FINMA Collective Investment Schemes Ordinance
English is not an official language of the Swiss Confederation. This translation is provided for information purposes only and has no legal force.
Chapter 1 Securities Funds
Section 1 Securities Lending
(Art. 55 para. 1 let. a CISA; Art. 76 CISO)
Collective Investment Schemes Ordinance of 22 Nov. 2006 (SR 951.311).
Art. 1 Definition
Securities lending means: a legally binding transaction in which the fund management company or investment company with variable capital (SICAV), acting as lender, undertakes to temporarily transfer to the borrower ownership of specific securities, and where: a. the borrower is obliged to return to the lender securities of the same type, quantity and quality at the end of the securities lending period and to transfer any income earned during that period to the lender; and b. the lender bears the price risk of the securities for the duration of the securities lending.
Art. 2 Principles
1 The fund management company or SICAV may lend securities in its own name and for its own account to a borrower («principal»). 2 The fund management company or SICAV may also appoint an intermediary to put the securities at the disposal of the borrower either on a fiduciary basis («agent») or directly («finder»), in accordance with the provisions of this section. 3 The fund management company or SICAV shall conclude a standardised framework agreement governing securities lending with each borrower or intermediary in accordance with Article 7.
Art. 3 Authorised borrowers and intermediaries
1 The fund management company or SICAV shall conduct securities lending transactions exclusively with first-class supervised borrowers and intermediaries which are specialised in transactions of this type, such as banks, brokers and insurance companies, as well as licensed and recognised central counterparty clearing houses and central securities depositories that guarantee the proper execution of such transactions. 2 The fund management company or SICAV must obtain the custodian bank’s written consent should the latter not be participating in the securities lending transaction as either borrower or intermediary. 3 The custodian bank may only withhold its consent if there is no guarantee that it can meet its statutory and contractual duties with regard to settlement, safekeeping, provision of information, and control.
Art. 4 Securities eligible for lending
1 The fund management company or SICAV may lend all types of securities that are traded on an exchange or other regulated market open to the public. 2 It may not lend securities acquired under a reverse repo transaction.
Art. 5 Termination dates and notice periods
1 It must be possible to terminate individual transactions and the standardised framework agreement for the securities lending transaction at any time. 2 Where the observation of a notice period has been agreed, that period may not exceed seven banking days.
Art. 6 Scope and duration
1 If the fund management company or SICAV is required to observe a notice period before it may again have legal control of the loaned securities, it may not lend more than 50 percent of the eligible holding of a particular security. 2 If, however, the borrower or intermediary provides a contractual guarantee to the fund management company or SICAV that the latter may again legally dispose of the loaned securities on the same or following banking day, the fund management company or SICAV may lend the entire eligible holding of a particular security.
Art. 7 Minimum contents of the standardised framework agreement
1 The standardised framework agreement must meet the relevant international standards. 2 The standardised framework agreement must indicate those securities funds whose securities are in principle eligible for securities lending, in addition to the securities which are excluded from securities lending. 3 The fund management company or SICAV shall stipulate in the standardised framework agreement with the borrower or intermediary that they: a. pledge or transfer collateral to the fund management company or SICAV for the purposes of guaranteeing restitution in accordance with Article 51; b. are liable vis-à-vis the fund management company or SICAV for: 1. the prompt, unconditional payment of any income accruing during the securities lending period, 2. the assertion of other proprietary rights such as conversion and subscription rights, and 3. the contractually agreed return of securities of the same type, quantity and quality; c. assign all securities available for the securities lending
Art. 8 Special duties of the custodian bank
The custodian bank has the following special duties in connection with the settlement of the securities lending transaction: a. It shall inform the fund management company or SICAV on a regular basis of the lending transactions conducted. b. It shall, at least once a month, account for any income earned on the securities lending. c. It shall ensure that the securities lending transactions are settled in a secure manner, in line with the agreements and, in particular, it shall monitor compliance with the requirements relating to collateral. d. In addition, it shall carry out the administrative duties assigned to it under the safe-custody regulations during the term of the lending transaction and assert all rights associated with the loaned securities, unless such duties have been ceded under the terms of the standardised framework agreement.
Art. 9 Inventory and statement of net assets, or balance sheet, inclusion in investment limits
1 Loaned securities must be denoted as being «lent» in the securities fund’s inventory and must continue to be included in the statement of net assets, or the balance sheet. 2 Loaned securities must continue to be taken into account when ensuring compliance with the statutory and regulatory investment restrictions.
