value of the property; and
            (iii) any other information which may reasonably be relevant to a UnitholderG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Use of Special Purpose Vehicles

          • CIR 13.4.10

            (1) The Fund ManagerG of a Property FundG may hold Real PropertyG for the FundG through a Special Purpose VehicleG , subject to (2) and (3), only if the FundG has majority ownership and control of the Special Purpose VehicleG .
            (2) A Special Purpose VehicleG set up by the Fund ManagerG of a FundG under (1) may itself hold Real PropertyG through another Special Purpose VehicleG (the second Special Purpose VehicleG ) for the sole purpose of directly holding Real PropertyG for the FundG or arranging financing for the FundG but the second Special Purpose VehicleG must not hold Real PropertyG for the FundG through another Special Purpose VehicleG .
            (3) The Fund ManagerG of the FundG must ensure that:
            (a) neither the ConstitutionG of any Special Purpose VehicleG nor the organisation, transactions or activities of such vehicles under any circumstance contravene any requirements of the RulesG in this section;
            (b) the board of directors of each of the Special Purpose VehiclesG is appointed by the Fund ManagerG in agreement with the TrusteeG or PersonsG performing oversight functions of the FundG where applicable and, where elected, the investment committee; and
            (c) both the FundG and the Special Purpose VehiclesG must appoint the same AuditorG and adopt the same accounting principles and policies.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 13.4.10 Guidance

              Additional Special Purpose VehiclesG may be permitted by the DFSAG by waiver or modification under limited circumstances, such as where the Fund ManagerG can demonstrate to the satisfaction of the DFSAG that the arrangement is necessary for the purpose of meeting the legal or regulatory requirements of another jurisdiction.

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
              [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.11

            If the FundG acquires Real PropertyG through the acquisition of a Special Purpose VehicleG , the following matters must be complied with by the Fund ManagerG for the purpose of the purchase:

            (a) a report made by the Fund'sG AuditorG must be prepared on:
            (i) the profit and loss of the Special Purpose VehicleG for each of the three years preceding the transaction or any shorter period as is relevant if the Special Purpose VehicleG was in existence for less than three years; and
            (ii) the assets and liabilities of the Special Purpose VehicleG as at the last date, which is no more than 6 months old from the date of the report to which the accounts of the Special Purpose VehicleG were prepared;
            (b) the report required under (a) must:
            (i) indicate how the profits and losses of the Special Purpose VehicleG would, in respect of the SharesG to be acquired, have affected the FundG , if the FundG had at all material times held the SharesG to be acquired; and
            (ii) where the Special Purpose VehicleG has subsidiaries, deal with the profits or losses and the assets and liabilities of the Special Purpose VehicleG and its subsidiaries, either as a whole, or separately; and
            (c) a valuation report in respect of the Special Purpose Vehicle'sG interest in Real PropertyG must be prepared in accordance with the requirements set out in Rules CIR 13.4.18 to CIR 13.4.22.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Related Party Transactions

          • Guidance

            1. A Fund ManagerG of a Public Property FundG is required pursuant to CIR Rule 8.3.2 to obtain the agreement of UnitholdersG by way of an ordinary resolution before undertaking a Related Party TransactionG where the total consideration or value of the transaction is 5% or more of the net asset value of the FundG . See also CIR App2 and CIR App3.
            2. A Fund ManagerG of a Public Property FundG may enter into a Related Party TransactionG for the acquisition or sale of Real PropertyG in the State without obtaining specific approval for the transaction under CIR Rule 8.3.2 if all of the conditions in CIR Rule 13.4.11A(1) are met.
            3. If a Fund ManagerG enters into a Related Party TransactionG under the exclusion in CIR Rule 13.4.11A, it must notify UnitholdersG of details of the transaction as soon as practicable after entering into the transaction. It also must disclose in the Fund'sG ProspectusG if it has UnitholderG approval to enter into such transactions without obtaining a resolution in each case (see CIR Rule 14.4.4B).
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.11A

