Ordinance of the Swiss Financial Market Supervisory Authority on Collective Investment Schemes

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.

¹The fund man­age­ment com­pany or SICAV may lend se­cur­it­ies in its own name and for its own ac­count to a bor­row­er («prin­cip­al»).

²The 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.

³The fund man­age­ment com­pany or SICAV shall con­clude a stand­ard­ised frame­work agree­ment gov­ern­ing se­cur­it­ies lend­ing with each bor­row­er or in­ter­me­di­ary in ac­cord­ance with Art­icle 7.

¹The 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.

²The 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.

³The 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.

¹The 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.

²It may not lend se­cur­it­ies ac­quired un­der a re­verse repo trans­ac­tion.

¹It must be pos­sible to ter­min­ate in­di­vidu­al trans­ac­tions and the stand­ard­ised frame­work agree­ment for the se­cur­it­ies lend­ing trans­ac­tion at any time.

²Where the ob­ser­va­tion of a no­tice peri­od has been agreed, that peri­od may not ex­ceed sev­en bank­ing days.

¹If 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.

²If, 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.

¹The stand­ard­ised frame­work agree­ment must meet the rel­ev­ant in­ter­na­tion­al stand­ards.

²The 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.

³The 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 trans­ac­tion to the in­di­vidu­al lenders on the basis of ob­ject­ive and trans­par­ent cri­ter­ia.

⁴The frame­work agree­ment should also set out:

a

agree­ment of an ap­pro­pri­ate col­lat­er­al value that at all times should amount to at least 100 per­cent of the mar­ket value of the loaned se­cur­it­ies;

b.

the loaned se­cur­it­ies are ex­cluded from the claims of the bor­row­er or in­ter­me­di­ary.

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.

¹Loaned 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.

²Loaned se­cur­it­ies must con­tin­ue to be taken in­to ac­count when en­sur­ing com­pli­ance with the stat­utory and reg­u­lat­ory in­vest­ment re­stric­tions.

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.

¹The fund man­age­ment com­pany or SICAV may con­clude re­pur­chase agree­ments in its own name and for its own ac­count with a coun­ter­party («prin­cip­al»).

²It 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.

³The fund man­age­ment com­pany or SICAV shall con­clude a stand­ard­ised frame­work agree­ment gov­ern­ing re­pur­chase agree­ments with each coun­ter­party or in­ter­me­di­ary in ac­cord­ance with Art­icle 17.

¹The 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.

²The 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.

³The 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.

¹For 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.

²For repo pur­poses, it may not use se­cur­it­ies ac­quired un­der a re­verse repo.

¹It must be pos­sible to ter­min­ate in­di­vidu­al trans­ac­tions and the stand­ard­ised frame­work agree­ment for the re­pur­chase trans­ac­tion at any time.

²Where the ob­ser­va­tion of a no­tice peri­od has been agreed, such peri­od may not ex­ceed sev­en bank­ing days.

¹If 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.

²If, 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.

¹In 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.

²Com­pens­a­tion must be in cash or in se­cur­it­ies. The lat­ter must be com­par­able in type and qual­ity to the se­cur­it­ies used for the re­pur­chase agree­ment.

¹The stand­ard­ised frame­work agree­ment must meet the rel­ev­ant in­ter­na­tion­al stand­ards.

²The 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.

³The 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 pur­su­ant to Art­icle 16, and

2.

the re­pur­chase of the se­cur­it­ies un­der the repo trans­ac­tion in com­pli­ance with the terms of the agree­ment;

c.

claims for money and se­cur­it­ies arising from re­pur­chase agree­ments may not be net­ted with claims of the coun­ter­party or in­ter­me­di­ary.

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.

¹Pur­su­ant to Art­icle 77 para­graph 2 CISO¹, a re­pur­chase agree­ment rep­res­ents the rais­ing of a loan by the se­cur­it­ies fund.