Section 2 Securities Repurchase Agreements (Repo,
(Art. 55 para. 1 let. b CISA; Art. 76 CISO)
SR 951.311
Art. 10 Definitions
The terms below are defined as follows: a. «securities repurchase agreement» means a repo (or sale and repurchase agreement) and reverse repo (or reverse sale and repurchase agreement); b. «repo» means a legally binding transaction in which one party (the borrower or repo seller) temporarily transfers ownership of securities to another party (the repo buyer), and where: 1. the repo buyer undertakes to return to the repo seller securities of the same type, quantity and quality at the end of the repo term together with any income earned during such term, 2. during the term of the repurchase agreement, the price risk associated with the securities shall be borne by the repo seller; c. «reverse repo» means a repo from the perspective of the lender; d. «repo interest» means the difference between the selling price and purchase price of the securities.
Art. 11 Principles
1 The fund management company or SICAV may conclude repurchase agreements in its own name and for its own account with a counterparty («principal»). 2 It may appoint an intermediary to conclude repurchase agreements with a counterparty either indirectly on a fiduciary basis («agent») or directly («finder»), in accordance with the provisions of this section. 3 The fund management company or SICAV shall conclude a standardised framework agreement governing repurchase agreements with each counterparty or intermediary in accordance with Article 17.
Art. 12 Authorised counterparties and intermediaries
1 The fund management company or SICAV shall conduct repurchase agreements exclusively with first-class supervised counterparties and intermediaries that specialise in these types of transactions, such as banks, brokers and insurance companies, as well as licensed and recognised central counterparty clearing houses and central securities depositories that can guarantee the execution of transactions in a due and proper manner. 2 The fund management company or SICAV must obtain the written consent of the custodian bank if the latter is not to be involved in the repurchase agreement as either counterparty or intermediary. 3 The custodian bank may only deny its consent if there is no guarantee that it can meet its statutory and contractual duties with regard to settlement, safekeeping, provision of information, and control.
Art. 13 Securities eligible for repurchase agreements
1 For repo transactions, the fund management company or SICAV may use all types of securities that are traded on a stock exchange or other regulated market open to the public. 2 For repo purposes, it may not use securities acquired under a reverse repo.
Art. 14 Termination dates and notice periods
1 It must be possible to terminate individual transactions and the standardised framework agreement for the repurchase transaction at any time. 2 Where the observation of a notice period has been agreed, such period may not exceed seven banking days.
Art. 15 Scope and duration of the repo
1 If the fund management company or SICAV must observe a notice period before it can again have legal control of the securities under the repurchase agreement, it may not use more than 50 percent of its holdings of a particular security eligible for repo transactions. 2 If, however, the counterparty or intermediary provides the fund management company or SICAV with a contractual guarantee that the latter may again have legal control of the securities under the repurchase agreement on the same or following banking day, its entire holding of a particular security eligible for repo transactions may be used.
Art. 16 Securing claims for money and securities
1 In order to secure claims for money and securities arising from repurchase agreements, the claims and obligations must be valued daily at the current market price, taking account of accrued interest and the income due to the borrower, and the difference must be marked to market daily. 2 Compensation must be in cash or in securities. The latter must be comparable in type and quality to the securities used for the repurchase agreement.
Art. 17 Minimum contents of the standardised framework agreement
1 The standardised framework agreement must meet the relevant international standards. 2 The standardised framework agreement must indicate both the securities funds for which repurchase agreements may in principle be conducted and the securities which are excluded from the repurchase agreement. 3 The fund management company or SICAV shall stipulate in the standardised framework agreement with the counterparty or intermediary that: a. the lender is liable vis-à-vis the borrower for: 1. the prompt, unconditional payment of any income accruing during the repurchase agreement and the compensating payments to be made pursuant to Article 16, 2. the assertion of other proprietary rights such as conversion and subscription rights, and 3. the contractually agreed return of securities of the same type, quantity and quality; b. the borrower is liable vis-à-vis the lender for: 1. the prompt, unconditional payment of any compensating payments to be made during the term of the repurchase agreement
Art. 18 Special duties of the custodian bank
The custodian bank has the following special duties in relation to the settlement of the repurchase transaction: a. It ensures that the repurchase transaction is settled in a secure and contractually agreed manner. b. It ensures that fluctuations in the value of the securities used in repo transactions are compensated for in cash or securities (marked to market). c. For the duration of the repurchase transaction it shall, in addition, carry out the administrative duties assigned to it under the safe-custody regulations and assert all rights associated with the securities used in the repo transaction, unless such duties have been ceded under the standardised framework agreement.