            (1) The Fund ManagerG of a Public Property FundG is not required to comply with CIR Rule 8.3.2(3) and (4)(a) for a Related Party TransactionG if:
            (a) the transaction is for the acquisition or sale of Real PropertyG in the StateG ;
            (b) the Fund ManagerG has general Unitholder approval in accordance with (2) to enter into such transactions;
            (c) the oversight provider of the FundG has confirmed in writing, before the transaction is entered into, that it is on terms that comply with the requirement in CIR Rule 8.3.2(2) and that all other applicable requirements have been complied with; and
            (d) the investment committee of the FundG has confirmed in writing, before the transaction is entered into, that it is on terms that comply with the requirement in CIR Rule 8.3.2(2) and it has no objection to the transaction.
            (2) UnitholderG approval under (1)(b) must be by way of an ordinary resolution of the UnitholdersG of the FundG that:
            (a) was passed at the previous annual general meeting of the FundG ;
            (b) is valid only until the date of the next annual general meeting of the FundG (when it may be renewed): and
            (c) authorises the Fund ManagerG to enter into Related Party TransactionsG referred to in (1)(a) without obtaining prior UnitholderG approval in each case during the period for which the resolution is valid.
            (3) If a Fund ManagerG of a Public Property FundG enters into a Related Party TransactionG under this Rule, it must as soon as practicable after entering into the transaction provide written notification to UnitholdersG of the FundG setting out relevant details of the transaction including the identity of the Related PartyG and the nature and extent of his interest.
            [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.12

            (1) The following information in relation to Related Party TransactionsG must be disclosed to UnitholdersG and where appointed, the TrusteeG , by the Fund ManagerG of a Public Property FundG :
            (a) any beneficial interests of the Related PartyG , and any changes thereof, in the FundG ; and
            (b) any potential conflicts of interests involving the Related PartyG and the measures implemented to address such conflicts.
            (2) If the Fund ManagerG operates more than one FundG and a transaction involves two or more of the FundsG operated by the Fund ManagerG , such transactions between the FundsG will be Related Party TransactionsG for each of the FundsG involved in the transactions.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.13

            (1) Where any Related PartyG has an interest in an UndertakingG which competes or is likely to compete, either directly or indirectly, with the Fund'sG activities, the Fund ManagerG of a Public Property FundG must disclose to UnitholdersG and where appointed, the TrusteeG , the following:
            (a) a description of the UndertakingG of the Related PartyG and its management, to enable UnitholdersG to assess the nature, scope and size of such business, with an explanation as to how such UndertakingG may compete with the FundG ;
            (b) where applicable, a statement from the relevant Related PartyG that it is capable of performing, and shall perform, its duty in relation to the FundG independently of its related business and in the best interests of the FundG and its holders; and
            (c) a statement as to whether the FundG may acquire any of the related business or assets of the Related PartyG .
            (2) If there is any change in information required under (1) after initial disclosure, the Fund ManagerG must disclose such changes to the UnitholdersG and where appointed the TrusteeG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.14

            Where a Related PartyG has, for the purpose of the establishment of the FundG , agreed to sell Real PropertyG to the FundG , the Fund ManagerG of a Public Property FundG must disclose the following in the ProspectusG :

            (a) a valuation report by an independent valuer of the Real PropertyG that the Related PartyG has agreed to sell; and
            (b) the price to be paid by the FundG for the Real PropertyG and other material terms of the transaction.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.15

            (1) The Fund ManagerG of a Public Property FundG must ensure that if any cash forming part of the Fund'sG assets is deposited with a Related PartyG (being an institution licensed to accept deposits), interest must be paid on the deposit at a rate not lower than the prevailing commercial rate for a deposit of that size and term.
            (2) The Fund ManagerG of a Public Property FundG must ensure that in the event of borrowing from a Related PartyG (being an institution licensed to lend money), interest charged on the borrowing is at a rate not higher than the prevailing commercial rate for a borrowing of that size and term.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.16

            (1) This Rule applies to a Related Party TransactionG of a Public Property FundG that involves either:
            (a) services provided in the ordinary course of estate management of Real PropertyG of the FundG , including renovation and maintenance work; or
            (b) engaging a property agent to provide services to the FundG , including advisory or agency services in property transactions.
            (2) The Fund ManagerG , and if appointed, the TrusteeG , must ensure that if the value of the transaction is 5% or more of the most recent net asset value of the FundG as disclosed in the latest published audited accounts, it is entered into only with the prior approval of the oversight provider of that FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 13.4.16 Guidance

              The requirements in CIR Rule 13.4.16 are in addition to other requirements in these Rules applying to Related Party TransactionsG . For example, under CIR Rule 8.3.2, the Fund ManagerG must ensure the transaction is on normal commercial terms, is subject to UnitholderG approval if it represents 5% or more of the net asset value of the FundG and is disclosed to UnitholdersG .

