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AFN AUT-NOTES Part 7: External Fund Notification Form notes

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This section contains information to assist you to complete the External Fund Notification form. Each note relates to a question in the notification form e.g. EX5 below provides information to assist you to complete the question at EX5 of the External Fund Notification form.

Section 1: Declaration

This section should be completed by all applicants.

Section 2: Contact details

EX1. Please provide the full name of the Fund Manager.
EX2. The contact person named should be the person who is responsible for the application during this process and who will liaise with the DFSA. This person must be a representative of the company. It may be helpful to provide a second contact name as a back-up.
EX3. If you do not have an adviser assisting you with this application, please go to question EX5.
EX4. You may have a professional adviser assisting you with this application. Please tick yes if the DFSA should copy any correspondence in relation to this application to the adviser.

Section 3: External Fund Structure and Investment Policy

EX5. Please provide the full name of the Fund.
EX6. Fund Structure.
Please tick the applicable boxes. Multiple boxes may be used for any one fund if applicable. The following provides a brief summary regarding the structure of funds expressed in the form:

Investment company
GLO definition: An open or closed ended company established for the sole purpose of collective investment which is incorporated under the DIFC Companies Law in accordance with the Regulations made under that Law.

Investment partnership
GLO definition: A limited partnership established for the sole purpose of collective investment which is formed and registered under the Limited Partnership Law 2006 in accordance with the Regulations made under that Law.

Investment trust
GLO definition: An express trust created solely for collective investment purposes under the Investment Trust Law 2006.

Other
Please specify if your fund is not an investment company, investment partnership or investment trust i.e. it may be a Unit Trust in the UK.

Master Fund
See CIR 3.1.4

Feeder Fund
See CIR 3.1.5

Umbrella fund
See CIR 3.1.10.
EX7. Type of Fund.
Please tick the applicable boxes. Multiple boxes may be used for any one fund if applicable. The following provides a brief summary regarding the types of funds expressed in the form:

Traditional
Essentially the same as a standard mutual fund, such a fund is long-only, unleveraged, with returns driven largely by the performance of the market or an asset class and with no performance-based fees.

Private equity
A fund investing in an asset class consisting of equity securities and, to a lesser extent, debt in operating companies that are not publicly traded on an exchange

Money market
A Fund that invests in short-term (less than one year) debt securities such as T-bills, CDs and commercial paper.

REIT
See CIR 3.1.8

Islamic
See CIR 3.1.2

Hedge fund
See CIR 3.1.9

Fund of funds
See CIR 3.1.3

ETF
A fund containing a portfolio designed to replicate the performance of a major index or benchmark, capable of being traded like any other exchange-traded security throughout the trading day.

CTA
Essentially, a hedge fund specialising in using futures, options on futures, and forwards to implement their investment strategy.

Index tracker
A fund designed to replicate the performance of an index or benchmark (compare ETF).

Venture capital
A private equity fund investing in start-up and (generally) small businesses with significant growth potential and characterised as being high-risk/high-return opportunities.

Real Property (Real Estate)
See CIR 3.1.7

Managed currency
A fund seeking to profit from considered investments in foreign exchange.
EX8. Asset classes invested into by the Fund.
Please tick the applicable boxes. Multiple boxes may be used for any one fund if applicable. The following provides a brief summary regarding the asset classes expressed in the form:

Equities (Shares)
Shares of ownership in publicly held companies. See GEN A2.1.1 (a)

Property (Real estate)
GLO definition: Land or buildings, whether freehold or leasehold, where the unexpired term of any lease exceeds 20 years.

Money market investments (Bills/Notes/Commercial Paper etc.)
Liquid, short-term, fixed income securities issued by governments or firms

Government bonds
Fixed income securities issued by governments

Futures/options
For definitions see GEN A2.3.1

Infrastructure
Basic physical systems and businesses such as water, power, transport systems, communication systems

Credit incl. corporate bonds
Fixed income securities and loans issued by corporations

Microfinance
As an asset class, investments are generally made in microfinance institutions (MFIs) which in turn make micro-loans to new businesses in the developing world.
EX9. Investment strategy used by the Fund.
Please tick the applicable boxes. Multiple boxes may be used for any one fund if applicable. The following provides a brief summary regarding the investment strategies expressed in the form:

Long-only
The fund holds only 'long' positions in assets and securities

Long-short
The fund holds long positions in securities it expects to increase in value and short positions in securities (in the same asset class as the long positions) which it expects to decrease in value or to hedge the long positions against general market exposure.

Short bias
The fund maintains a net short exposure to the market through a combination of short and long positions.

Market neutral
The fund seeks to avoid any form of overall market exposure by utilising 'matching' long and short positions in different securities in the same market.

Emerging market
The fund invests primarily or exclusively in the securities of a developing country or group of developing countries.