Art. 19 Raising loans via repo agreements
1 Pursuant to Article 77 paragraph 2 CISO, a repurchase agreement represents the raising of a loan by the securities fund. 2 The money obligations arising from repos, together with all other loans taken, must comply with the statutory and regulatory limits on borrowing. 3 If, when conducting a repo transaction, the fund management company or SICAV uses the money received to acquire securities of the same type, quality, credit rating and maturity in conjunction with the conclusion of a reverse repo, this is not deemed to be taking a loan.
Para. 1 — SR 951.311
Art. 20 Distinction between reverse repos and the granting of loans
1 Pursuant to Article 77 paragraph 1 letter a CISO, reverse repos do not represent the granting of a loan. 2 Pursuant to Article 75 CISO, money claims in connection with the conclusion of reverse repos are deemed liquid assets.
Para. 1 — SR 951.311
Art. 21 Inclusion in investment limits
1 Securities sold through repos must continue to be taken into account when ensuring compliance with the statutory and regulatory investment restrictions. 2 Money claims acquired through reverse repos must continue to be taken into account when ensuring compliance with the statutory and regulatory investment restrictions.
Art. 22 Inventory, statement of net assets, or balance sheet and profit and loss account
1 Securities sold through repos must be denoted as being «used in repo» in the inventory of the securities fund’s assets and must continue to be included in the statement of net assets, or the balance sheet. 2 Money obligations arising from repos must be disclosed in the statement of net assets, or the balance sheet, under «Liabilities from repurchase agreements» at the value assigned on the calculation date based on the assumption of a linear development in value. 3 In the case of repos, repo interest must be disclosed in the profit and loss account under «Interest payable». 4 Securities purchased through reverse repos are not included in the inventory of the securities fund’s assets, nor in the statement of net assets, or the balance sheet. 5 Money claims arising from reverse repos must be disclosed in the statement of net assets, or the balance sheet, under «Claims from repurchase agreements» at the value assigned on the calculation date based on the assumption of a linear developme
Section 3 Derivative Financial Instruments
(Art. 56 para. 3 CISA; Art. 72 CISO)
SR 951.311
Art. 23 Definitions
The terms below are defined as follows: a. «basic type of derivative»: 1. a call or put option, the expiration value of which is linearly dependent on the positive or negative difference between the market value of the underlying and the strike price and is zero if the difference is preceded by the opposite algebraic sign, 2. a credit default swap (CDS), 3. a swap, the payments of which are dependent on the value of the underlying or on an absolute amount in both a linear and a path-independent manner, 4. a future or forward transaction the value of which is linearly dependent on the value of the underlying; b. «exposure-increasing»: derivative exposure, the financial effect of which is similar to the purchase of an underlying (e.g. the purchase of a call option, purchase of a future, sale of a put option, exchanging of variable for fixed interest payments or the conclusion of a credit default swap as protection seller); c. «exposure-reducing»: a derivative exposure the financial effec
Art. 24 Principles
Derivatives may be used only where, even in exceptional market conditions, the effect of using derivatives does not result in a deviation from the investment objectives set out in the fund regulations, prospectus and important information for investors, or in a change in the investment character of the securities fund.
Art. 25 Umbrella funds
The provisions in this section apply to the individual securities funds or, in the case of an umbrella fund, to each individual sub-fund.
Art. 26 Structured products, derivative components and warrants
1 In order to comply with the statutory and regulatory provisions for risk diversification, the underlying and the issue of a structured product must be taken into account. 2 If a structured product has one or more derivative components, these must be treated in accordance with the provisions in this section. 3 To establish the amount eligible for the overall exposure and the risk diversification requirements, the structured product is to be broken down into its components, if it has leverage. The components are to be considered individually. The breakdown is to be documented. 4 If structured products that cannot be broken down are used as a not negligible part of the fund’s assets, the model approach as a risk measurement procedure is to be applied. 5 Derivative components of a financial instrument must be taken into account in compliance with statutory and regulatory risk diversification provisions, and are eligible for the overall exposure to derivatives. 6 Warrants must be treated
Art. 27 Credit derivatives
1 As defined in Article 77 paragraph 1 letter a CISO, an exposure-increasing credit derivative is not deemed a guarantee. 2 The debtor of reference of a credit derivative must have outstanding equity or debt securities or rights to equity or debts that are traded on an exchange or another regulated market open to the public.
