SCOPE AND APPROVAL

  • Scope Page
  • Approval by the Central Bank

COMMON PROVISION FOR FEEDER AND MASTER

  • Agreement and Internal Conduct of Business Rules
  • between the Master and Feeder
  • Access to Information
  • Basis of Investment by the Feeder
  • Standard Dealing Arrangement
  • Events affecting Dealing Arrangements
  • Standard Arrangements for the Audit Report
  • Changes to Standing Arrangements
  • Choice of the Applicable Law

LIQUIDATION, MERGER OR DIVISION OF THE MASTER

  • Procedures in the Event of Liquidation of Master
  • Procedures in the event of a Merger or a Division of Master

DEPOSITARIES AND AUDITORS

  • Content of the Information-Sharing Agreement between
  • Depositories
  • Reporting of irregularities by the depository of the Master
  • Information-Sharing Agreement between Auditors
  • Choice of the Applicable Law

ADDITIONAL INFORMATION TO BE INCLUDED IN THE PROSPECTUS OF AN IRISH AUTHORISED FEEDER

ADDITIONAL INFORMATION TO BE INCLUDED IN THE ANNUAL AND HALF YEARLY ACCOUNTS OF AN IRISH AUTHORISED FEEDER

DOCUMENTS TO BE MADE AVAILABLE TO INVESORS OF AN IRISH AUTHORISED FEEDER

OTHER RELEVANT PROVISIONS

OBLIGATION ON FEEDER AUTHORISED BY THE CENTRAL BANK TO MONITOR ACTIVITY OF MASTER

INFORMATION TO BE GIVEN TO CENTRAL BANK BY IRISH AUTHORISED MASTER

SUBSCRIPTION AND REDEMPTION FEES AT MASTER LEVEL

This Memorandum sets out the provisions in relation to Master-Feeder Fund structures stemming from the European Commission Directive 2009/65/EC, commonly referred to as the UCITS IV Directive, (the "Directive") and implementing Directive 2010/42/EU (the "Implementing Directive") which have been implemented into Irish law by the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 (the "UCITS Regulations").

SCOPE AND APPROVAL

Scope

Regulations 78-87 of the UCITS Regulations adopt the provisions of Articles 58-67 of the UCITS Directive relating to master feeder structures. They provide that a feeder UCITS is a UCITS or a sub-fund of a UCITS (the "Feeder"), which has been approved to invest at least 85% of its assets in units of another UCITS or sub-fund thereof (the "Master"). A Feeder may hold up to 15 % of its assets in one or more of the following, namely, (i) ancillary liquid assets (ii) financial derivative instruments and (iii) movable and immovable property which is essential for the direct pursuit of the business1.

In calculating its global exposures related to financial derivative instruments, the Feeder must calculate its global exposure by combining its own direct exposure to financial derivative instruments with either:

  1. The Master's actual exposure to financial derivative instruments in proportion to the Feeder's investment into the Master; or
  2. The Master's potential maximum global exposure to financial derivative instruments provided for in the Master's trust deed, deed of constitution or articles in proportion to the Feeder's investment into the Master2.

A Master is a UCITS or a sub-fund of a UCITS which:

  1. has, among its unitholders, at least one Feeder;
  2. it is not itself a Feeder; and
  3. does not hold units of a Feeder3.

Approval by the Central Bank

In accordance with Regulation 79 (1) of the UCITS Regulations, the Feeder will be subject to the prior approval of the Central Bank before it can exceed the usual investment limits regarding investment in other collective investment schemes and therefore invest in the Master. The UCITS Regulations also provide that the Feeder will be informed within 15 working days following the submission of a complete file to the Central Bank whether or not investment into the Master is permitted4.

Regulation 79 (3) of the UCITS Regulations also sets out the information to be provided to the Central Bank as part of the application by the Feeder to invest in the Master which includes, (i) the fund rules of the Master, (ii) the prospectus and key investor information document ("KIID") of the Master, (iii) the agreement between the Feeder and the Master or internal conduct of business rules (as further described below), (iv) the information sharing agreements between the trustees of the Master and Feeder (where relevant), (v) information sharing agreements between the auditors of the Master and Feeder (where relevant) and (vi) an attestation by the competent authorities of the Master (where the Master is established in another Member State) that the Master is a UCITS.

COMMON PROVISION FOR FEEDER AND MASTER

Agreement and Internal Conduct of Business Rules between the Master and Feeder

In line with the Article 60 of the Directive, Regulation 80 (1) of the UCITS Regulations requires that a Master authorised by the Central Bank, must provide the Feeder with all the documents and information necessary for the latter to meet the requirements laid down in the UCITS Regulations or, in the case of a Feeder established in a Member State other than the State, laid down in the Directive. For this purpose, both the Master and the Feeder must enter into an information sharing agreement (the "Agreement") or, where both the Master and Feeder have the same management company, an internal conduct of business rules (the "Business Rules").

Regulation 80 (6) refers to Part I of Schedule 10 of the UCITS Regulations which adopts the provisions of the Implementing Directive in relation to what the Agreement and / or Business Rules should contain.

Access to Information

The Agreement between the Master and the Feeder must include the following with regard to access to information5.

