Decree No. 235 / 2009 Coll.
Ordinance on investment instruments in which a standard fund may invest
Valid
Order
Effective from 01.08.2009
Text versions:
01.08.2009
30.07.2009
235
DECLARATION
of 21 July 2009
on investment instruments in which a standard fund may invest
Pursuant to Section 139 (k), (l) and (m) of Act No. 189 / 2004 Coll., on Collective Investment, as amended by Act No. 230 / 2009 Coll., (hereinafter referred to as "the Act"), the Czech National Bank provides for the implementation of Sections 26 (3), 27 (8) and 28 (11) of the Act:
Subject matter
This decree implements the relevant regulation of the European Community1) and regulates the requirements for qualitative criteria
(a) investment securities and money market instruments in which a standard fund may invest;
(b) an investment security or money market instrument containing a derivative in which a standard fund may invest;
(c) the conditions under which the standard fund copies the composition of an index of shares or bonds recognised by the Czech National Bank.
Investment securities
(1) An investment security in which a standard fund can invest is an instrument,
(a) the holding of which may cause a loss to the standard fund, the amount of which does not exceed the amount paid for it;
(b) whose liquidity does not weaken the ability of the standard fund to comply with the purchase obligation of units at the request of the shareholder (2);
(c) whose price can be reliably determined, which, in the case of:
1. the investment security referred to in Article 26 (1) (a) and (b) of the Act means that there is a precise, reliable and normal price, either a market price or a price determined in a manner that is independent of the issuer of that investment security;
2. the investment security under Article 26 (1) (i) of the Act means that the valuation is performed periodically and is based on information provided by the issuer of the security or on a professional analysis of investment opportunities,
(d) for which adequate information is available, in the case of:
1. the investment security referred to in Article 26 (1) (a) and (b) of the Act means that regular, accurate and complete information on the security or the structure of the security is available to market participants;
2. the investment security pursuant to § 26 (1) (i) of the Act means that regular and accurate information on the security or the structure of the security is available to the standard fund;
(e) which is negotiable;
(f) the acquisition of which is consistent with the investment objectives and investment policy of the standard fund; and
(g) the associated risks are sufficiently taken into account by the risk management system of the standard fund.
(2) Investment securities referred to in Article 26 (1) (a) of the Act are considered as instruments meeting the criteria set out in points (b) and (e) of paragraph 1, unless the standard fund has information that could lead to a different conclusion.
Investment securities in which a standard fund can invest are also:
(a) securities held by a collective investment fund where:
1. satisfy the criteria set out in Article 2;
2. the fund or the person managing it is subject to the corporate governance requirements;
3. the fund or the person managing it shall be subject to supervision which ensures effective investor protection;
(b) instruments,
1. which satisfy the criteria laid down in Article 2; and
2. which are linked to the performance of other assets or are covered by other assets which may differ from those referred to in § 26 (1) (a) to (h) of the Act.
Money market instruments
(1) The money market instrument in which a standard fund can invest and which is usually traded on the money market (3) is an instrument,
(a) whose original maturity is not more than 397 days,
(b) whose residual maturity is not more than 397 days,
(c) which undergoes regular indexation of revenues in accordance with money market conditions at least every 397 days; or
(d) whose risk profile, in particular the level of credit and interest risk to be taken, corresponds to the risk profile of the instrument the maturity of which meets the condition of (a) or (b) or where the returns are averaged in accordance with (c).
(2) The money market instrument is liquid (3) if it can be sold at limited cost within a short timeframe appropriate to the Fund's obligation to buy or redeem its securities at the request of the shareholder.
(3) The money market instrument, the value of which can be accurately defined at any time (3), is an instrument for which accurate and reliable valuation methods are available, which
(a) allow the standard fund to calculate the net asset value which is not significantly different from the price at which the instrument could be sold between the informed parties under normal market conditions; and
(b) are based on market data or valuation methods, including methods based on residual value.
(4) Money market instruments referred to in Article 26 (1) (a) of the Act are considered to comply with the criteria set out in paragraphs 2 and 3, unless the standard fund has information that might lead to a different conclusion.