Para. 1 — SR 951.311
Art. 28 Exotic derivatives
1 The fund management company or SICAV may only use an exotic derivative if: a. it can calculate the minimum and the maximum delta across the entire price spectrum of the underlyings; and b. it understands the derivative’s mode of operation, as well as the factors that influence its pricing. 2 In the case of securities funds, where the commitment approach II is applied, the exotic derivative must be weighted according to its maximum possible delta (absolute value) when converted to its underlying equivalent pursuant to Article 35 paragraph 2. 3 The risk assessment model used risk must be capable of reflecting the exotic derivative in accordance with its risk. 4 If the maximum delta of the exotic derivative is positive, it must be weighted by such maximum delta in order to comply with the statutory and regulatory maximum limits. If the minimum delta is negative, it must be weighted by this minimum delta in order to comply with the regulatory minimum limits.
Art. 29 Conclusion of the contract
1 The fund management company or SICAV shall conclude derivative transactions on an exchange or other regulated market which is open to the public. 2 Transactions with OTC derivatives (OTC transactions) are permitted, provided the conditions stipulated in Articles 30 and 31 are met.
Art. 30 OTC transactions
1 OTC transactions may only be concluded on the basis of a standardised framework agreement which complies with the pertinent international standards. 2 The counterparty must: a. be a regulated financial intermediary specialised in such types of transactions; b. ensure proper execution of the contract; and c. meet the credit rating requirements stipulated in Article 31 paragraph 1. 3 It must be possible to reliably and verifiably value an OTC derivative on a daily basis and to sell or close out the derivative at market value at any time. 4 If the market price for an OTC derivative is not available, it must be possible at all times to determine the price at any time using appropriate valuation models that are recognised in practice, based on the market value of the underlyings from which the derivative was derived; 5 Before concluding a contract for a derivative under paragraph 4, specific offers must be obtained from at least two potential counterparties. The contract is to be conclude
Art. 31 Credit rating
1 In the case of OTC transactions, the counterparty or its guarantor shall have a high credit rating. 2 This requirement does not apply to the custodian bank of the securities fund.
Art. 32 Valuation
1 Derivatives for which market prices are available shall be valued at the current prices paid on the main market. Prices are to be obtained from an external source specialising in this type of transaction and which operates independently of the fund management company or SICAV and its agents. 2 If no current market price is available for derivatives, it must be possible to determine the price at any time using appropriate valuation models that are recognised in practice, based on the market value of the underlyings. Valuations are to be documented clearly.
Art. 33 Risk measurement procedure
1 The fund management company or SICAV shall apply commitment approach I or II, or the model approach. 2 The model approach requires the approval of FINMA. 3 The fund management company or SICAV shall align the risk assessment process selected with the investment objectives. 4 The model approach must be used where: a. the overall exposure of the securities fund using commitment approach I or II cannot be appropriately recorded and measured; b. a not negligible amount is being invested in exotic derivatives; or c. complex investment strategies of a not negligible amount are being used.
Art. 34 Commitment approach I
1 For a securities fund applying commitment approach I, only basic derivative types are permitted. They may only be used where account is taken of the necessary coverage set out in this article and their use does not result in a leverage effect on the fund’s assets nor does it involve short-selling. 2 Exposure-reducing derivatives must at all times be covered by the relevant underlyings. If the delta has been calculated, it may be taken into account when calculating the necessary underlyings. Article 44 paragraph 3 also applies mutatis mutandis. 3 Covering with other investments is permitted if the exposure-reducing derivative is indexed by an independent external office. The index must be representative of the underlyings and there must be an adequate correlation between the index and such investments. 4 The underlying equivalents (Art. 35 para. 2) of exposure-increasing derivatives must at all times be covered by highly liquid assets. 5 The following assets are considered highly liqu
Para. 5 let. a — SR 951.311
Art. 35 Commitment approach II: determination of the overall exposure
1 To establish the overall exposure of a securities fund using commitment approach II, the fund management company shall determine the individual conversion amounts of the respective derivatives and derivative components as well as the conversion amounts arising from investment techniques. 2 In the case of basic types of derivatives, the conversion amount for the overall exposure arising from derivatives is normally the underlying equivalent, based on the market value of the underlying assets of the derivatives. The underlying equivalents are calculated in accordance with Annex 1. The nominal value or the forward price of futures contracts calculated on each trading day may be taken as the basis, if the result is a more conservative calculation. 3 The conversion amount for the overall exposure is the basic commitment from the net fund assets and the sum of the following absolute values: a. conversion amounts of the individual derivatives and derivative components pursuant to Annex 1 th
Art. 36 Commitment approach II: rules on netting and hedging transactions
1 Counter positions in derivatives based on the same underlying as well as counter positions in derivatives and in investments in the same underlying may be netted, irrespective of the maturity date of the derivatives, provided that: a. the derivative transaction was concluded with the sole purpose of eliminating the risks associated with the derivatives or investments acquired; b. no material risks are disregarded in the process; and c. the conversion amount of the derivatives is determined pursuant to Article 35. 2 If the derivatives in hedging transactions do not relate to the same underlying as the asset that is to be hedged, the following additional conditions must be met for netting: a. The derivative transaction is not based on an investment strategy that serves to generate a profit. b. The derivative results in a demonstrable reduction in the risk of the securities fund. c. The general and special risks of the derivative are balanced out. d. The derivatives, underlyings or asse
Art. 37 Commitment approach II: documentation requirements
All calculations under Articles 35 and 36 must be clearly documented.