              [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.4.17 [Deleted]

            [Deleted] RM158/2015 (Made 9th December 2015). [VER19/02-16]

        • Valuation Function

          • CIR 13.4.18

            (1) The Fund ManagerG of a Property FundG must, subject to the approval of the TrusteeG , appoint a PersonG who is able to provide professional valuation services in accordance with the RulesG in this section.
            (2) The Fund ManagerG must ensure that the PersonG appointed under (1) values each Real PropertyG prior to its acquisition and disposal.
            (3) The Fund ManagerG must commission the PersonG referred to in (1) to produce a valuation report of the Property FundG each year in accordance with CIR Rule 13.4.22. The net asset value of the FundG following this valuation must be reported in the annual report of the FundG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.4.19

            For the purpose of CIR Rule 13.4.18, a Fund ManagerG must appoint a PersonG :

            (a) who carries on the business of valuing Real PropertyG ;
            (b) who is not RelatedG to the Fund ManagerG ; and
            (c) whom the Fund ManagerG , and if appointed the TrusteeG , have reasonable grounds to believe would be capable of providing objective valuation of Real PropertyG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 13.4.19 Guidance

              1. The term "RelatedG " has the meaning given to it in the GLO module.
              2. A Fund ManagerG , and where appointed the TrusteeG , in forming the opinion required under CIR Rule 13.4.19(c), should be satisfied that the PersonG to be engaged for providing valuation of Real PropertyG meets if not all, at least most of the following criteria:
              a. the PersonG is a, or has key personnel who are, fellow or associate members of a recognised professional body of surveyors or property valuers and who are qualified to perform property valuations;
              b. the PersonG has or has access within the organisation to the relevant expertise, that is, knowledge of and experience in the valuation of property of the relevant kind in the relevant area where the property is situated;
              c. the PersonG has robust internal controls and checks and balances to ensure the integrity of valuation reports and that these reports are properly and professionally prepared in accordance with international best practice;
              d. the PersonG has adequate professional insurance to cover its usual risks;
              e. the PersonG does not have ownership or other commercial links with any other PersonsG providing Financial ServicesG to the FundG (such as investment advisers or investment managers appointed to the FundG ), which would impair that Person'sG ability to provide independent and objective valuation services to the FundG ; and
              f. the PersonG or any of his associates has not been instrumental in relation to the finding of the Real PropertyG for the FundG .
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.4.20

            (1) A Fund ManagerG must ensure that any valuation by the PersonG appointed to provide valuation services to the FundG is carried out on the basis of an 'open market value' as defined in the ConstitutionG and the most recent ProspectusG of the FundG .
            (2) The valuation report under (1) must confirm that if the Real PropertyG was acquired for the Property FundG it could be disposed of at that valuation within a reasonable period.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.4.21

            The Fund ManagerG must ensure that the property is acquired within a reasonable time from the date of the valuation report and in any event not later than six months from the date of valuation and at a price no more than 5% above the valuation price.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 13.4.21 Guidance

              The DFSAG would expect the Fund ManagerG to define 'open market value' to be based on an authoritative text such as the Royal Institute of Chartered Surveyors' Appraisal and Valuation Standards (fifth edition) ("Red Book"); or similar practitioners text used by surveyors; or International Valuation Standards issued from time to time by the International Valuation Standards Committee

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Valuation Report

          • CIR 13.4.22

            A Fund ManagerG must ensure that any valuation report prepared by the PersonG appointed:

            (a) includes all material details in relation to the basis of valuation and the assumptions used;
            (b) describes and explains the valuation methodologies adopted;
            (c) outlines the overall structure and condition of the relevant market including an analysis of the supply and demand situation, the market trend and investment activities;
            (d) includes a brief description of the property, its location, the nature of the interest the FundG holds in the property, its existing use, any encumbrances concerning or affecting the property, the lease expiry profile if any, the capital value in existing state at the date the valuation was performed, the net monthly income from the property, and any other matters which may affect the property or its value;
            (e) confirms the professional status of the valuer and that the valuation report is prepared on a fair and unbiased basis; and
            (f) explains the rationale for choosing the particular valuation method if more than one method is available.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.4.23

            A Fund ManagerG must ensure that whenever a valuation report is prepared for the FundG , the date of the valuation report must be:

            (a) the date the FundG is valued, if such report is prepared for the purpose of calculating the net asset value of the Fund; or
            (b) a date which is not more than six months before the date on which:
            (i) an offering document is issued;
            (ii) a circular is issued, if the circular relates to a transaction that requires Unitholders' approval; or
            (iii) a sale and purchase agreement or other agreement to transfer legal title is signed, if the transaction does not require UnitholderG approval.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM165/2016 (Made 10th February 2016). [VER20/02-16]

