Entire Section

  • CIR 8.6A CIR 8.6A Systems and controls for liquidity risk management in Open-ended Funds

    • CIR 8.6A.1 CIR 8.6A.1

      (1) A Fund Manager of an Open-ended Domestic Fund must ensure that the Fund has sufficient liquidity to meet redemption requests as stated in the Fund's Constitution and its most recent Prospectus, as appropriate to the nature and risk profile of the relevant Fund.
      (2) For the purposes of meeting the requirement in (1), the Fund Manager's systems and controls must, at a minimum, contain well-documented and detailed policies and strategies, which:
      (a) include appropriate liquidity buffers and limits on illiquid assets, and the availability of other resources, such as lines of credit;
      (b) take into account:
      (i) the underlying classes of assets of the Fund;
      (ii) if such assets are traded on-exchange, the liquidity in those markets;
      (iii) investors' redemption patterns and behaviour; and
      (iv) any other factors that affect or potentially affect the liquidity of the relevant classes of assets;
      (c) include appropriate mechanisms to measure, monitor, stress test and manage the controls referred to in (a) to assess whether they are adequate, and are operating as intended in both normal and stressed conditions and the procedures available to the Fund Manager to address any gaps and failures identified; and
      (d) include powers available to the Fund Manager to address liquidity stresses which pose, or have the potential to pose, risks to its ability to effect redemptions (such as the power to impose anti-dilution levies, create side pockets to ring-fence illiquid assets and create redemption gates or suspend redemptions), and clear triggers and procedures for exercising such powers.
      Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]

      • CIR 8.6A.1 Guidance

        1. The DFSA expects Fund Managers to take into account the Final Report: "Open-ended Fund liquidity and risk management—Good Practices and Issues for Consideration" issued by OICU-IOSCO in February 2018, (which can be found at http://www.iosco.org/library/pubdocs/pdf/IOSCOPD591.pdf). The DFSA believes that the measures identified in that report would, if adopted by the Fund Managers as appropriate to the nature, scale and complexity of their Funds, would enable such managers to meet their overarching obligations in CIR Rule 8.6A.1.
        2. In the DFSA's view, there are certain specialist classes of Funds which generally do not lend themselves to be Open-ended, such as Private Equity Funds (because of the long-term nature of their investments), and Fund of Funds or Feeder Funds (unless the Funds in which they invest themselves are Open-ended). Conversely, there are Funds which may lend themselves better to being structured as Open-ended Funds offering redemptions, such as Funds investing in transferable securities (e.g. UCITS style Funds), or ETFs—due to the liquidity of the underlying classes of their assets, provided they meet the liquidity risk management controls referred to in CIR Rule 8.6A.1. However, it is a matter for the Fund Manager to objectively assess the liquidity profile of the Fund and associated risks.
        Derived from DFSA RM218/2018 (Made 22nd February 2018) [VER23/12-18]