Art. 38 Model approach: principles of value-at-risk (VaR)
1 Applying the model approach, the fund management company or SICAV shall estimate the risks for a securities fund as value-at-risk (VaR). 2 The model must be fully documented. The documentation must in particular provide information about the specification of the risk assessment model, back-testing and stress tests. 3 The fund management company or SICAV shall verify the suitability of the model on a periodic basis, but at least once a year. The results must be clearly documented. 4 The VaR of a securities fund may at no time exceed twice the VaR of the benchmark portfolio of such securities fund (relative VaR limits) 5 When using the model approach, the fund management or the SICAV must ensure a periodical calculation of the gross overall exposure to derivatives of the securities fund in question.
Art. 39 Model approach: calculation of VaR
1 The VaR may be determined using variance/covariance models, historical simulations and Monte-Carlo simulations. When selecting the model, the investment strategy is to be taken into account. 2 The VaR must be calculated daily on the basis of the previous day’s positions using the following parameters: a. a 99th percentile, one-tailed confidence interval; b. a holding period of 20 trading days; c. an effective historical observation period of at least one year (250 bank working days). 3 The VaR factors in interest rate risk, currency risk, share price risk and commodity risks. The following must also be taken into account: a. gamma and vega risks in the case of option positions; b. specific risks in the form of residual risks; c. event, default and liquidity risks as part of stress tests. 4 The calculations must be clearly documented. 5 Variance from the confidence interval, the holding period or the observation period is possible owing to exceptional market circumstances, and must ha
Art. 40 Model approach: benchmark portfolio
1 The benchmark portfolio of a securities fund is assets without any leverage and generally without any derivatives. 2 The composition of the benchmark portfolio corresponds to the information in the fund regulations, prospectus and information necessary for the securities fund’s investors, specifically concerning its investment objectives, investment policy and limits. 3 It must be reviewed periodically, but at least once a quarter. The respective composition and any changes thereto must be documented clearly. 4 Where a benchmark, such as an equity index for benchmark portfolios, is defined in the fund regulations or in the prospectus and information necessary for the securities fund’s investors, it may be used for calculating the VaR of the benchmark portfolios. The benchmark must be: a. derivative-free and not have any leverage; b. calculated by an independent, external office; and c. representative of the investment objectives, investment policy and limits of the securities fund. 5
Art. 41 Model approach: reviewing the risk assessment model
1 In the case of a securities fund, the forecast quality of the risk assessment model must be examined by comparing the actual changes in the value of its net assets during the course of a trading day with the relevant one-day VaR (back-testing). 2 The comparison must be documented clearly. 3 The sample to be used must be compiled from the previous 250 observations. 4 If back-testing shows the risk assessment model to be impracticable, the audit company and FINMA must be notified forthwith. 5 If back-testing produces more than six anomalies, the practicability of the risk assessment model must be examined in depth and the audit company and FINMA notified forthwith. 6 If the model is impracticable, FINMA may demand a swift rectification of any shortcomings of the model and order tighter restrictions on the risk.
