Decree No. 604 / 2006 Coll.
Ordinance on the use of techniques and tools for the efficient management of the assets of the standard fund and the special fund, which collects funds from the public
Valid
Effective from 01.01.2007
604
DECLARATION
of 18 December 2006
on the use of techniques and tools for the efficient management of the assets of the standard fund and the special fund which collects money from the public
The Czech National Bank provides pursuant to § 139 (e) and (g) of Act No. 189 / 2004 Coll., on Collective Investment, as amended by Act No. 57 / 2006 Coll. and Act No. 224 / 2006 Coll., (hereinafter "the Act '):
Subject matter
This decree regulates
(a) the types, limits and modalities of use of techniques and tools which a standard fund or a special fund which collects funds from the public (hereinafter referred to as the "public special fund") may use for the efficient management of assets;
(b) a procedure for assessing the degree of risk associated with the investment;
(c) the method of applying the limits laid down for the distribution and limitation of the risk associated with the investment of a special fund of funds in securities issued by a collective investment fund to a collective investment fund whose assets are divided into several sub-funds.
Definition of terms
For the purposes of this decree:
(a) a repo of the transfer of securities for cash with a current commitment to take over those securities at a specified date for an amount equal to the original funds and interest; a repo is a classic repo, sale with a simultaneous buy-back agreement or provision of a loan of securities secured by cash,
(b) reverse repo of the acquisition of securities for cash with a current commitment to transfer those securities at a specified date for an amount equal to the transferred funds and interest; reverse repo is a classic reverse repo, purchase with a simultaneous repurchase agreement or acceptance of a loan of securities secured by cash,
(c) repos or reverse repos;
(d) Zone A, Member States of the European Economic Area, States that are members of the Organisation for Economic Cooperation and Development and States that have concluded a loan agreement with the International Monetary Fund under the General Agreement on Loan;
(e) zone B by States not included in zone A;
(f) a bank in the State of the zone A person authorised to receive deposits from the public and to grant loans on the basis of an authorisation granted by an authority of a State situated in zone A; a branch of such a person operating in zone B State shall be treated as a bank in zone A State,
(g) a bank in the State of the zone B a person authorised to receive deposits from the public and to grant loans on the basis of an authorisation granted by an authority of a State situated in zone B; a branch of such a person operating in zone A State shall be treated as a bank in zone B State,
(h) the central government of the government and other (central) executive authorities, as well as persons established or hired by them for public purposes whose obligations are fully guaranteed by an unconditional, explicit and unlimited guarantee of the State;
(i) delta equivalent to the product of the fair value of the underlying instrument and delta option;
(j) the delta option the ratio of the change in the fair value of the option and the change in the fair value of the underlying instrument concerned; it is the first derivative of the fair value of the option according to the fair value of the underlying,
(k) a highly liquid asset of an asset whose conversion into cash takes no more than five working days and the price achieved corresponds to the fair value of the asset;
(l) the counterparty to the other Party to the transaction.
Techniques and tools
The techniques and instruments are repurchase transactions and financial derivatives.
General methods of using techniques and tools
Techniques and tools may be used if:
(a) the purpose of their use is to reduce the risk of investment, to reduce costs or to obtain additional revenues for a standard or public special fund, provided that the risk to be taken is proven to be low;
(b) are economically proportionate to the purpose referred to in (a) and the standard or public special fund is able to justify their choice; and
(c) the obligations of the standard or public special fund resulting from their use are always fully covered by its assets.
Limits for the use of financial derivatives
(1) The standard and public special fund may use a financial derivative if:
(a) its underlying instrument is:
1. an investment security with the exception of a provisional sheet;
2. money market instrument;
3. deposit,
4. financial derivative,
5. a security issued by a standard fund; the public special fund may also use a security which complies with the requirements of Paragraph 51 (1) (e) of the Act;
6. financial index,
7. interest rate,
8. exchange rate,
9. Currency,
(b) the negotiation of a financial derivative can be properly documented;
(c) comply with the rules laid down in paragraphs 2 and 3;
(d) the underlying financial derivative instrument is consistent with the investment policy and the risk profile of the fund; and
(e) the conditions laid down in paragraph 4 are met if the derivative is covered by Paragraph 26 (1) (g) of the Act ("over-the-counter derivative").