²The money ob­lig­a­tions arising from re­pos, to­geth­er with all oth­er loans taken, must com­ply with the stat­utory and reg­u­lat­ory lim­its on bor­row­ing.

³If, 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.

¹Pur­su­ant to Art­icle 77 para­graph 1 let­ter a CISO¹, re­verse re­pos do not rep­res­ent the grant­ing of a loan.

²Pur­su­ant to Art­icle 75 CISO, money claims in con­nec­tion with the con­clu­sion of re­verse re­pos are deemed li­quid as­sets.

¹Se­cur­it­ies sold through re­pos must con­tin­ue to be taken in­to ac­count when en­sur­ing com­pli­ance with the stat­utory and reg­u­lat­ory in­vest­ment re­stric­tions.

²Money claims ac­quired through re­verse re­pos must con­tin­ue to be taken in­to ac­count when en­sur­ing com­pli­ance with the stat­utory and reg­u­lat­ory in­vest­ment re­stric­tions.

¹Se­cur­it­ies 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.

²Money 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.

³In the case of re­pos, repo in­terest must be dis­closed in the profit and loss ac­count un­der «In­terest pay­able».

⁴Se­cur­it­ies 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.

⁵Money 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 de­vel­op­ment in value.

⁶In the case of re­verse re­pos, repo in­terest must be dis­closed in the profit and loss ac­count un­der «In­come from re­verse re­pos».

¹The 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 ef­fect of which is sim­il­ar to the sale of an un­der­ly­ing (in par­tic­u­lar, the sale of a call op­tion, sale of a fu­ture, pur­chase of a put op­tion, ex­chan­ging of fixed for vari­able in­terest pay­ments or the con­clu­sion of a cred­it de­fault swap as se­cured party);

d.

«exot­ic de­riv­at­ive» means a de­riv­at­ive with a mode of op­er­a­tion that can­not be de­scribed as a ba­sic form of de­riv­at­ive or a com­bin­a­tion of ba­sic forms of de­riv­at­ives (for in­stance, a path-de­pend­ent op­tion, an op­tion with sev­er­al factors or an op­tion with con­tract modi­fic­a­tions);

e.

«con­tract size»: num­ber of un­der­ly­ing se­cur­it­ies or nom­in­al value of a de­riv­at­ive con­tract;

f.

«con­tract value»:

1.

in the case of a swap, the product of the nom­in­al value of the un­der­ly­ing and the con­tract size,

2.

in the case of all oth­er de­riv­at­ives, the product of the un­der­ly­ing's mar­ket value and the con­tract size;

g.

«OTC (over the counter)»: the con­clu­sion of trans­ac­tions off an ex­change or any oth­er reg­u­lated mar­ket which is open to the pub­lic;

h.

«syn­thet­ic li­quid­ity»: un­der­ly­ings whose mar­ket risk and po­ten­tial cred­it risk are hedged with de­riv­at­ives that have a sym­met­ric pay­ment pro­file;

i.

«over­all ex­pos­ure»: ex­pos­ure to the fund’s net as­sets, the net over­all ex­pos­ure to de­riv­at­ives and in­vest­ment tech­niques un­der Art­icle 55 CISA, in­clud­ing short-selling;

j.

«gross over­all ex­pos­ure to de­riv­at­ives»: total amount of cap­it­al re­quire­ments eli­gible from de­riv­at­ives, in­clud­ing de­riv­at­ive com­pon­ents;

k.

«net over­all ex­pos­ure to de­riv­at­ives»: total amount of cap­it­al re­quire­ments eli­gible from de­riv­at­ives, in­clud­ing de­riv­at­ive com­pon­ents, tak­ing ac­count of per­miss­ible net­ting, hedging trans­ac­tions and oth­er rules set out in Art­icles 35 and 36;

l.

«lever­age»: ef­fect of de­riv­at­ives, de­riv­at­ive com­pon­ents in­vest­ment tech­niques, in­clud­ing short-selling on the fund’s net as­sets, by build­ing up over-pro­por­tion­ally high po­s­i­tions in an un­der­ly­ing when com­pared to the cap­it­al in­ves­ted.