Art. 42 Model approach: stress tests
1 In the case of securities funds, extreme market circumstances must be simulated periodically, but at least monthly (stress tests). 2 Stress tests must also be conducted where significant changes to the results of the stress test owing to changes in the value or the composition of the securities fund’s assets, or to changes in the market circumstances cannot be excluded. 3 Stress tests include all risk factors which may have a material influence on the market value of the securities fund. Special attention must be paid to risk factors which are not or only insufficiently taken into account by the risk assessment model. 4 The results of the conducted stress tests and any necessary resulting measures must be clearly documented
Art. 43 Model approach: changes under the model approach
1 FINMA may allow variances from the requirements stipulated in Articles 39–43. 2 It may permit the use of other risk assessment models, provided they afford an appropriate degree of protection. 3 If changes are made to the risk assessment model, back-testing or stress tests, these changes must be submitted to FINMA for approval in advance.
Art. 44 Cover for a physical delivery obligation of an underlying
1 If the fund management company or SICAV enters into a physical delivery obligation in respect of a derivative, this derivative must be covered by the corresponding underlyings. 2 Cover of such an obligation with other investments is permitted if the investments and the underlyings are highly liquid and, if delivery is requested, they may be purchased or sold at any time. 3 The fund management company or SICAV must have unrestricted access to these underlyings or investments at all times.
Art. 45 Covering a payment obligation
1 If the fund management company or SICAV enters into a payment obligation in respect of a derivative, this payment obligation must at all times be covered by highly liquid assets as defined in Article 34 paragraph 5. 2 In the case of securities funds applying commitment approach II or the model approach, the following shall additionally be recognised as cover: a. debt securities and rights the remaining time to maturity of which is more than twelve months and whose issuer or guarantor has a high credit rating; b. shares traded on an exchange or another regulated market open to the public. 3 It must be possible at all times to turn collateral as defined in paragraph 2 into liquid assets within seven banking days. 4 Shares may only be included as cover at market value less a security margin. This security margin must take account of the volatility of the corresponding share and must amount to at least 15 percent. 5 If an investment may require an additional payment, it is deemed an obli
Art. 46 General provisions for inclusion of investment restrictions
1 In complying with the statutory and regulatory investment restrictions on determining maximum and minimum limits, the following must be taken into account: a. investments, including derivatives, in accordance with Article 70 CISO; b. liquid assets as defined in Article 75 CISO; c. claims against counterparties arising from OTC transactions. 2 Pursuant to Article 82 CISO, exceptions may be made for index funds. 3 Any overrun of an investment limit due to a change in the delta must be rectified within three banking days; the rectification must ensure that the investors’ interests remain safeguarded.
Para. 1 let. a — SR 951.311
Art. 47 Inclusion of derivatives
1 In complying with the statutory and regulatory maximum and minimum limits, and in particular the regulations on risk diversification, underlying equivalents as set out in Annex 1 are decisive. 2 A minimum limit may be temporarily undercut with exposure-reducing derivatives purchased as part of a hedging strategy if the interests of investors remain safeguarded. 3 Derivative components are to be taken into account with the capital requirement under Article 35.
Art. 48 Inclusion of claims against counterparties at the maximum limits
1 Claims against counterparties arising from derivative transactions must be calculated on the basis of the current positive replacement values. 2 Positive and negative replacement values arising from transactions in derivatives with the same counterparty may be netted if a netting agreement exists that meets the current legal requirements and is legally enforceable. 3 Claims arising from derivative transactions against a central counterparty of an exchange or another regulated market open to the public must not be taken into account if: a. such a unit is subject to an appropriate supervisory body; and b. the derivatives and collateral are subject to daily marking to market and daily margining.
Art. 49 Disclosure
1 If the use of derivatives is permitted for the management of a securities fund, such derivatives must be described in the fund regulations and the prospectus. 2 The prospectus must indicate whether the derivatives are used as part of the investment strategy or solely to hedge investment positions. In addition, the prospectus must explain how the use of derivatives affects the risk profile of the securities fund. 3 The fund regulations and prospectus must state which risk assessment process is applied to the securities fund. The risk assessment process must also be described in the prospectus. If the model approach is used, the gross overall exposure to derivatives must be shown. If the relative VaR approach is used, the benchmark portfolio must be disclosed in the prospectus. 4 If a securities fund exhibits increased volatility or leverage due to the use of derivatives, special reference must be made to this in the prospectus and advertising material. 5 Reference must be made to the
Section 4 Management of Collateral
(Art. 76 para. 2 and Art. 80 para. 4 CISO)
SR 951.311
Art. 50 Scope of application
Assets received as collateral as part of investment techniques or OTC transactions must satisfy the requirements of this section.