(2) A standard and public special fund reduces risks from the use of financial derivatives in such a way that
(a) where a financial derivative is to be settled by a standard or public special fund by delivering an underlying instrument, it shall hold the underlying instrument in question at the time of the negotiation and throughout the contract in its portfolio; for monetary hedge derivatives having the characteristics of a hedging derivative under the special legal provision governing account1), the holding of a highly liquid asset is sufficient;
(b) where a financial derivative is to be settled by a standard or public special fund by delivering funds, it shall, at the time of the negotiation and throughout the duration of the contract, hold funds or a highly liquid asset at a value equivalent to the settlement price of the financial derivative in question;
(c) it shall not use the underlying instrument, funds or highly liquid asset to cover one financial derivative except in the cases referred to in paragraph 3 to cover another financial derivative; at the same time does not use the securities and funds that are the subject of the transactions referred to in Section 7 to cover the financial derivative.
(3) The standard and public special fund shall only hold funds for the purpose of reducing the risk from the use of financial derivatives up to the difference in their settlement prices if the case referred to in paragraph 2 (b) is the case and another financial derivative is agreed
(a) another counterparty for the purpose of closing a financial derivative position and such financial derivatives are settled on the same day;
(b) the same counterparty shall not differ by more than one week in order to close a financial derivative position and the settlement date of such financial derivatives.
(4) Additional conditions for the use of an over-the-counter derivative are that
(a) the counterparty is an institution under Article 26 (1) (g) (2) of the Act whose equity is at least equal to:
EUR 1.40 million for trade concluded by the standard fund;
EUR 2.10 million for trade concluded by the public special fund; and
the standard or public special fund shall be satisfied of its sufficient boldness; and
(b) the counterparty agrees to settle the financial derivative before its maturity with the settlement corresponding to the fair value of the financial derivative.
(5) A standard and public special fund may conclude a final offsetting contract (2) with a counterparty with which it has negotiated an over-the-counter derivative if:
(a) the contract provides that, in the event of a counterparty's default, reciprocal claims are replaced by a single claim equal to the difference in the fair value of the individual derivatives covered by the contract;
(b) the contract defines the specific facts which are the default of the counterparty; This may in particular be a declaration of bankruptcy or compensation,
(c) there is no other contract between the parties to the final settlement agreement that would significantly impede, restrict or exclude its application; and
(d) it has at its disposal, at the time of conclusion of the contract, the statement of the person authorised to provide legal services that provides long-term services in this field, confirming that, in the event of a counterparty's failure, the replacement referred to in point (a) will take place under the applicable legal order; This condition may not be met if a similar statement already exists and is available to a specialised person dealing with the creation of professional rules for final settlement.
Limits for the open position of financial derivatives
(1) The open position of a standard or public special fund on financial derivatives calculated in accordance with paragraphs 2 to 5 shall not, as a result of the negotiation of a financial derivative, exceed 100% of the equity value of the standard or public special fund at any time. Where the limit is exceeded due to market price movements, the standard or public special fund shall adjust its open position from financial derivatives without undue delay to meet the limit.
(2) The short position is calculated as the value of the liability arising from the derivative, as indicated in the off-balance sheet account, with a fair value that is valued within the time limits specified in the collective investment fund Statute (3).
(3) Derivatives that have the features of a hedging derivative under a special legal provision governing account1) are not subject to the calculation of an open position on financial derivatives.
(4) The open position of a standard or public special fund on financial derivatives shall be calculated as the sum of all short positions on derivatives and of the credit risk of derivatives referred to in Article 26 (1) (f) of the Act (hereinafter referred to as "stock exchange derivatives') and over-the-counter derivatives calculated in accordance with Article 9 (2) and (3).
(5) Derivatives included in an investment or money market instrument are subject to the calculation of an open position on financial derivatives.