        • Reappointment of Valuer

          • CIR 13.4.24

            (1) A Fund ManagerG must ensure that where a PersonG appointed pursuant to CIR Rule 13.4.19 has conducted valuations of the Real PropertyG for the FundG for five consecutive years, that PersonG is not permitted to continue to provide valuation services for the FundG unless before the end of that period the position has been put out to tender and the PersonG has been re-appointed in accordance with that process..
            (2) If the Fund ManagerG decides to re-appoint the same PersonG to provide valuation services for the FundG following the tender process referred to in (1), it must, in the next interim or annual report provided to UnitholdersG , specify the reasons for the re-appointment and the evidence supporting those reasons.
            (3) The Fund ManagerG , and if appointed the TrusteeG on instructions of the Fund ManagerG , may at any time remove the PersonG appointed to provide the valuation services by notice in writing in any of the following events:
            (a) the PersonG enters into liquidation, becomes bankrupt or has a receiver appointed over its assets; or
            (b) the Fund ManagerG , in consultation with the TrusteeG , determines on reasonable grounds that it is necessary to remove that PersonG in the interests of the FundG and the UnitholdersG ; or
            (c) an ordinary resolution is passed by the UnitholdersG to dismiss that PersonG .
            (4) Upon the retirement or dismissal of the PersonG appointed to provide the valuation services to the FundG , the Fund ManagerG must appoint another PersonG to provide valuation services to the FundG where the Fund ManagerG and where appointed the TrusteeG are satisfied that the PersonG meets the requirements specified in CIR Rule 13.4.19.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

      • CIR 13.5 Real Estate Investment Trusts (REITs)

        • CIR 13.5 Guidance

          1. See CIR Rule 3.1.8 for the definition of a Real Estate Investment TrustG (REIT).
          2. REITsG are a subset of Property FundsG . The Fund ManagerG of a Public Property FundG , which is, or is to be held out, as a REITG , is required, in addition to the general Rules applying to Public Property FundsG (such as Rules on borrowing and Related Party TransactionsG ), to also comply with the Rules in this section.
          3. An Exempt FundG or Qualified Investor FundG may also be constituted as a REITG if it meets the criteria in CIR Rule 13.5.1(2). Such a REITG also has 3 years to list and trade if its offer documents (e.g. the Information MemorandumG ) or its marketing material state that it intends to list and trade its UnitsG .
          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
          [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]
          [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Real Estate Investment Trusts (REITs)

          • CIR 13.5.1

            (1) A Fund ManagerG , or any PersonG making an OfferG of a UnitG of a FundG or otherwise marketing a FundG , must not include the term "Real Estate Investment Trust" or "REIT" or refer to a FundG or otherwise hold out a FundG as being a Real Estate Investment TrustG or a REITG , unless it is a Property FundG which is constituted in accordance with (2).
            (2) A REITG is a Property FundG which:
            (a) is constituted either as an Investment CompanyG or as an Investment TrustG ;
            (b) is primarily aimed at investments in income-generating Real PropertyG ; and
            (c) distributes to the UnitholdersG at least 80% of its audited annual net income.
            (3) If at any time during the operation of the FundG the requirements in (2) are not met, the Fund ManagerG , and, if appointed the TrusteeG , must immediately notify the DFSAG and the exchange of the failure to meet the requirements in these RulesG and what measures have been or will be taken to remedy the breach.
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

          • CIR 13.5.2

            (1) A Fund ManagerG of a REITG must ensure that it distributes to the UnitholdersG as dividends each year an amount not less than 80% of its audited annual net income.
            (2) The PersonsG providing oversight functions in respect of a Public REITG must determine if any;
            (a) revaluation surplus credited to income, or
            (b) gains on disposal of Real PropertyG ,
            shall form part of net income for distribution to UnitholdersG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

          • CIR 13.5.3

            Where a Public REITG holds any Real PropertyG via one or more Special Purpose VehiclesG , the Fund ManagerG must ensure that each Special Purpose VehicleG distributes to the FundG all of its income as permitted by the laws and regulations of the jurisdiction where the Special Purpose VehicleG is established.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

          • CIR 13.5.4

            (1) A Fund ManagerG of a Public REITG must ensure, subject to (2), that any investment made in respect of property under development whether on its own or in a joint venture is undertaken only where the REITG intends to hold the developed property upon completion.
            (2) The total contract value of the property under development in (1) must not exceed 30% of the net asset value of the Fund PropertyG of the Public REITG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

            • CIR 13.5.4 Guidance

              For the purposes of CIR Rule 13.5.4, the DFSAG would not consider property development activities to include refurbishment, retrofitting and renovation.