Art. 51 Requirements for collateral
Only collateral that meets the following requirements may be accepted: a. It is highly liquid and is traded at a transparent price on an exchange or other regulated market open to the public. It can be disposed of at short notice at a price close to the valuation undertaken prior to sale. b. It is valued at least on each trading day. Where price volatility is high, suitable conservative security margins must be applied. c. It is not issued by the counterparty or by a company that belongs to or is dependent on the counterparty’s group. d. The credit quality of the issuer is high.
Art. 52 Management of collateral
The fund management company, SICAV or their agents must comply with the following duties and requirements when managing the collateral: a. They must diversify the collateral appropriately in terms of countries, markets and issuers. Appropriate diversification of issuers is deemed to have been achieved if the collateral of a single issuer held does not correspond to more than 20 percent of the net asset value. Deviation from this rule is permitted if the collateral meets the requirements of Article 83 paragraph 1 CISO or the approval conditions set out in Article 83 paragraph 2 CISO are met. If collateral is provided by more than one counterparty, an aggregate perspective must be ensured. b. They must be able to obtain power of disposal over, and authority to dispose of, the collateral received at any time in the event of default by the counterparty, without involving the counterparty or obtaining its consent. c. They may not re-lend, re-pledge, sell or reinvest collateral pledged or tr
let. a — SR 951.311
Art. 53 Collateral strategy
1 The fund management company, SICAV and their agents must have in place a collateral strategy that: a. provides for appropriate security margins; b. is geared to all types of assets received as collateral; and c. takes account of characteristics of the collateral such as volatility and the default risk of the issuer. 2 They must document the collateral strategy.
Art. 54 Safekeeping of collateral
1 The collateral received must be kept at the custodian bank. 2 Safekeeping by a supervised third-party custodian on behalf of the fund management company is permitted provided that: a. ownership of the collateral is not transferred; and b. the third-party custodian is independent of the counterparty. 3 In the case of collateral delivered to a counterparty, a custodian appointed by the latter, or a central counterparty, the custodian bank must ensure that transactions are settled in a secure manner and in line with the agreements.
Art. 55 Prospectus
The prospectus of the securities fund must contain appropriate information on the collateral strategy, in particular details of: a. the permitted types of collateral; b. the required level of collateralisation; c. the determination of security margins; d. the investment strategy and the risks in the event that cash collateral is reinvested.
Section 5 Master-Feeder Structures
(Art. 73a CISO)
SR 951.311
Art. 56 Principle
In principle, the investors in a master fund are its feeder funds. Other investors may be accepted provided the fund management company or SICAV informs them in advance of the fact that they are investing in a master fund and ensures that the other investors receive equal treatment with the feeder funds.
Art. 57 Requirements for the documents of a feeder fund
1 In addition to the information set out in Articles 35a and 62b CISO, the fund contract or investment regulations of a feeder fund or feeder sub-fund shall in particular contain the following: a. a statement that the fund is a feeder fund which invests at least 85 percent of its assets in a specific master fund; b. the name of the master fund; c. the investment objective and the investment policy of the master fund; d. the nature, amount and method of calculation of all remuneration as well as incidental costs that result from the investment in the master fund and that are permitted to be charged to the fund assets or the investors; e. a statement that the fund contract or investment regulations, the prospectus, the key investor information document, as well as the annual and semi-annual reports of the master fund may be obtained free of charge; f. a statement that the feeder fund may continue to exist after the dissolution of the master fund or after merger, conversion or transfer of
Para. 1 — SR 951.311
Art. 58 Joint duties of the master and feeder fund / their fund management companies
1 The master fund shall provide the feeder fund with all the documents and information it needs to fulfil its duties. To this end, they shall conclude an agreement on cooperation and duties of disclosure. 2 The agreement on cooperation and duties of disclosure shall, as a minimum, govern the following points: a. the principles regarding the transfer of the relevant documents and further information by the master fund to the feeder fund; b. the master fund’s duty of disclosure to the feeder fund regarding the delegation of tasks to third parties; c. the violations of statutory and contractual provisions which the master fund is required to report to the feeder fund and the form and timing of such reports; d. the duty of the master fund to inform the feeder fund of the overall exposure arising from derivative financial instruments; e. the master fund’s duty of disclosure to the feeder fund if it concludes additional agreements regarding the exchange of information with third parties; f.