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.

The pro­vi­sions in this sec­tion ap­ply to the in­di­vidu­al se­cur­it­ies funds or, in the case of an um­brella fund, to each in­di­vidu­al sub-fund.

¹In 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.

²If a struc­tured product has one or more de­riv­at­ive com­pon­ents, these must be treated in ac­cord­ance with the pro­vi­sions in this sec­tion.

³To 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.

⁴If 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.

⁵De­riv­at­ive 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.

⁶War­rants must be treated as de­riv­at­ives in ac­cord­ance with the pro­vi­sions of this sec­tion. An op­tion be­long­ing to a war­rant bond is deemed a war­rant.

¹As defined in Art­icle 77 para­graph 1 let­ter a CISO¹, an ex­pos­ure-in­creas­ing cred­it de­riv­at­ive is not deemed a guar­an­tee.

²The 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.

¹The 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.

²In 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.

³The risk as­sess­ment mod­el used risk must be cap­able of re­flect­ing the exot­ic de­riv­at­ive in ac­cord­ance with its risk.

⁴If 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.

¹The fund man­age­ment com­pany or SICAV shall con­clude de­riv­at­ive trans­ac­tions on an ex­change or oth­er reg­u­lated mar­ket which is open to the pub­lic.

²Trans­ac­tions with OTC de­riv­at­ives (OTC trans­ac­tions) are per­mit­ted, provided the con­di­tions stip­u­lated in Art­icles 30 and 31 are met.

¹OTC trans­ac­tions may only be con­cluded on the basis of a stand­ard­ised frame­work agree­ment which com­plies with the per­tin­ent in­ter­na­tion­al stand­ards.

²The 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.

³It 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.

⁴If 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;

⁵Be­fore 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 con­cluded with the coun­ter­party provid­ing the most fa­vour­able of­fer in terms of price. A de­vi­ation from this prin­ciple is pos­sible for reas­ons re­lat­ing to risk di­ver­si­fic­a­tion, or where oth­er parts of the con­tract such as cred­it rat­ing or the range of ser­vices offered by the coun­ter­parties in an­oth­er of­fer seem are more ad­vant­age­ous over­all for the in­vestors.

⁶If it is in the in­vestors’ best in­terests, ob­tain­ing of­fers from at least two po­ten­tial coun­ter­parties may be dis­pensed with. The reas­ons for do­ing so must be clearly doc­u­mented.

⁷The con­clu­sion of the trans­ac­tion and pri­cing must be clearly doc­u­mented.

¹In the case of OTC trans­ac­tions, the coun­ter­party or its guar­ant­or shall have a high cred­it rat­ing.

²This re­quire­ment does not ap­ply to the cus­todi­an bank of the se­cur­it­ies fund.

¹De­riv­at­ives 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.

²If 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.

¹The fund man­age­ment com­pany or SICAV shall ap­ply com­mit­ment ap­proach I or II, or the mod­el ap­proach.

²The mod­el ap­proach re­quires the ap­prov­al of FINMA.

³The fund man­age­ment com­pany or SICAV shall align the risk as­sess­ment pro­cess se­lec­ted with the in­vest­ment ob­ject­ives.

⁴The 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.

¹For 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.

²Ex­pos­ure-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.

³Cov­er­ing 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.

⁴The un­der­ly­ing equi­val­ents (Art. 35 para. 2) of ex­pos­ure-in­creas­ing de­riv­at­ives must at all times be covered by highly li­quid as­sets.