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.5.5 [Deleted]

            [Deleted] RM158/2015 (Made 9th December 2015). [VER19/02-16]

      • CIR 13.6 Hedge Funds

        • CIR 13.6 Guidance

          See CIR Rule 3.1.9 for the definition of a Hedge FundG .

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Risk management

          • CIR 13.6.1

            A Fund ManagerG of a Hedge FundG must ensure that the risks inherent in the operation of a Hedge FundG are adequately addressed, with due regard to the nature of the strategies and investment process employed by the Fund ManagerG and the role of Fund AdministratorsG and CustodiansG and where appointed, prime brokers.

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 13.6.1 Guidance

              A prime broker is a PersonG who provides to a FundG a range of services including custody and depository services, trading and execution services, clearing and settlement services and financing to support the Fund's investment activities. Such financing activities generally include stock lending and borrowing. The restrictions in Rules CIR A1.3.1(c) and (f) of Appendix 1 (App 1) prevent a Fund ManagerG of a Hedge FundG from authorising a prime broker to commingle the assets of the FundG with any other assets held by or available to the prime broker and use those assets as collateral to support the prime broker's cross lending and borrowing activities involving FundsG to which it acts as the prime broker. However, the restrictions in CIR A1.3.2(c) and (f) do not apply if a Fund ManagerG of a Hedge FundG can comply with the requirements relating to the use of prime brokers set out in CIR Rule 13.6.3.

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
              [Amended] RM158/2015 (Made 9th December 2015). [VER19/02-16]

          • CIR 13.6.2

            (1) The Fund ManagerG of a Hedge FundG must ensure functional separation and independence between:
            (a) the functions of FundG valuation and asset pricing; and
            (b) the investment management process.
            (2) Where the FundG manager is unable to demonstrate adequate separation and independence in accordance with (1), the DFSAG may require the Fund ManagerG to appoint an independent, suitably competent and experienced Fund AdministratorG to perform the functions specified in (1)(a).
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 13.6.2 Guidance

              To provide segregation of the net asset value determination process of the FundG from the investment management process, generally personnel involved in the former should not be involved in the latter. An effective method of achieving such segregation is to delegate the calculation, determination and production of the net asset value to a suitably competent and experienced third party Fund AdministratorG .

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Use of Prime Brokers

          • 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]

      • CIR 13.7 Umbrella Funds

        • CIR 13.7 Guidance

          See CIR Rule 3.1.10 for the definition of an Umbrella FundG .

          Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Form of an Umbrella Fund

          • CIR 13.7.1

            Subject to any restrictions in the Law and the RulesG in this module, an Umbrella FundG :

            (a) may be formed as a Protected Cell CompanyG (PCC); and
            (b) must be an Open-ended Fund if formed as a PCCG .
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]
            [Amended] DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

            • CIR 13.7.1 Guidance

              1. A Protected Cell CompanyG (PCC) is a form of Investment CompanyG which needs to be registered as a PCCG under the Companies RegulationsG . An Umbrella FundG using the PCCG structure has the benefit of legal segregation of Fund PropertyG forming part of each individual cell. Accordingly, Fund PropertyG of one cell of a PCCG is not available to pay any obligations arising in relation to another cell of that PCCG .
              2. It is not mandatory for an Umbrella FundG to be constituted as a PCCG . Instead, such FundsG may be formed as a conventional Investment CompanyG or Investment TrustG . However, the legal segregation available to each cell of a PCCG is not available to Sub-FundsG of Umbrella FundsG not formed as a PCCG .
              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

        • Investments of an Umbrella Fund

          • CIR 13.7.2

            A Fund ManagerG of an Umbrella FundG must ensure that none of its Sub-FundsG invests in another of its Sub-FundsG .

            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

            • CIR 13.7.2 Guidance

              Requirements that apply to other FundsG apply to Umbrella FundsG equally, although there are some Umbrella FundG specific requirements. For convenience of reference, key provisions specific to Umbrella FundsG are identified in the following Table.

              Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

          • CIR 13.7.3

            Additional requirements specific to Umbrella Funds

            Rule Requirements
            CIR Rule 3.1.10 Definition
            CIR Rule 13.7.1 Form of an Umbrella Fund
            CIR Rules 9.4.2 Annual and interim reports
            CIR Rules 9.4.6 Content of the annual report of an Umbrella Fund
            CIR Rules 9.4.9 Fund Manager's Report
            CIR Rules 13.7.2 Investment restrictions applicable to Fund of Funds when investing in a Sub-Fund
            CIR AppA7.1.1(2)(h)&17 Content of a Public Fund Prospectus
            CIR Rules 14.3.5 Content of a Short Form Prospectus
            Rules CIR 16.1.1, CIR 16.1.3(3) (4) & (5) Transfer schemes
            Rules CIR 17.1.1 & CIR 17.1.6 Winding up
            Derived from RM72/2010 (Made 11th July 2010). [VER13/07-10]

      • CIR 13.8 Money Market Funds

        • Investment Conditions and Borrowings

          • CIR 13.8.1

            (1) A Fund ManagerG of a Money Market FundG must ensure that the Fund'sG investment strategy is consistent with the investment objectives of such a FundG as set out in CIR Rule 3.1.11.
            (2) Without limiting (1), the Fund ManagerG of a Money Market FundG must ensure that:
            (a) at least 90% of the net asset value of the Fund PropertyG is invested in Deposits or Debentures that are of high quality, as determined by the Fund ManagerG in accordance with CIR Rule 13.8.2;
            (b) at least 10% of the net asset value of the Fund PropertyG consists of cash in accounts that permit the cash to be withdrawn immediately on demand;
            (c) DepositsG with, or DebenturesG issued by, a single entity do not exceed 10% of the net asset value of the Fund PropertyG ;
            (d) the FundG invests only in DepositsG or DebenturesG :
            (i) with a residual maturity until the legal redemption date of not more than two years; and
            (ii) where the time remaining until the next interest rate reset date is not more than 397 days;
            (e) the Fund PropertyG has a weighted average maturity of not more than 6 months;
            (f) the Fund PropertyG has a weighted average life of not more than 12 months;
            (g) the FundG does not invest in Financial InstrumentsG other than DepositsG or DebenturesG , except for:
            (i) UnitsG in other Money Market FundsG that have investment objectives and strategies consistent with those of the FundG ; or
            (ii) Derivatives that are used solely to hedge against foreign exchange rate risk; and
            (h) the borrowings of the FundG do not, at any time, exceed 10% of the net asset value of the Fund PropertyG .
            (3) In (2):
            (a) the "net asset value" of Fund Property, means the value of Fund PropertyG at the most recent valuation under CIR Rule 8.4.1;
            (b) the "weighted average maturity" of Fund PropertyG , means the average length of time to maturity of all the Financial InstrumentsG held as Fund PropertyG , weighted to reflect the relative holdings in each Financial InstrumentG , where the maturity of a floating rate instrument is the time remaining until the next interest rate reset; and
            (c) the "weighted average life" of Fund PropertyG , means the weighted average of the remaining life of each Financial InstrumentG held as Fund PropertyG , where the remaining life of a Financial InstrumentG is the time until the due date for repayment of the principal.
            [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 13.8.1 Guidance

              IFR 6.12 sets out further Rules and Guidance about how the requirements in this section apply to Islamic Money Market FundsG .

              [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

        • Due diligence on investment quality

          • CIR 13.8.2

            To determine whether a DepositG or DebentureG is of high quality for the purposes of CIR Rule 13.8.1(2)(a), a Fund ManagerG of a Money Market FundG must carry out due diligence to an adequate standard on the DepositG or DebentureG , taking into account the following factors:

            (a) the credit quality of the IssuerG , and any guarantor, of the InvestmentG ;
            (b) the nature and quality of the asset class represented by the InvestmentG ;
            (c) the liquidity of the InvestmentG ; and
            (d) any other risks associated with the InvestmentG or the market in which it is traded.
            [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

            • CIR 13.8.2 Guidance

              1. A Fund ManagerG must carry out the due diligence required under CIR Rule 13.8.2 as part of its internal procedures. However, this does not prevent it from using a service provider to carry out the necessary due diligence, provided the outsourcing requirements in these Rules are met.
              2. A Fund ManagerG will not meet the due diligence requirements in the Rule if it relies solely on credit ratings issued by a credit rating agency. This is because assessment of credit quality is only part of the due diligence required under the Rule.
              3. A Fund ManagerG should keep appropriate records of the due diligence it has conducted on an InvestmentG to demonstrate that it has complied with the Rule.
              [Added] RM158/2015 (Made 9th December 2015). [VER19/02-16]

      • CIR 13.9 Exchange Traded Funds (ETFs)

        • Restriction on holding out to be an ETF

          • CIR 13.9.1

            A Fund ManagerG , or any PersonG making an OfferG of a UnitG of a FundG or otherwise marketing a FundG , must not describe the FundG in its offer document or marketing material as an "Exchange Traded FundG " (or "ETF") or otherwise hold out the FundG as being an Exchange Traded FundG or ETF, unless the FundG meets the criteria in CIR Rule 3.1.12.

            Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

            • CIR 13.9.1 Guidance

              See also GuidanceG item 4 under CIR Rule 13.9.6 for the difference between an Exchange Traded FundG or ETF and other exchange traded Open-ended FundsG .

              Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Systems and controls

          • CIR 13.9.2

            A Fund ManagerG of an ETF must take reasonable steps to ensure that any Authorised Participant it appoints has adequate systems and controls to ensure that the UnitsG of the ETF are traded on-market at a price that does not significantly vary from the most recent Net Asset ValueG (NAV) of the ETF, or the indicative Net Asset ValueG (iNAV) of the ETF, if available.

            Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

            • CIR 13.9.2 Guidance

              See also GuidanceG item 3 under CIR Rule 13.9.6 for a description of iNAVG and CIR Rule 14.4.8(f) for information relating to iNAVG that is required to be included in a ProspectusG .

              Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Investment objective and strategy of an ETF

          • CIR 13.9.3

            A Fund ManagerG of an ETF must ensure that the investment objective and strategy of the FundG is to track the performance of an index or benchmark specified in its ProspectusG .

            Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

            • CIR 13.9.3 Guidance

              CIR Rule 13.9.3 requires an ETF to track the performance of an index or benchmark. It therefore does not permit a FundG that is 'actively managed' to be established as an ETF. For more discussion about actively managed FundsG —see the GuidanceG after CIR Rule 13.9.6.

              Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Criteria for underlying indices or other benchmarks

          • CIR 13.9.4

            (1) A Fund ManagerG of an ETF may use an index or other benchmark for the purposes referred to in CIR Rule 13.9.3 only if it is provided by a Price Information ProviderG that meets the requirements in App 9.
            (2) In (1), a Price Information ProviderG is a price reporting agency or an index or benchmark provider which constructs, compiles, assesses or reports, on a regular and systematic basis, prices of InvestmentsG , rates, indices, commodities or figures, which are made available to users, including a Fund ManagerG .
            Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Index or benchmark provided by a Related Party

          • CIR 13.9.5

            The Fund ManagerG of an ETF must treat an arrangement between the Fund ManagerG and a Related PartyG to use an index or benchmark provided by the Related PartyG as a Related Party TransactionG .

            Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

            • CIR 13.9.5 Guidance

              1. An index or other benchmark referenced by an ETFG is not the property of the ETF. If the index or benchmark is provided by a Related PartyG (for example, if it is custom made for the Fund ManagerG ), it can give rise to conflict of interests that may pose the risk of distortion of information in favour of the Fund ManagerG , to the possible detriment of investors in the ETFG . Therefore, CIR Rule 13.9.5 also applies the Related Party TransactionG provisions in CIR Rule 8.3.2 to an arrangement under which a Fund ManagerG of an ETFG uses or proposes to use an index or benchmark provided by a Price Information ProviderG which is a Related PartyG .
              2. A Fund ManagerG of an ETFG will also need to comply with CIR Rule 13.9.4 in relation to a Related Party Price Information ProviderG which provides the index or the other benchmark it tracks.
              Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

        • Types of ETFs and their characteristics

          • CIR 13.9.6

            A Fund ManagerG of an ETF must take reasonable steps to ensure that the FundG 's ProspectusG and marketing material describe the type of ETF in a way that is clear and not misleading to enable investors and potential investors to understand the type of ETF, and its characteristics.

            Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

            • CIR 13.9.6 Guidance

              • General

                1. The terminology ETFs use are specific to ETFs. Depending on the type of ETF, their features could also be different. FSBG , IOSCOG and ESMAG have issued guidance relating to types of ETFs, ETFG terminology and ETF characteristics, to enable retail investors, in particular, to understand ETF terminology, different types of ETFs, and their associated characteristics better. The following GuidanceG is based on the material issued by those bodies, and is designed to assist Fund ManagersG of ETFs to meet their overarching obligation in CIR Rule 13.9.6.
                Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

              • ETF terminology

                (Annual) tracking difference

                2. (Annual) tracking difference measures the actual performance of the ETF, compared to the annual return of the tracked index or other benchmark, generally over a 12 month period (but this could be over a shorter specified period).

                Indicative Net Asset Value (iNAV)

                3. iNAVG is a measure of the intraday value of the net asset value (NAV) of an index-based ETFG , based on the most up-to-date information. iNAVG is not the value at which investors buy and sell ETFG UnitsG through the Authorised Participant. iNAV is calculated and made available by the operator of the exchange on which an ETFG is traded—based on the information made available to the relevant exchange by the ETF manager and the APG relating to the underlying portfolio of ETF assets.