Art. 59 Duties of the master fund / its fund management company
1 The master fund shall inform FINMA without delay of the identity of every feeder fund that invests in its units. 2 It shall not charge the feeder fund an issue or redemption commission for investments in its units. 3 It shall ensure that all information required by law or contract is made available in a timely manner to the feeder fund, its custodian bank and the audit company as well as FINMA. In so doing, it shall comply with its statutory and contractual obligations regarding the disclosure of data and data protection.
Art. 60 Duties of the feeder fund / its fund management company
1 The feeder fund shall provide its custodian bank with all the information regarding the master fund that it needs in order to fulfil its task. 2 It shall take effective measures to monitor the activities of the master fund. 3 When calculating its overall exposure in accordance with Article 72 paragraph 3 CISO, it shall take account of the overall exposure of the master fund in proportion to the feeder fund’s investments in the master fund. 4 If the feeder fund, its fund management company or another person acting on behalf of the feeder fund or its fund management company receives a pecuniary benefit in connection with the investment in units of the master fund, this shall be credited to the assets of the feeder fund.
Para. 3 — SR 951.311
Art. 61 Duties of the custodian bank
1 If the master fund’s custodian bank identifies irregularities in the master fund that may have a negative impact on the feeder fund, it shall notify its audit company and the feeder fund / the feeder fund’s fund management company and custodian bank. This includes, inter alia, the following events: a. errors in the calculation of the net asset value of the master fund; b. errors in transactions, in the settlement of purchases and sales or of orders to issue or redeem units of the master fund by the feeder fund; c. errors in the distribution or reinvestment of income from the master fund; d. violations of statutory provisions or of the investment objectives, limits, policy or strategy of the master fund described in the fund contracts or investment regulations, the prospectus or the key investor information document. 2 If the master fund and feeder fund have different custodian banks, the latter shall, with the approval of the master fund and feeder fund, conclude an agreement on coop
Art. 62 Duties of the audit company
1 In its short-form report for the feeder fund, the audit company shall take account of the short-form report for the master fund. If the master fund and feeder fund have different accounting years, the master fund shall compile an interim financial statement as of the reporting date of the feeder fund. Based on this, the audit company shall compile an ad-hoc short-form report for the master fund as of the reporting date of the feeder fund. 2 In its short-form report for the feeder fund, the audit company shall mention any deviations from the standard wording contained in the short-form report for the master fund as well as any other material information, together with any influence on the feeder fund. 3 If the master fund and feeder fund have different audit companies, the latter shall conclude an agreement on cooperation and duties of disclosure to ensure the fulfilment of their duties. This shall contain, as a minimum: a. a description of the documents and categories of information
Art. 63 Dissolution of the master fund
1 Following the announcement of the dissolution of the master fund, the feeder fund shall without delay defer repayments. Within one month following the announcement of the dissolution of the master fund, it shall submit to FINMA a report / an application regarding: a. the dissolution of the master fund; b. an amendment to the fund contract or investment regulations due to the change of master fund; or c. an amendment to the fund contract or investment regulations due to the conversion into a non-feeder fund. 2 The liquidation proceeds of the master fund may not be paid out before the applications set out in paragraph 1 letters b and c have been approved unless they are reinvested solely for the purpose of efficient liquidity management until the time of approval.
Art. 64 Merger, conversion and transfer of assets
1 If the master fund decides on a merger, conversion or transfer of assets, the feeder fund must, within a month of the announcement being made by the master fund, notify FINMA whether it: a. is dissolving itself; b. intends to retain the same master fund; c. is switching to another master fund; or d. is converting itself into a non-feeder fund. 2 Simultaneously with the notification, the feeder fund shall submit to FINMA any necessary application for approval of amendments to the fund contract or investment regulations. 3 If the merger, conversion or transfer of assets of the master fund takes place before the application pursuant to paragraph 1 letters c and d has been approved, the feeder fund may only return the units of the master fund if the proceeds received are reinvested for the sole purpose of efficient liquidity management until the amendments enter into force.
Chapter 2 Other Funds
Art. 65
1 The provisions for securities funds relating to securities lending (Arts. 1–9), securities repurchase agreements (Arts. 10–22), derivatives (Arts. 23–49), collateral management (Arts. 50–55) and master-feeder structures (Arts. 56–64) apply to other funds, mutatis mutandis. 2 The above must be read subject to Articles 100 and 101 CISO. 3 FINMA may permit deviations from these provisions (Art. 101 CISO).
Para. 2 — SR 951.311