⁵The fol­low­ing as­sets are con­sidered highly li­quid:

a.

li­quid as­sets as defined in Art­icle 75 CISO¹;

b.

money mar­ket in­stru­ments as defined in Art­icle 74 CISO;

c.

col­lect­ive in­vest­ment schemes which in­vest ex­clus­ively in li­quid as­sets or money mar­ket in­stru­ments;

d.

debt se­cur­it­ies and rights with a time re­main­ing till ma­tur­ity of max­im­um twelve months and the is­suer or guar­ant­or have a high cred­it rat­ing;

e.

syn­thet­ic li­quid­ity;

f.

cred­it lim­its ac­cor­ded to, but not used by, the se­cur­it­ies fund, in line with the stat­utory and reg­u­lat­ory max­im­um in­vest­ment lim­its;

g.

with­hold­ing tax cred­its as con­firmed by the Swiss Fed­er­al Tax Ad­min­is­tra­tion.

⁶Ac­count can be taken of per­mit­ted net­ting rules and hedging trans­ac­tions un­der Art­icle 36 para­graphs 1, 2 and 4. Covered hedging trans­ac­tions by in­terest de­riv­at­ives are per­mit­ted. Con­vert­ible bonds do not have to be taken in­to ac­count when cal­cu­lat­ing the over­all ex­pos­ure to de­riv­at­ives.

¹To 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.

²In 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.

³The 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 that are not in­cluded in net­ting pur­su­ant to Art­icle 36;

b.

con­ver­sion amounts after per­mit­ted net­ting pur­su­ant to Art­icle 36; and

c.

con­ver­sion amounts from per­mit­ted in­vest­ment tech­niques.

⁴The fol­low­ing trans­ac­tions may be dis­reg­arded when de­term­in­ing the con­ver­sion amount for the over­all ex­pos­ure arising from de­riv­at­ives pur­su­ant to para­graph 3:

a.

swaps by means of which the per­form­ance of the un­der­ly­ings dir­ectly held by the se­cur­it­ies fund is swapped with the per­form­ance of oth­er un­der­ly­ings (total re­turn swaps), provided that:

1.

the mar­ket risk of the swapped un­der­ly­ings is com­pletely elim­in­ated from the se­cur­it­ies fund so that these as­sets have no im­pact on the change in the value of the se­cur­it­ies fund, and

2.

the swap does not grant op­tion rights or con­tain lever­age or oth­er ad­di­tion­al mar­ket risks that ex­ceed those of a dir­ect in­vest­ment in the rel­ev­ant un­der­ly­ings;

b.

de­riv­at­ives to which cor­res­pond­ing highly li­quid as­sets are as­signed so that the com­bin­a­tion of de­riv­at­ive and highly li­quid as­sets is equi­val­ent to a dir­ect in­vest­ment in the un­der­ly­ing as­set and neither an ad­di­tion­al mar­ket risk nor lever­age is gen­er­ated. The highly li­quid as­sets used to cov­er the de­riv­at­ive po­s­i­tion may not be used for more than one com­bin­a­tion sim­ul­tan­eously.

⁵Se­cur­it­ies lend­ing and re­pur­chase trans­ac­tions must be taken in­to ac­count when cal­cu­lat­ing the over­all ex­pos­ure if these gen­er­ate lever­age on the fund as­sets through the re­in­vest­ment of col­lat­er­al. Where col­lat­er­al is re­in­ves­ted in fin­an­cial as­sets that provide a re­turn in ex­cess of the risk-free in­terest rate, the amount re­ceived must be in­cluded when de­term­in­ing the over­all ex­pos­ure if cash col­lat­er­al is held.

¹Counter 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.

²If 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 as­sets that are to be net­ted re­late to the same class of fin­an­cial in­stru­ments.

e.

The hedging strategy re­mains ef­fect­ive even un­der ex­cep­tion­al mar­ket con­di­tions.

³Where in­terest rate de­riv­at­ives are pre­dom­in­antly used, the amount to be in­cluded in the over­all ex­pos­ure arising from de­riv­at­ives can be de­term­ined us­ing in­ter­na­tion­ally re­cog­nised dur­a­tion-net­ting rules provided that:

a.

the rules res­ult in a cor­rect de­term­in­a­tion of the risk pro­file of the se­cur­it­ies fund;

b.

the ma­ter­i­al risks are taken in­to ac­count;

c.

the use of these rules does not gen­er­ate an un­jus­ti­fied level of lever­age;

d.

no in­terest rate ar­bit­rage strategies are pur­sued; and

e.

the lever­age of the se­cur­it­ies fund is not in­creased either by ap­ply­ing these rules or through in­vest­ments in short-term po­s­i­tions.

