82,891
edits
Amwelladmin (talk | contribs) No edit summary |
Amwelladmin (talk | contribs) No edit summary |
||
Line 1: | Line 1: | ||
{{ucits5anat|22(7)|UCITS}} | {{ucits5anat|22(7)|UCITS}} | ||
The famous rule which rules out [[PB]] style [[rehypothecation]] for [[UCITS V|UCITS 5]] funds. | The famous rule which rules out [[PB]] style [[rehypothecation]] for [[UCITS V|UCITS 5]] funds. | ||
Expect optimistic prime brokerage [[sales]]folk to argue that the limited exception will cover PB rephypothecation as long as the PB limits itself to 100% of the fund’s [[indebtedness]]. Alas, this is wishful thinking. The permitted exception to the bar on reuse is designed to allow {{tag|UCITS}} funds to participate in fully collateralised [[Agent lender|agent lending]] programmes. In that case a custodian lends client assets into the market on the client’s behalf (and as its [[agent]]) to earn a positive additional return for the fund. This is a very different thing to allowing a prime broker to play with the fund’s assets to defray its own financing costs from its margin lending on those very assets. To wit: | Expect optimistic prime brokerage [[sales]]folk to argue that the limited exception will cover PB rephypothecation as long as the PB limits itself to 100% of the fund’s [[indebtedness]]. Alas, this is wishful thinking. The permitted exception to the bar on reuse is designed to allow {{tag|UCITS}} funds to participate in fully collateralised [[Agent lender|agent lending]] programmes. In that case a custodian lends client assets into the market on the client’s behalf (and as its [[agent]]) to earn a positive additional return for the fund. This is a very different thing to allowing a prime broker to play with the fund’s assets to defray its own financing costs from its margin lending on those very assets. To wit: | ||
*“[[Reuse]]” is defined to include transfer, sale and loan | *“[[Reuse]]” is defined to include transfer, sale and loan | ||
*“[[Reuse]]” is expressed to be “for the account of” the UCITS. This is consistent with the “reuser” depositary acting as ''[[agent]]'' — like, as an [[agent lender]] — on behalf of the fund, rather than as the fund’s [[principal]] (in which case reuse would be for the account of the depositary). [[Agent lending]] is a very different kettle of fish: there, the custodian has not (necessarily) financed the asset — that is to say, an agent lending arrangement is in no sense a function of the principal’s indebtedness to the depositary — but rather is a custodian offering to generate some yield enhancement for its clients by lending their assets out into the market, for a fee, against collateral provided by those market borrowers. | *“[[Reuse]]” is expressed to be “for the account of” the UCITS. This is consistent with the “reuser” {{ucits5prov|depositary}} acting as ''[[agent]]'' — like, as an [[agent lender]] — on behalf of the fund, rather than as the fund’s [[principal]] (in which case reuse would be for the account of the depositary). [[Agent lending]] is a very different kettle of fish: there, the custodian has not (necessarily) financed the asset — that is to say, an agent lending arrangement is in no sense a function of the principal’s indebtedness to the {{ucits5prov|depositary}} — but rather is a custodian offering to generate some yield enhancement for its clients by lending their assets out into the market, for a fee, against collateral provided by those market borrowers. | ||
*Agent lending “[[reuse]]” is, thus, explicitly for the benefit of the fund [[principal]], in that the fund earns a positive return by doing it. The best you could say of PB-style [[rehypothecation]] is that the fund avoids a steeper financing charge | *[[Agent lending]] “[[reuse]]” is, thus, explicitly for the benefit of the fund [[principal]], in that the fund earns a positive return by doing it. The best you could say of {{tag|PB}}-style [[rehypothecation]] is that the fund avoids a steeper financing charge from the {{tag|PB}} that would be implied were the [[prime broker]] not allowed to [[rehypothecate]] the assets it has financed. In any case {{tag|UCITS}} have fairly strict limits against [[leverage]] so generally shouldn't be financing assets in the first place. | ||
*Likewise, the theory of [[rehypothecation]] is that it isn't [[Collateral|collateralised]], and certainly not with high-quality collateral: to the contrary, the prime | *Likewise, the theory of [[rehypothecation]] is that it isn't [[Collateral|collateralised]], and certainly not with high-quality collateral: to the contrary, the [[prime broker]]’s right to take assets is dependent on the fund’s indebtedness to the PB, so that there is nothing to collateralise. Arguing that by effectively eliminating [[indebtedness]] is kind of like being [[Collateralised transaction - Basel II Provision|collateralised]] (as long as you limit yourself to 100% of [[indebtedness]]) is, as I say, a stretch. | ||
===What about assets posted as margin?=== | |||
It’s one thing hocking off assets which your client bought with the proceeds of your loan and has asked you to look after: what about assets a client has posted to you by way of margin — initial or variation? Here it depends how they UCITS fund transfers the assets to you in the first place. | |||
*'''[[Title transfer]]''': Needless to say<ref>Well, it ''should'' be needless to say, at any rate.</ref> if a UCITS fund posts non-cash assets by [[title transfer]], they are the [[broker]]’s to do with as it pleases. But [[variation margin]], these days, tends to be cash, and [[initial margin]] presents a problem, because [[title transfer]] opens up an unsecured exposure to the [[broker]] for the return of the posted assets, and {{tag|UCITS}} funds have tight [[concentration limit]]s for counterparty exposure. So you may find [[title transfer]] is not really on the cards for [[initial margin]]. | |||
*'''[[Pledge]]/[[security interest]]''': Well, the strictures of Art {{ucits5prov|22(7)}} make this a non-starter too. | |||
{{seealso}} | {{seealso}} | ||
*[[Rehypothecation]] | *[[Rehypothecation]] | ||
Line 13: | Line 19: | ||
*[[UCITS Anatomy]] | *[[UCITS Anatomy]] | ||
*[[AIFMD Anatomy]] | *[[AIFMD Anatomy]] | ||
{{ref}} |