Limits for the closure of repurchase transactions
(1) A standard or public special fund may carry out repurchase transactions where:
(a) repos may be duly documented;
(b) the counterparty is:
1. in the case of a standard fund of an institution under Paragraph 26 (1) (g) (2) of the Act and the standard fund shall be satisfied of its sufficient bothiness;
2. in the case of a public special fund, the institution referred to in Article 26 (1) (g) (2) of the Act and the public special fund shall satisfy itself of its sufficient bodily or institution whose long-term debt rating established by at least one reputable credit rating agency is at least at the investment stage;
(c) securities subject to repurchase transactions correspond to the investment policy and risk profile of the standard or public special fund.
(2) Standard or public special fund
(a) for the duration of the repurchase transaction, it shall not sell or lend securities that are its object before the counterparty has exercised its right to buy or return the securities or, where appropriate, before the date for the repurchase or repayment expires;
(b) for the duration of the repo transaction, purchase only highly liquid assets for the money received from that repo transaction which are subsequently not used for further repurchase transactions;
(c) ensure that the total volume of repurchase transactions covered by money market instruments, bonds or similar securities representing the right to repayment of a debt or securities issued by a collective investment fund does not exceed 30% of the value of the assets of the standard fund or 50% of the value of the public special fund assets; This is without prejudice to the obligation to comply with the limits under § 33 or § 49a (3) of the Act,
(d) ensure that the total volume of repurchase transactions involving shares or similar securities representing a share of the company does not exceed 10% of the value of the assets of the standard fund or 30% of the value of the public special fund assets; This is without prejudice to the obligation to comply with the limit under Paragraph 49a (3) of the Act,
(e) ensure that the value of the funds received is not lower than the fair value of the securities in question at the trade date;
(f) ensure that the value of the funds provided does not exceed the fair value of the securities in question at the trade date; and
(g) in the case of reverse repo transactions, the securities in question are held by or entrusted to a third party independent of the counterparty by custody or other custody; the standard or public special fund shall contractually ensure that the counterparty's inability to fulfil its obligations cannot affect the ability to satisfy itself on the securities provided under the repurchase agreement.
(3) The level of risk associated with the counterparty (hereinafter referred to as "credit risk") from repurchase transactions determined in accordance with Section 10 must not exceed, for the standard fund:
(a) 10% of the value of the assets of the standard fund if the counterparty is a bank located in a Member State of the European Union or a bank located in a State which is not a Member State of the European Union, if that State requires compliance with the prudential rules which the Czech National Bank considers equivalent to those required by a Member State of the European Union; or
(b) 5% of the value of the assets of the standard fund where the counterparty is a person other than the bank referred to in (a).
Procedure for assessing the level of investment risk
Market risk assessment method
(1) As a procedure for assessing the market risk associated with investment, the standard and public special fund will use the value-at-risk method (VAR). The Special Property Fund shall use the value-at-risk method to assess the market risk associated with the investment in property under Section 53j (1) of the Act.
(2) In assessing the market risk ratio, the risk value method
(a) for interest rate risk, the standard and public special fund shall take into account risk factors corresponding to interest rates in each currency in which it has significant interest positions, with the construction of the yield curve based on generally accepted methods and, for significant interest rates, the yield curve being divided into at least six time segments; the risk arising from non-parallel movements of different yield curves is also taken into account,
(b) in the case of equity risk, the standard and public special fund shall take into account risk factors corresponding to each market referred to in Article 26 (1) (a) of the Act in which it has significant equity positions;
(c) for monetary risk, the standard and public special fund shall take into account risk factors corresponding to positions in each foreign currency;
(d) the value at risk calculates
1. the standard fund per month;
2. a public special fund on a quarterly basis; and
(e) the confidence level is used by a standard and public special fund of 99%.
(3) Standard and public special fund for the assessment of market risk using the risk value method
(a) uses a holding period of 1 month;
(b) calculate historical volatility over the period of the last 12 months, with the period being renewed at least once every 3 months;
(c) restores data sets containing market conditions parameters at least every 3 months;
(d) use a method based in particular on variations-covariation matrix models or historical simulation models; and
(e) calculate the risk value for each type of risk and overall for its assets; for a special real estate fund, only for the assets referred to in Section 53j (1) of the Act.