⁴Not­with­stand­ing para­graph 2, de­riv­at­ives that are used solely for cur­rency hedging pur­poses and do not res­ult in lever­age or con­tain ad­di­tion­al mar­ket risks may be net­ted when cal­cu­lat­ing the over­all ex­pos­ure arising from de­riv­at­ives.

All cal­cu­la­tions un­der Art­icles 35 and 36 must be clearly doc­u­mented.

¹Ap­ply­ing the mod­el ap­proach, the fund man­age­ment com­pany or SICAV shall es­tim­ate the risks for a se­cur­it­ies fund as value-at-risk (VaR).

²The 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.

³The 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.

⁴The VaR of a se­cur­it­ies fund may at no time ex­ceed twice the VaR of the bench­mark port­fo­lio of such se­cur­it­ies fund (re­l­at­ive VaR lim­its)

⁵When 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.

¹The 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.

²The 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).

³The 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.

⁴The cal­cu­la­tions must be clearly doc­u­mented.

⁵Vari­ance from the con­fid­ence in­ter­val, the hold­ing peri­od or the ob­ser­va­tion peri­od is pos­sible ow­ing to ex­cep­tion­al mar­ket cir­cum­stances, and must have the pri­or ap­prov­al of FINMA.

¹The bench­mark port­fo­lio of a se­cur­it­ies fund is as­sets without any lever­age and gen­er­ally without any de­riv­at­ives.

²The 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.

³It must be re­viewed peri­od­ic­ally, but at least once a quarter. The re­spect­ive com­pos­i­tion and any changes thereto must be doc­u­mented clearly.

⁴Where 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.

⁵The bench­mark port­fo­lio may in­clude de­riv­at­ives, where:

a.

ac­cord­ing to the fund reg­u­la­tions or pro­spect­us, the se­cur­it­ies fund is im­ple­ment­ing a long/short strategy, and in the bench­mark port­fo­lio the short ex­pos­ure is shown as de­riv­at­ives;

b.

ac­cord­ing to the fund reg­u­la­tions or pro­spect­us, the se­cur­it­ies fund is im­ple­ment­ing a cur­rency hedge in­vest­ment policy and a cur­rency hedge bench­mark port­fo­lio is used as a bench­mark.

⁶If it is not pos­sible to con­struct a rep­res­ent­at­ive bench­mark port­fo­lio on the basis of the spe­cif­ic in­vest­ment ob­ject­ives and in­vest­ment policy of a se­cur­it­ies fund, a VaR lim­it may be agreed upon with FINMA (ab­so­lute VaR lim­it). This must be stated in the pro­spect­us.

¹In 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).

²The com­par­is­on must be doc­u­mented clearly.

³The sample to be used must be com­piled from the pre­vi­ous 250 ob­ser­va­tions.

⁴If back-test­ing shows the risk as­sess­ment mod­el to be im­prac­tic­able, the audit com­pany and FINMA must be no­ti­fied forth­with.

⁵If 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.

⁶If the mod­el is im­prac­tic­able, FINMA may de­mand a swift rec­ti­fic­a­tion of any short­com­ings of the mod­el and or­der tight­er re­stric­tions on the risk.

¹In the case of se­cur­it­ies funds, ex­treme mar­ket cir­cum­stances must be sim­u­lated peri­od­ic­ally, but at least monthly (stress tests).

²Stress 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.

³Stress 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.

⁴The res­ults of the con­duc­ted stress tests and any ne­ces­sary res­ult­ing meas­ures must be clearly doc­u­mented

¹FINMA may al­low vari­ances from the re­quire­ments stip­u­lated in Art­icles 39- 43.