Financial derivatives
(1) The financial derivative (4) in which a standard fund can invest is liquid if its underlying asset is composed of:
(a) one or more of the instruments referred to in Article 26 (1) (a) to (h) of the Act, including instruments with one or more features of those instruments;
(b) one or more interest rates;
(c) one or more exchange rates or currencies; or
(d) one or more financial indices.
(2) The financial derivative in which a standard fund can invest is also an instrument,
(a) which allows the credit risk of the underlying asset referred to in paragraph 1 to be transferred independently of other risks associated with that underlying asset;
(b) from which no supply or transfer, including cash delivery and transfer, results from underlying assets other than those referred to in Paragraph 26 (1) of the Act;
(c) which complies with the criteria for over-the-counter derivatives set out in Article 26 (1) (g) (2) and (3) of the Act and in paragraph 3; and
(d) the associated risks are sufficiently taken into account by the risk management system of the standard fund; if it is a credit derivative, the internal control rules of the Fund shall take sufficient account of the risk of information asymmetry between the Fund and the counterparty of such a derivative resulting from the counterparty's possible access to non-public information on persons whose instruments are used as underlying for the credit derivative.
(3
(a) the valuation is based either on a reliable updated market price of the instrument or, where such a price is not available, on a valuation method which uses an adequate and accepted methodology; and
(b) the valuation check shall be carried out by:
1. an eligible third party which is independent of the counterparty of the derivative, in a reasonably frequent manner and in a manner that allows the standard fund to be controlled; or
2. for this purpose, a sufficiently specialised organisational unit of an investment company or fund which is independent of the organisational unit responsible for the management of the assets.
Financial index as underlying
The financial index in which a standard fund may invest under Paragraph 26 (1) (g) (1) of the Act is the index which:
(a) is sufficiently diversified;
1. the index is composed in such a way that price or trading movements relating to one component of the index do not unduly affect the performance of the whole index;
2. where the index is composed of the instruments referred to in § 26 (1) (a) to (h) of the Act, its composition is at least in accordance with § 28 (9) and (10) of the Act,
3. where the index is composed of instruments other than those referred to in § 26 (1) (a) to (h) of the Act, its composition is comparable to that referred to in § 28 (9) and (10) of the Act,
(b) it is sufficiently representative of the market which uses it;
1. the index measures the performance of a representative pool of underlying assets in an appropriate and sufficient manner;
2. the composition of the index is regularly adjusted to reflect the situation on the markets in which it is used, on the basis of publicly available criteria;
3. the underlying assets are sufficiently liquid to enable users to copy the index where appropriate; and
(c) be publicly available;
1. publication is based on sound pricing and calculation and publication procedures for the index value, including the pricing procedures for the components of the index for which the market price is not available;
2. relevant information, in particular the calculation of the index value, the composition and updating of the index composition, the change of the index or any operational difficulties with the timely and accurate publication of index-related information, shall be published as widely as possible and on time.
Money market instruments whose issues or issuers are regulated to protect investors or savings
(1) A money market instrument in which a standard fund may invest under Paragraph 26 (1) (h) of the Act is an instrument,
(a) which meets one of the criteria set out in Article 4 (1) and all the criteria set out in Article 4 (2) and (3);
(b) where sufficient information is available, including information enabling a proper assessment of the credit risks associated with investments in such an instrument in accordance with paragraphs 2 to 4; and
(c) which is freely transferable.
(2) In the case of a money market instrument covered by Article 26 (1) (h) (2) and (4) of the Act or issued by local or regional authorities of a Member State of the European Union or public international institutions but not guaranteed by a Member State of the European Union or, in the case of a federal Member State of the European Union, by one of the parts forming a federation, it shall contain sufficient information as referred to in paragraph 1 (b).
(a) information relating to the issue or terms of the issue and the legal and financial situation of the issuer prior to the issue of the money market instrument;
(b) updating the information referred to in point (a) regularly and at all relevant events and changes; and
(c) available and reliable statistics on emissions and emission conditions.
(3) The information referred to in paragraph 2 (b) shall be submitted by a qualified third party independent of the issuer.
(4) In the case of a money market instrument covered by Paragraph 26 (1) (h) (3) of the Act, it shall contain sufficient information as referred to in paragraph 1 (b).