(4) The standard and public special fund carry out an estimate of the maximum loss at risk by the value method in stress situations, in particular in crisis developments in interest rates, stock markets and exchange rates (stress testing), in order to assess the effects of extremely adverse market conditions on the Fund. Stress testing shall be carried out by a standard fund at least once every 3 months and a public special fund at least every 6 months. For the purposes of stress testing, a standard and public special fund shall establish stress scenarios taking into account the risk characteristics of the fund, in particular the factors to which the fund is most vulnerable to change, and shall regularly examine the validity of the assumptions of stress scenarios in view of changing market conditions or changing fund conditions.
Credit risk assessment for derivatives
(1) The Standard Fund ascertains the credit risk of over-the-counter derivatives to ensure compliance with the limits under Section 28 (5) of the Act, and for the purposes of calculating the open position of financial derivatives under Section 6. The public special fund ascertains the credit risk of over-the-counter derivatives for the purpose of calculating the open position of financial derivatives under Section 6.
(2) The credit risk for exchange derivatives is determined by a standard and public special fund only if the market referred to in Section 26 (1) (a) of the Act does not guarantee settlement, daily valuation of positions and replenishment with variable margins. The credit risk of exchange derivatives shall be determined by a standard and public special fund as for over-the-counter derivatives.
(3) The credit risk of an over-the-counter derivative is determined by the standard and public special fund as the sum of the off-balance-sheet risk-weighted assets of derivatives, which are determined as the product of the credit equivalent of the off-balance-sheet asset of an over-the-counter derivative and of the respective counterparty risk weights in accordance with the table set out in Annex 1 to this Regulation.
(4) The credit equivalent of an over-the-counter derivative shall be determined as the sum of the current fair value of the over-the-counter derivative and the potential future exposure equal to the product of the conversion factor according to the table in Annex 3 to this Regulation and the nominal value of the off-balance-sheet asset of the derivative. If the current fair value of an over-the-counter derivative is negative, it shall be considered zero for the purposes of this calculation.
(5) For credit equivalents relating to:
(a) deposits, fixed-term loans, deposits and delta-equivalent loans;
(b) bond claims and fixed-term shares; and
(c) delta equivalent of debt claims and options shares;
the standard and public special fund shall use the issuer's relevant risk weight in accordance with the table set out in Annex 1 to this Regulation and the credit equivalent of these off-balance sheet assets shall be determined as the product of the nominal value of the underlying asset or delta equivalent of the debt claim and the shares of options and conversion factor 1,00.
(6) Where a standard or public special fund follows the procedure set out in Article 5 (5), it shall specify one credit equivalent for all over-the-counter derivatives agreed with the counterparty covered by the final settlement contract. This credit equivalent is equal to the sum of net fair value and potential future exposures. The net fair value is equal to the sum of the fair values of derivatives agreed with the partner. If the net fair value is negative, the standard and the public special fund consider it zero for the purpose of calculating the credit equivalent. The potential future exposure shall be determined by the standard and public special fund in accordance with the formula set out in Annex 2.
(7) The credit risk of an over-the-counter derivative calculated in accordance with paragraphs 3 to 6 may be reduced by the standard and public special fund by the value of the investment instruments provided for collateral ("collateral ') provided that the collateral:
(a) is valued daily at the market price;
(b) is exposed to very low market risk and is highly liquid;
(c) it has in its possession or entrusts it to a third party, independent of the counterparty, with a standard and public special fund legally ensuring that the failure of the counterparty cannot affect the ability to satisfy itself from the collateral.
Credit risk assessment from repurchase transactions
(1) The credit risk arising from repurchase transactions is determined as the sum of the product of the corresponding credit equivalents and the relevant counterparty risk weights according to the table in Annex 1 to this Regulation. The credit equivalent shall be determined as the sum of the fair value and the product of the value of the funds provided or the security provided and the conversion factor in accordance with the table set out in Annex 3 to this Decree. If the fair value is negative, the standard and public special fund shall consider it to be zero for the purposes of this calculation. The conversion factor selects a standard and public special fund depending on whether it has been provided with money or security. The fair value of the standard and public special fund shall be determined in the case of:
(a) repo as the difference between the fair value of the securities provided and the fair value of the money obligation;
(b) reverse repo as the difference between the fair value of the monetary claim and the fair value of the securities received.