Merger arbitrage (risk arbitrage)
The fund seeks to profit from opportunities arising from extraordinary corporate events such as M&A and Leveraged Buyouts (LBOs) by taking appropriate positions in the securities associated with the event. (see Event driven).

Event driven (special situation)
The fund seeks to exploit pricing inefficiencies that may occur before or after a corporate event, such as a bankruptcy, merger, acquisition, or spinoff. (see Merger arbitrage).

Statistical arbitrage
Typically the fund trades pairs (or larger baskets) of stock that its quant models show as having a fairly persistent relationship statistically, shorting the relatively overpriced stock and buying the relatively underpriced stock and profiting from the anticipated convergence.

Quantitative
The fund selects investments and may also execute the trading decision based on quantitative models.

Dividend arbitrage
The fund seeks to profit from dividend-paying stocks by holding the relevant stock through the exdividend date while hedging the long position in the stock with in-the-money put options.

Balanced
A traditional fund that combines a stock component and fixed income component, allowing the fund to switch between a moderate risk weighting (more equity) and a conservative (more fixed income) weighting.

Convertible bond arbitrage
The fund seeks to profit on any mispricing between a convertible bond and its underlying stock.

Fixed income arbitrage
The fund seeks to profit from temporary pricing mismatches between related securities by taking 'off-setting' long and short positions, often with leverage, while limiting exposure to interest rate changes.

Distressed securities
The fund seeks to profit from holding securities trading at a discount to par value in firms experiencing financial or operational distress, bankruptcy etc., often by trying to influence the process of restructuring.

Volatility arbitrage
The fund seeks to profit from volatility changes in market indices or individual name securities, without being affected by the direction of the price movement.

Global macro
The fund implements opportunistic trading strategies to profit from shifts in macroeconomic trends.

Multi-strategy
Typically the fund is organised as separate trading groups, each specialising in a specific investment strategy, with fund capital being allocated dynamically across strategies depending on the expected investment opportunities.
EX10.
EX11.
EX12.

Section 4: External Fund Requirements

EX13. This is the jurisdiction in which you have established the fund.
EX14. Please specify the name of the relevant fund laws, rules, regulations which are applicable to the fund in its jurisdiction. This should also include the fund category i.e. exempt fund, public fund, etc.
EX15. Please advise whether you are allowed to target retail clients to invest in the fund in its jurisdiction.
EX16. Please advise what AML legislation applies to the fund in your jurisdiction. As an example for DIFC domestic fund this would be the AML Module of the DFSA Rulebook.
EX17. Please advise whether the jurisdiction in which the fund is domiciled complies with the Financial Action Task Force (FATF) Recommendations. These Recommendations are used as the international standard.
EX18. The contact person named should be the person who is responsible for the regulatory authorisation and ongoing supervision of the fund.
EX19. Please confirm which entities will distribute the fund.
EX20. The Fund Manager of an External Fund must:
(c) Have systems and controls which are adequate to ensure compliance with the requirements that apply to the External Fund in the jurisdiction in which it is established or domiciled; and
(d) Inform the DFSA of the jurisdiction in which the Fund is or is to be established or domiciled and the nature of regulatory requirements applicable to the Fund in that jurisdiction.
A Fund Manager of an External Fund is generally not subject to the requirements that otherwise apply to Domestic Funds (see Article 14(2) of the Law). However, some limited requirements apply to External Funds. See for example the disclosure required under Rules 14.2.414.2.7. Should such a requirement conflict with any requirements that apply to an External Fund in the jurisdiction in which the Fund is domiciled, the Fund Manager may apply to the DFSA for appropriate waivers or modifications of the DFSA requirements.

The DFSA may upon receipt of the information referred to in Rule 6.2.2(b), assess the desirability of establishing an External Fund in that particular jurisdiction chosen by the Fund Manager. Relevant considerations include:
(d) The Fund Manager's need to establish the Fund in the particular jurisdiction for reasons such as the physical location of the Fund assets or investor preference;
(e) Any regulatory risks arising from establishing the External Fund in the relevant jurisdiction, particularly if the Fund is to be open to retail investors; and
(f) Whether the relevant jurisdiction complies with the FATF or other relevant international standards or requirements.
EX21. If you have been granted any waivers or modifications of the DFSA Rules prior to submitting this form please provide the Notice number. Please note that this notification will not be accepted until any policy issues and waivers/modifications are resolved.

Section 5: Parties to the Fund

Please provide details of any third parties who may provide a service to the fund by way of delegation or outsourcing arrangement. Where relevant, details should include name, address, regulatory status and whether an agreement is in place. These agreements are not required to be submitted to the DFSA as part of this application. However such agreements should be ready for inspection should the DFSA request sight of them.

Section 6: Compulsory Supporting Documents for a Fund

EX22. Please confirm you have attached the Information Memorandum of the Fund.

Section 7: Disclosure

This section should be completed by all applicants.
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