(a) information relating to the issue or conditions of the issue or the legal and financial situation of the issuer prior to the issue of the money market instrument;
(b) updating the information referred to in point (a) regularly and at all relevant events and changes; and
(c) available and reliable statistics on the issue and on the conditions of the issue or other data allowing a proper assessment of the credit risks associated with the investment in such an instrument.
(5) For all money market instruments covered by Section 26 (1) (h) (1) of the Act with the exception of those referred to in paragraph 2 and those issued by the European Central Bank and the Central Bank of a Member State of the European Union, the information referred to in paragraph 1 shall be sufficient. (b) information relating to the issue or conditions of the issue or the legal and financial situation of the issuer prior to the issue of the money market instrument.
Person subject to similar supervision as in a European Union Member State
The person who, according to the assessment of the Czech National Bank under § 26 (1) (h) (3) of the Act is subject to supervision which is similar to supervision in a Member State of the European Union, the issuer is subject to supervision,
(a) which is established in the territory of the State constituting the European Economic Area;
(b) which is located in a Member State of the Organisation for Economic Cooperation and Development and is also a signatory to the International Agreement of General Arrangements to Borrow (G10 Member State);
(c) which is rated at least by the investment grade of the rating; or
(d) whose in-depth analysis shows that the supervisory rules to which it is subject are similar to those laid down by European Community law.
Investment securities and money market instruments containing a derivative
(1) An investment security containing a derivative (5) in which a standard fund can invest is an investment instrument in accordance with Article 2 containing a component,
(a) because of the presence of which some or all of the cash flows associated with the investment paper may be changed depending on the specific interest rate, the price of the investment instrument, the currency rate, the price index or the rate index, the credit rating or the credit index or any other variable value, which may result in a change, mutatis mutandis, as a separate derivative;
(b) whose economic character and the risks associated with it are not closely related to the economic character of the investment security and the risks associated with it; and
(c) which has a significant impact on the risk profile and pricing of the investment security.
(2) A money market instrument containing a derivative in which a standard fund may invest shall be an investment instrument in accordance with Article 4 (1) to (3), which contains a component meeting the criteria set out in paragraph 1.
(3) Where an investment security or money market instrument contains a component that is contractually transferable independently of the investment security or money market instrument, it shall be deemed not to contain the derivative. Such an component shall be considered as a separate investment instrument.
Copying the composition of the equity or bond index
(1) Copying the composition of the index of shares or bonds (6) is copying the composition of the underlying assets of the index, including the use of derivatives and other techniques and instruments in accordance with § 27 (2) and (3) of the Act and § 4 of Decree No. 604 / 2006 Coll., on the use of techniques and instruments for the efficient management of the assets of the standard fund and the special fund, which collects funds from the public.
(2) The share or bond index consists of a sufficient number of issuers of shares or bonds if it fulfils the conditions laid down in § 28 (8) and (9) of the Act.
(3) The index is sufficiently representative of the market which uses it if its creator uses a methodology which does not ignore the significant issuer on the market to which the index applies.
(4) A standard fund may copy the composition of the equity or bond index if:
(a) the index is publicly available; and
(b) the index maker is independent of a standard fund which copies the composition of the share index or bonds; This does not apply where the index maker and the fund form part of the same business group where effective conflict of interest management measures are put in place.
Efficacy
This Decree shall take effect on 1 August 2009.
Governor:
Doc. Ing. Tůma, CSc.
1) Commission Directive 2007 / 16 / EC of 19 March 2007 implementing Council Directive 85 / 611 / EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) as regards the clarification of certain definitions.
2) Section 12 of Act No. 189 / 2004 Coll., on Collective Investment, as amended.
3) § 2 (3) of Act No. 189 / 2004 Coll.
4) § 26 paragraph 1 (f) and (g) of Act No. 189 / 2004 Coll.
5) § 27 paragraph 7 of Act No. 189 / 2004 Coll.
6) § 28 paragraph 9 of Act No. 189 / 2004 Coll.
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Regulation Information
| Citation | Decree No. 235 / 2009 Coll., on investment instruments in which a standard fund can invest |
|---|---|
| Regulation Type | Order |
| Author | - |
| Collection | Code of Laws |
| Date of Promulgation | 30.07.2009 |
|---|---|
| Effective from | 01.08.2009 |
| Effective until | - |
| Status | Valid |
Legal Areas:
Securities
Finance
The regulation text is for informational purposes only.
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