²It may per­mit the use of oth­er risk as­sess­ment mod­els, provided they af­ford an ap­pro­pri­ate de­gree of pro­tec­tion.

³If changes are made to the risk as­sess­ment mod­el, back-test­ing or stress tests, these changes must be sub­mit­ted to FINMA for ap­prov­al in ad­vance.

¹If 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.

²Cov­er 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.

³The fund man­age­ment com­pany or SICAV must have un­res­tric­ted ac­cess to these un­der­ly­ings or in­vest­ments at all times.

¹If 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.

²In 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.

³It must be pos­sible at all times to turn col­lat­er­al as defined in para­graph 2 in­to li­quid as­sets with­in sev­en bank­ing days.

⁴Shares 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.

⁵If an in­vest­ment may re­quire an ad­di­tion­al pay­ment, it is deemed an ob­lig­a­tion to pay.

¹In 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 CISO¹;

b.

li­quid as­sets as defined in Art­icle 75 CISO;

c.

claims against coun­ter­parties arising from OTC trans­ac­tions.

²Pur­su­ant to Art­icle 82 CISO, ex­cep­tions may be made for in­dex funds.

³Any 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.

¹In 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.

²A min­im­um lim­it may be tem­por­ar­ily un­der­cut with ex­pos­ure-re­du­cing de­riv­at­ives pur­chased as part of a hedging strategy if the in­terests of in­vestors re­main safe­guarded.

³De­riv­at­ive com­pon­ents are to be taken in­to ac­count with the cap­it­al re­quire­ment un­der Art­icle 35.

¹Claims against coun­ter­parties arising from de­riv­at­ive trans­ac­tions must be cal­cu­lated on the basis of the cur­rent pos­it­ive re­place­ment val­ues.

²Pos­it­ive 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.

³Claims 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.

¹If 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.

²The 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.

³The 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.

⁴If 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.

⁵Ref­er­ence must be made to the coun­ter­party risks of de­riv­at­ives in the pro­spect­us.

As­sets re­ceived as col­lat­er­al as part of in­vest­ment tech­niques or OTC trans­ac­tions must sat­is­fy the re­quire­ments of this sec­tion.

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.

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 CISO¹ 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 trans­ferred to them or use it as part of a re­pur­chase trans­ac­tion or to hedge ob­lig­a­tions arising from de­riv­at­ive fin­an­cial in­stru­ments. They may only use cash col­lat­er­al re­ceived in the cor­res­pond­ing cur­rency as li­quid as­sets or in­vest it in high-qual­ity gov­ern­ment bonds and dir­ectly or in­dir­ectly in short-term money mar­ket in­stru­ments or use it as a re­verse repo.

d.

If they ac­cept col­lat­er­al rep­res­ent­ing more than 30 per­cent of the fund as­sets, they must en­sure that the li­quid­ity risks can be cap­tured and mon­itored ap­pro­pri­ately. Reg­u­lar stress tests must be car­ried out that take ac­count of both nor­mal and ex­cep­tion­al li­quid­ity con­di­tions. The con­trols car­ried out must be doc­u­mented.

e.

They must take ac­count of the risks as­so­ci­ated with the man­age­ment of col­lat­er­al in their risk man­age­ment pro­cess.

f.

They must be in a po­s­i­tion to at­trib­ute any un­covered claims re­main­ing after the real­isa­tion of col­lat­er­al to the se­cur­it­ies funds whose as­sets were the sub­ject of the un­der­ly­ing trans­ac­tions.

¹The 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.

²They must doc­u­ment the col­lat­er­al strategy.

¹The col­lat­er­al re­ceived must be kept at the cus­todi­an bank.

²Safe­keep­ing 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.

³In 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.

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.

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.

¹In ad­di­tion to the in­form­a­tion set out in Art­icles 35a and 62b CISO¹, 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 the as­sets of the mas­ter fund up un­til the ap­plic­a­tion is ap­proved pur­su­ant to Art­icle 63 or 64.