(2) In the case of repurchase transactions, transfers of instruments shall not change the original position of the transferred interest rate, equity and currency instruments. In the case of reverse repo, the standard and public special fund shall appreciate the credit provided by a lower risk weight from the risk weights of the issuer of the accepted security and the debtor, with the acceptance of the accepted security valued by the standard and public special fund by a zero risk weight. In the case of repo transactions, the standard and public special fund provided by the security shall be valued by the issuer's risk weight.
Risk concentration and financial derivatives
(1) The fair values of the assets to be acquired in the settlement of financial derivatives by a standard or public special fund are included in the limits set out in Sections 28 or 49b (1), 51 (1), (3), (4) and (8), 53j (1) and 55 (1) of the Act by assigning them to the same type of asset.
(2) In the case of options of a standard or public special fund up to the limits set out in paragraphs 28 or 49b (1), 51 (1), (3), (4) and (8), 53j (1) and 55 (1) of the Act, the fair value of the asset shall be taken into account in accordance with paragraph 1 multiplied by the delta option.
(3) A standard or public special fund does not include positions from financial derivatives whose underlying instrument is an index published by the Czech National Bank in a way that allows remote access. This index is
(a) it consists of a sufficient number of issuers of shares and bonds and meets the limits on the diversification of risk under Section 28 (9) of the Act;
(b) established or authorised by the market operator referred to in Article 26 (1) (a) of the Act to which it relates; and
(c) published in the manner in which the index shares or bonds are published.
Application of Fund Special Fund Limits
If a foreign collective investment fund is divided into several sub-funds, for the purposes of calculating the limits under Paragraph 55 of the Act, the target fund as a whole is one collective investment fund.
Transitional and final provisions
Transitional provisions
(1) The investment company and the investment fund shall bring their management and management ratios of collective investment funds into line with this decree by 31 January 2007 at the latest.
(2) The information obligation for the second half of 2006 will be fulfilled by the reporting entity under this Order.
Repeal
Decree No. 139 / 2005 Coll., on the use of techniques and tools for the efficient management of the assets of the standard fund is repealed.
Efficacy
This Decree shall take effect on 1 January 2007.
Governor:
Doc. Ing. Tůma, CSc.
Příloha č. 1
Annex No 1 to Decree No 604 / 2006 Coll.
Risk weights of assets
| riziková váha | druh aktiva |
|---|---|
| 0 | 1. pokladní hodnoty, |
| 2. pohledávky za | |
| a) pojištěné Exportní garanční a pojišťovací společností, a.s., podle § 8 odst. 1 písm. a) zákona č. 58/1995 Sb., o pojišťování a financování vývozu se státní podporou (dále jen „zákon o pojišťování a financování vývozu se státní podporou“), nebo pojištěné jinou osobou, pokud rizikovou váhu 0 přiznává pojištění poskytovanému touto osobou příslušný zahraniční orgán bankovního dohledu, | |
| b) za Českou exportní | |
| c) za Českou konsolidační agenturou, | |
| 3. pohledávky za Evropskými společenstvími, | |
| 4. pohledávky za centrálními | |
| 5. pohledávky za | |
| 6. pohledávky za centrálními | |
| 7. reálné hodnoty derivátů, | |
| 8. aktiva, která jsou odečitatelnou položkou podle § 7 vyhlášky č. 262/2004 Sb., o pravidlech pro výpočet kapitálové přiměřenosti obchodníka s cennými papíry, který není bankou, na individuálním základě, ve znění pozdějších předpisů (dále jen „vyhláška o kapitálové přiměřenosti obchodníka s | |
| 9. pohledávky zajištěné zástavním právem k dluhopisům, vkladním listům podle § 9 odst. 13 vyhlášky o kapitálové přiměřenosti obchodníka s cennými papíry na individuálním základě, | |
| 10. pohledávky za vládami územních celků států | |
| 0,20 | 1. pohledávky za |
| 2. pohledávky za | |
| 3. pohledávky za mezinárodními finančními institucemi, | |