  1. Details of how and when the Master provides the Feeder with a copy of its constitutional document, prospectus and KIID or any amendment thereof;
  2. Details of how and when the Master informs the Feeder of a delegation of investment and risk management to third parties;
  3. Where applicable, how and when the Master provides the Feeder with internal operational documents, such as its risk management process and its compliance reports;
  4. What details of breaches by the Master of the law, the constitutional document and the Agreement, the Master should notify the Feeder of and the manner and timing of such notification;
  5. where the Feeder uses financial derivative instruments for hedging purposes, how and when the Master will provide the Feeder with information about its actual exposure to financial derivative instruments to enable the Feeder to calculate its own global exposure as envisaged by the UCITS IV Directive;
  6. A statement that the Master informs the Feeder of any other information-sharing arrangements entered into with third parties and, where applicable, how and when the Master makes those other information- sharing arrangements available to the Feeder.

Basis of Investment by the Feeder

In addition, with regard to the basis of investment and divestment by the Feeder, the Agreement or Business Rules should include a statement of which share classes of the Master are available for investment by the Feeder as well as details of the charges and expenses to be borne by the Feeder, and details of any rebate or retrocession of charges or expenses by the Master. Further, if applicable, the Agreement or Business Rules should include the terms on which any initial or subsequent transfer of assets in kind may be made from the Feeder to the Master6.

Standard Dealing Arrangement

Further, the Agreement or Business Rules must include the following with regard to standard dealing arrangements7:

  1. Co-ordination of the frequency and timing of the net asset value ("NAV") calculation process and the publication of prices of units;
  2. co-ordination of transmission of dealing orders by the Feeder, including, where applicable, the role of transfer agents or any other third party;
  3. Where applicable, any arrangements necessary to take account of the fact that either or both UCITS are listed or traded on a secondary market;
  4. Where necessary, other appropriate measures in order to avoid market timing in their units and prevent arbitrage opportunities;
  5. Where the units of the Feeder and the Master are denominated in different currencies, the basis for conversion of dealing orders;
  6. settlement cycles and payment details for subscriptions and redemptions of units of the Master including, where agreed between the parties, the terms on which the Master may settle redemptions by a transfer of assets in kind to the Feeder;
  7. Procedures to ensure enquiries and complaints from unit-holders are handled appropriately (Agreement only);
  8. where the Fund Documents of the Master give it certain rights or powers in relation to unit-holders, and the Master chooses to limit or forego the exercise of all or any such rights and powers in relation to the Feeder, a statement of the terms on which it does so.

Events affecting Dealing Arrangements

With regard to any events affecting dealing arrangements, the Agreement or Business Rules should include the manner and timing of a notification by either UCITS of the temporary suspension and the resumption of redemption or subscription of units of that UCITS as well as arrangements for notifying and resolving pricing errors in the Master8.

Standard Arrangements for the Audit Report

Where the Feeder and the Master have the same accounting period, the Agreement or Business Rules should require the co-ordination of the production of their periodic reports. However, where the Feeder and the Master have different accounting years, the Agreement or Business Rules must provide for arrangements which enable the Feeder to obtain any necessary information from the Master in it to produce its periodic reports on time and which ensure that the auditor of the Master is in a position to produce an ad hoc report on the closing date of the Feeder9.

Changes to Standing Arrangements

With regard to changes to standing arrangements, the Agreement is required to include the manner and timing of notice10:

  1. to be given by the Master of proposed and effective amendments to its Fund Documents, if these details differ from the standard arrangements for notification of unit-holders laid down in the Master constitutional documents or prospectus;
  2. by the Master of a planned or proposed liquidation, merger, or division;
  3. by either UCITS that it has ceased or will cease to meet the qualifying conditions to be a Feeder or a Master respectively;
  4. by either UCITS that it intends to replace its management company, its depositary, its auditor or any third party which is mandated to carry out investment management or risk management functions;
  5. of other changes to standing arrangements that the Master undertakes to provide.

Choice of the Applicable Law

Where the Feeder and the Master are established in the same Member State, the Agreement should provide that the law of that Member State should apply to the Agreement and that both parties agree to the exclusive jurisdiction of the courts of that Member State. However, where the Feeder and the Master are established in different Member States, the Agreement must provide that the applicable law should be the law of the Member State in which either party is established and that both parties agree to the exclusive jurisdiction of the courts of that Member State11.

Footnotes

1 Reg 78 (2) (a) of the UCITS Regulations

2 Reg 78 (2) (b) of the UCITS Regulations

3 Reg 78 (3) of the UCITS Regulations

4 Reg 79 (2) of the UCITS Regulations

5 Paragraph 1 of Part of Schedule 10 of the UCITS Regulations

6 Paragraphs 2 and 10 of Part 1 of Schedule 10 of the UCITS Regulations

7 Paragraphs 3 and 11 of Part 1 of Schedule 10 of the UCITS Regulations

8 Paragraphs 4 and 12 of Part 1 of Schedule 10 of the UCITS Regulations

9 Paragraphs 5 and 13 of Part 1 of Schedule 10 of the UCITS Regulations

10 Paragraph 6 of Part 1 of Schedule 10 of the UCITS Regulations

11 Paragraphs 7 and 8 of Part 1 of Section 10 of the UCITS Regulations

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