²In ad­di­tion to the in­form­a­tion set out in Art­icle 106 CISO, the pro­spect­us of a feed­er 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.

a de­scrip­tion of the mas­ter fund in­clud­ing the in­vest­ment strategy and risk pro­file;

c.

a sum­mary of the most im­port­ant con­tent of the agree­ments on co­oper­a­tion and du­ties of dis­clos­ure con­cluded in ac­cord­ance with Art­icles 58, 61 and 62;

d.

the loc­a­tion from which fur­ther in­form­a­tion about the mas­ter fund and the agree­ments on co­oper­a­tion and du­ties of dis­clos­ure con­cluded may be ob­tained free of charge.

³The an­nu­al re­port of the feed­er fund shall in­dic­ate the loc­a­tion from which the an­nu­al and semi-an­nu­al re­ports of the mas­ter fund may be ob­tained free of charge.

⁴The mar­ket­ing doc­u­ments and the key in­vestor in­form­a­tion doc­u­ment on the feed­er fund shall in­clude a state­ment that it is a feed­er fund which in­vests at least 85 per­cent of its as­sets in a spe­cif­ic mas­ter fund.

¹The 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.

²The 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.

the ways in which the feed­er fund may in­vest in the mas­ter fund as well as de­tails of the costs and ex­penses to be borne by the feed­er fund;

g.

the prin­ciples and ar­range­ments for im­ple­ment­ing the meas­ures set out in para­graph 4;

h.

the ar­range­ments for re­port­ing the de­fer­ral of is­sues and re­demp­tions and for re­port­ing er­rors in the set­ting of prices by the mas­ter fund;

i.

the prin­ciples for re­con­cil­ing the audit re­ports of the mas­ter fund and feed­er fund.

³If the mas­ter fund and feed­er fund are man­aged by the same fund man­age­ment com­pany or SICAV, the agree­ment on co­oper­a­tion and du­ties of dis­clos­ure may be re­placed by in­tern­al reg­u­la­tions. These must con­tain meas­ures to pre­vent con­flicts of in­terest. In all oth­er re­spects, the in­tern­al reg­u­la­tions must meet the re­quire­ments set out in para­graph 2 let­ters f–i.

⁴The mas­ter fund and feed­er fund shall take meas­ures to co­ordin­ate the sched­ules for cal­cu­lat­ing and pub­lish­ing the net as­set value in or­der to pre­vent mar­ket tim­ing and pos­sib­il­it­ies for ar­bit­rage.

¹The mas­ter fund shall in­form FINMA without delay of the iden­tity of every feed­er fund that in­vests in its units.

²It shall not charge the feed­er fund an is­sue or re­demp­tion com­mis­sion for in­vest­ments in its units.

³It 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.

¹The feed­er fund shall provide its cus­todi­an bank with all the in­form­a­tion re­gard­ing the mas­ter fund that it needs in or­der to ful­fil its task.

²It shall take ef­fect­ive meas­ures to mon­it­or the activ­it­ies of the mas­ter fund.

³When cal­cu­lat­ing its over­all ex­pos­ure in ac­cord­ance with Art­icle 72 para­graph 3 CISO¹, it shall take ac­count of the over­all ex­pos­ure of the mas­ter fund in pro­por­tion to the feed­er fund’s in­vest­ments in the mas­ter fund.

⁴If 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.

¹If 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.

