Issuance of ISE Policy Notes / Clarification
The ISE has recently issued two policy notes offering greater flexibility to listed funds. These changes are effective immediately. It has also issued a clarification on the interpretation of an existing reporting requirement.
Policy Note 1-12 (Addition of Listing Rule 2.69)
This policy note disapplies the legal and management control requirement set out in Listing Rule 2.53 where a listed fund invests into an open ended fund, provided that the investment is made on a passive basis. This policy note seeks to address practical issues whereby 2.53 could be inadvertently breached by the listed fund due to relative sizes of the listed fund and the investee where there is no intention to exercise control of the investee fund.
New Rule 2.69
Listing Rule 2.53 does not apply to an applicant's investment in other open ended funds
Policy Note 2 -12 (Addition of Listing Rule 7.54)
Cash Deposits
This policy note seeks to reflect developing industry practise in diversifying counterparty exposure and holding cash positions separate to securities positions with the objective of reducing risk. To date a maximum of 20% of the gross assets of a listed fund could be held on deposit with a single entity (as set out under Listing Rule 2.52), and always within the custody or prime brokerage network.
New LR7.54
LR2.52 does not apply to an applicant's cash assets held on deposit at any credit institution subject to the following requirements:
LR7.54 (a)
Where the applicant deposits cash with a credit institution for its own account, the applicant will confirm the following:
(i) The Directors of the applicant believe that the placing of cash on deposit with the credit institution is in the best interests of the applicant's unitholders and is in line with the investment policy of the applicant; and
(ii) The applicant must appoint an independent administrator or other independent entity responsible for carrying out a periodic reconciliation of the applicant's cash position at the credit institution. The reconciliation should consist of a reconciliation of the applicant's cash position at the credit institution to the books and records of the independent administrator or other independent entity based upon receipt of statements of information from the credit institution. Such reconciliation should take place in connection with each dealing day and not less than quarterly. The entity may maintain independence in one of the following ways:
(i) the entity is not an affiliate of the applicant, (ii), the entity is a separate yet affiliated legal entity to the applicant that achieves functional independence through the separation of legal entity management and the adoption of entity specific controls and procedures; and
(iii) The placing of cash deposits with a credit institution outside of the applicant's custody / prime broker network is restricted to applicants that confine investment to professional investors.
And, where the amount held on deposit with a single institution exceeds 20% of the applicant's gross assets:
LR7.54 (b)
The credit institution must satisfy:
- the Specified Credit Rating Requirement;
- the Financial Resources Requirement; and
- be regulated as a credit institution by a Recognised Regulatory Authority.
Notes:
1. This new rule will not impact on applicants regulated by the Central Bank of Ireland as listing rules 2.52, 2.28-2.34 & 2.36-2.38 are deemed to have been complied with for such applicants.
2. For the avoidance of doubt, the requirements in 7.54 (a) will only apply where the account is not held in the name of the custodian.
3. All material risks relating to the placing of cash deposits outside of the applicant's custody network should be clearly described in the listing particulars.
Definitions:
"Credit Institution" shall have the same meaning as defined in Directive 2006/49/EC as adopted by the UCITS Regulations 2011.
(a) an undertaking whose business is to receive deposits or other repayable funds from the public and to grant credits for its own account; or
(b) an electronic money institution within the meaning of Directive 2000/46/EC (1);).
Specified Credit Rating Requirement: means in relation to a legal person, a requirement either that such person or that a parent of such person has the Specified Credit Rating.
Specified Credit Rating means either:
a) A minimum of P-1, A-1 or F1, respectively for short term debt from the credit agency of Moody's or standard & Poor's or Fitch; or
b) A minimum short term credit rating of P-2,r A-2 or F2 from the credit agency of Moody's or Standard & Poor's or Fitch provided that the maximum exposure of the applicant t o the Prime Broker is limited to 40% of the Net Asset Value of the fund.
Financial Resources Requirement means in relation to a legal person, a requirement either that such person has €200 million in financial resources (or its equivalent in another currency) or has all of its obligations to the applicant irrevocably and unconditionally guaranteed by, or is an unlimited liability subsidiary of, an entity that has €200 million in financial resources (or its equivalent in another currency). Recognised Regulatory Authority means any regulatory authority which is charged with the regulation and supervision of financial services firms under the law of any EU Member State and of the following countries:
a) Australia;
b) Canada;
c) Hong Kong;
d) Japan;
e) Singapore;
f) Switzerland;
g) United States; and
h) Any other jurisdiction specified for these purposes by the ISE from time to time.
Clarification of Listing Rule 8.10 - Disclosure of Controlling Interests:
Listing Rule 8.10
This Listing Rule sets out ongoing disclosure obligations in relation to controlling unitholders. The current disclosure obligations in Listing Rule 8.10 refer specifically to listed units. Therefore, a person may currently control the activities of a listed fund by means of holdings of unlisted units without any obligation to report such holding.
In order to rectify this anomaly, the reference to 'listed' units in 8.10 will be deleted and Listing rule 8.10 is restated as follows:
8.10 "A listed fund must notify the CAO without delay of the following information relating to interests in units, of which the listed fund, its directors or investment manager are aware and where such interests vary from date of first or subsequent notification, such information should be updated at least on a six monthly basis:
(a) deleted September 2009
(b) any person which would be treated as a controlling unitholder under 2.12 of the Code stating the name of the person and the amount of that person's interest;
(c) where any listed fund is subject to the Companies Act 1990, any information disclosed to it in accordance with sections 67-81 of the Companies Act 1990;
(d) deleted September 2009;
(e) any interest of the investment manager in the units of a listed fund
Note: The requirements in relation to controlling unitholders do not apply to an applicant which is open ended and is authorised and regulated by the Central Bank of Ireland."
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