| 4. pohledávky za vládami územních celků států | |
| 5. pohledávky za orgány územní samosprávy států | |
| 6. pohledávky za obchodníky s | |
| 7. pohledávky za uznanými clearingovými centry a uznanými burzami se sídlem ve státech | |
| 8. finanční nástroje v procesu inkasa. | |
| 0,50 | Všechna ostatní aktiva, která nejsou uvedeny výše, zejména |
| 1. kapitálové investice do | |
| 2. kapitálové investice do právnických osob kromě | |
| 3. pohledávky za | |
| 4. pohledávky za právnickými osobami kromě | |
| 5. pohledávky za | |
| 6. pohledávky za centrálními | |
| 7. pohledávky za vládami územních celků států | |
| 8. pohledávky za | |
| 9. pohledávky za | |
| 10. pohledávky za právnickými osobami - finančními institucemi, kterým nepřísluší riziková váha 0,2. |
Příloha č. 2
Annex No 2 to Decree No 604 / 2006 Coll.
Formula for calculating potential future exposures
PCET = 0,4 x PCegross + 0,6 x NGR x PCegross
where
PCegross is the sum of the products of off-balance-sheet assets of derivatives and conversion factors according to the table in Annex 3 to this Decree; and
NGR is a share,
(a) the numerator of which is the net fair value of the derivatives covered by the final settlement agreement with the counterparty, whereby, where that value is negative, the standard and public special fund for the purposes of this calculation considers it to be zero and the denominator is the sum of the positive fair value of the derivatives; or
(b) the numerator of which is the sum of the net fair values of derivatives subject to bilateral final settlement agreements with all counterparties and the denominator is the gross fair value of such derivatives with all counterparties which is equal to the sum of the positive fair values of derivatives with all counterparties.
Příloha č. 3
Annex No. 3 to Decree No 604 / 2006 Coll.
Conversion factors of derivatives
Explanatory notes:
(1) For derivatives that are settled on certain specified dates and where the settlement conditions are such that the fair value of derivatives on those dates is zero, the residual maturity shall be deemed to be the time until the following date. For these derivatives, for interest rate instruments with a residual maturity over one year, the conversion factor cannot be less than 0,005. The reason for this lower limitation is that although the above characteristics of derivatives limit the potential price movements of long-term derivatives to the nearest settlement date, such derivative nevertheless represents a long-term liability and thus a greater risk than a short-term remaining maturity derivative. The lower limit ensures that the capital requirement for such a derivative is never zero.
(2) For interest rate swaps of the type variable interest rate / variable interest rate in one currency, the credit equivalent calculation is based only on the measurement of the fair value of the instrument and conversion factors are considered zero.
1) Paragraph 70 (5) of Decree No. 501 / 2002 Coll., implementing certain provisions of Act No. 563 / 1991 Coll., on Accounting, as amended, for entities that are banks and other financial institutions, as amended by Decree No. 473 / 2003 Coll. and Decree No. 545 / 2004 Coll.
2) Section 197 of Act No. 256 / 2004 Coll., on Capital Market Enterprise, as amended by Act No. 377 / 2005 Coll.
3) Paragraph 9 (b) of Decree No. 482 / 2006 Coll., on the minimum terms of the Statute and the mandatory terms of the simplified Statute of the collective investment fund.
8) Act No. 21 / 1992 Coll., on Banks, as amended.
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Regulation Information
| Citation | Decree No. 604 / 2006 Coll., on the use of techniques and tools for efficient management of the assets of the standard fund and special fund, which collects funds from the public |
|---|---|
| Regulation Type | - |
| Author | - |
| Collection | Code of Laws |
| Date of Promulgation | 28.12.2006 |
|---|---|
| Effective from | 01.01.2007 |
| Effective until | - |
| Status | Valid |
The regulation text is for informational purposes only.
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