                Exchange traded products (ETPs)

                4. ETF include a wide variety of different investment products that are traded on an exchange, such as exchange-traded commodities (ETCs), exchange-traded notes (ETNs), exchange-traded instruments (ETIs), and exchange-traded vehicles (ETVs). Most of these are debt instruments, and not equity participation rights conferred by a UnitG of an ETF.
                Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

              • ETF features

                5. While an ETF is a Collective Investment FundG (FundG ), as it has special features, it has been classified as a specialist class of FundG .
                6. An ETF differs from other FundsG because unlike other exchange traded FundsG , ETFG UnitsG have concurrent primary market and secondary market trading, primary market trading occurring in 'creation UnitsG ' between the Fund ManagerG and its Authorised Participant(AP), and secondary market trading between the AP and investors. See also GuidanceG under CIR Rule 3.1.12.
                7. Investors in an ETFG may incur additional costs and fees as they have to buy and sell ETFG UnitsG through an Authorised ParticipantG (who directly buys and sells 'creation units' in the ETF from the ETF Fund ManagerG ). These are different to the UnitsG of the ETF which are traded on the relevant exchange, and are generally of a larger denomination than the UnitsG available to investors on the relevant exchange.
                Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

              • Types of ETFs

                Index tracking ETF (Index-tracker)

                8. An Index-tracking (based) ETF typically seeks to replicate the performance of an underlying index or benchmark. It may do so either as a physical ETFG or as a synthetic ETF.

                Physical ETF

                9. The investment strategy of a physical ETF is to hold physical securities and other assets to obtain returns that correspond typically to those of an underlying index or benchmark by replicating (and where appropriate, by sampling) the component securities of the relevant index or benchmark. Replication generally involves investing in the component securities of the underlying index or benchmark in the same approximate proportions as in the underlying index or benchmark.
                10. In certain cases, it may not be possible for an ETF to own every stock of an index (for example, due to, transaction costs, the index being too large, its components being illiquid, or because its market capitalisation weighting would result in the ETF violating regulatory requirements for asset diversification). In such instances, a physical ETF may rely on sampling techniques. For example, by acquiring a subset of the component securities of the underlying index, and possibly some securities that are not included in the corresponding index designed to improve the ETF's index-tracking.

                Synthetic ETF

                11. The investment strategy of a Synthetic ETFG is to meet its investment objective by entering into a derivative contract (typically through a total return swap) with a selected counterparty. The swap contracts can take one of two forms:
                a. an unfunded structure; or
                b. a funded (or prepaid swap) structure, as described below.
                12. In both models, the derivative exposure is collateralised or reduced through the use of collateral or a portfolio management process, that may involve the services of a third party as collateral agent (in the funded model) or is covered by the substitute basket as assets of the ETFG (in the unfunded model).

                Synthetic ETF (unfunded)

                13. In a synthetic ETFG adopting the unfunded structure, the ETFG Fund ManagerG invests the cash proceeds from investors in a so-called substitute or reference basket of securities (typically bought from a bank). The basket's return is swapped via a derivative contract with an eligible counterparty (frequently, the derivatives desk of the same bank), in exchange for the return of the index referenced in the ETFG 's investment objective.

                Synthetic ETF (funded)

                14. In a synthetic ETF adopting the funded structure, the ETF< Fund ManagerG enters into a swap in exchange for cash (or for the entire ETF portfolio) without the creation of a substitute basket.

                A leveraged ETF

                15. A leveraged ETF (which is often an index-tracking ETF) can have leverage exposure to an index, or exposure to a leveraged index.

                Actively managed ETF

                16. An ETF is actively managed if the Fund ManagerG exercises discretion over the composition of the invested portfolio in an attempt to outperform a chosen index or other benchmark. The key difference, compared to an index tracking ETFG , is a Fund Manager'sG ability to adjust the portfolio without being subject to the set rules of the index or other benchmark referenced. An actively managed ETF could be a physical ETF or a synthetic ETF—with a portfolio selected at the discretion of the Fund Manager or derivatives designed at the discretion of the Fund ManagerG .
                17. The DFSAG regime does not permit the creation of actively managed ETFs (see CIR Rule 13.9.3) as there is less transparency relating to the underlying portfolio of assets. This gives rise to potential difficulties in clearly identifying risks associated with exposures to counterparties and any collateral used in such ETFs, compared to ETFs that passively track the performance of a specified index or other benchmark.
                Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]