Investor Presentaiton
Stock Connect - UCITS Requirements
Some regulated funds are required true RVP/DVP solution to avoid counterparty risk and to maintain full control over the
shares at all times to better protect the assets of the fund
Commission for the Supervision of the Financial Sector (CSSF)
The main conditions imposed by the CSSF are:
•
•
•
the use of a delivery versus payment ("DVP") settlement process
avoiding additional counterparty risks;
The depositary or an entity within its custodial network (i.e. a sub-
custodian) must ensure that it retains control over the shares at all
times
ensuring that accounts opened by the Luxembourg depositary with
the Hong Kong sub-custodian are segregated at the level of UCITS
sub-funds or structured as UCITS assets omnibus accounts of the
Luxembourg depositary with the Hong Kong sub-custodian; and
⚫ the disclosure in the prospectus and KIID has to cover the specific
legal risks of compulsory use of the local central securities
depositaries, Hong Kong Securities Clearing Company Limited and
ChinaClear for custody of securities on a cross border basis and
other specific risks.
Central Bank of Ireland
On July 15, 2015, the Central Bank of Ireland published an important update
to its UCITS and AIFMD Q&A permitting Irish authorized investment funds to
acquire Chinese shares via the Stock Connect program.
Key conditions are:
.
The depositary or an entity within its custodial network (i.e. a sub-
custodian) must ensure that it retains control over the shares at all times
• The depository or a member of its custodial network can be a General
Clearing Participant, Direct Clearing Participant or Custodian Participant as
appropriately determined by the depositary in fulfilment of its legal
obligations
• The depository must review the Stock Connect infrastructure arrangements
to ensure that its legal obligations can be met
•
The depositary needs to satisfy itself that the manner in which the shares
are to be held meet with the requirements of the UCITS / AIFMD
Regulations and any conditions imposed by the Central Bank
• Definition of DVP per BIS: A security settlement mechanism that links to a security transfer and a fund transfers in such a way as to ensure that
delivery occurs if and only if the corresponding payment occurs.
• UCITS V imposes a 'strict liability' on the Fund Depositary/Global Custodian. This means that if an asset of the fund is lost, the Fund Depositary has an
immediate obligation to replace the asset or equivalent cash value, even if the asset was lost due to the actions of its delegates. Fund Depositaries are
also will bear the burden of proof to demonstrate that it has performed its duties, acts in solely in interest of the investors and exercise prudent measure
to protect the fund's assets. A depositary can only avoid this strict liability standard where it can prove, cumulatively, that the loss was as a result of an
external event, beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary
in performing all of its tasks.
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