²If 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 co­oper­a­tion and du­ties of dis­clos­ure to en­sure the ful­fil­ment of their du­ties. This agree­ment shall, as a min­im­um, con­tain the fol­low­ing points:

a.

a de­scrip­tion of the doc­u­ments and cat­egor­ies of in­form­a­tion that the two cus­todi­an banks ex­change on a reg­u­lar basis, in­clud­ing the ar­range­ments for and tim­ing of such ex­changes;

b.

the prin­ciples re­gard­ing the hand­ling of op­er­a­tion­al is­sues, in­clud­ing the cal­cu­la­tion of the net as­set value, pro­tec­tion against mar­ket tim­ing, and the pro­cessing of or­ders of the feed­er fund;

c.

the ar­range­ments for the re­port­ing of vi­ol­a­tions of stat­utory and con­trac­tu­al pro­vi­sions by the mas­ter fund;

d.

oth­er points that are ne­ces­sary for the co­oper­a­tion between the cus­todi­an banks.

³When ex­chan­ging data, the cus­todi­an banks shall com­ply with their stat­utory and con­trac­tu­al ob­lig­a­tions re­gard­ing the dis­clos­ure of data and data pro­tec­tion.

¹In 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.

²In 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.

³If 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 that the two audit com­pan­ies ex­change on a reg­u­lar basis, in­clud­ing the ar­range­ments for and tim­ing of such ex­changes;

b.

the co­ordin­a­tion of the role of the audit com­pan­ies in the pro­cess of com­pil­ing the an­nu­al fin­an­cial state­ments for the mas­ter fund and feed­er fund;

c.

a state­ment of the in­form­a­tion that must be in­cluded in the audit re­port for the mas­ter fund in ac­cord­ance with para­graph 2;

d.

oth­er ar­range­ments gov­ern­ing the co­oper­a­tion between the audit com­pan­ies as well as the com­pil­a­tion and trans­fer of the short-form and ad-hoc re­ports.

¹Fol­low­ing 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.

²The 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.

¹If 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.

²Sim­ul­tan­eously with the no­ti­fic­a­tion, the feed­er fund shall sub­mit to FINMA any ne­ces­sary ap­plic­a­tion for ap­prov­al of amend­ments to the fund con­tract or in­vest­ment reg­u­la­tions.

³If 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.

¹The 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.

²The above must be read sub­ject to Art­icles 100 and 101 CISO¹.

³FINMA may per­mit de­vi­ations from these pro­vi­sions (Art. 101 CISO).

¹For the pur­poses of this Art­icle, tasks are deemed to have been del­eg­ated if a li­censee pur­su­ant to para­graph 2 trans­fers ma­ter­i­al tasks to a third party and this res­ults in a change to the cir­cum­stances un­der which the au­thor­isa­tion was gran­ted.

²The fund man­age­ment com­pany, SICAV, as­set man­ager of col­lect­ive in­vest­ment schemes and rep­res­ent­at­ive of for­eign col­lect­ive in­vest­ment schemes shall set out the tasks del­eg­ated to third parties in writ­ten agree­ments. These shall in­clude a pre­cise de­scrip­tion of the del­eg­ated tasks as well as the powers and re­spons­ib­il­it­ies, any au­thor­it­ies in re­spect of fur­ther del­eg­a­tion, the agent’s duty to give an ac­count of its activ­it­ies, and the con­trol rights of the li­censee.

³The or­gan­isa­tion­al struc­ture shall not be deemed ap­pro­pri­ate with­in the mean­ing of Art­icle 14 CISA if a li­censee pur­su­ant to para­graph 2:

a.

does not pos­sess the de­cision-mak­ing au­thor­ity with re­spect to cent­ral tasks that is ac­cor­ded to the board of dir­ect­ors or ex­ec­ut­ive board;

b.

does not have the ne­ces­sary per­son­nel and ex­pert­ise to se­lect, in­struct and mon­it­or agents and man­age their risks; or

c.

does not have the re­quis­ite rights of in­struc­tion and con­trol in re­spect of the agents, or does so only to a lim­ited ex­tent.

⁴The del­eg­a­tion of tasks may not hinder the audit by the audit com­pany or su­per­vi­sion by FINMA.

⁵Where tasks are del­eg­ated abroad, the li­censee must be able to demon­strate that it, the reg­u­lat­ory audit com­pany and FINMA are able to ex­er­cise their re­spect­ive rights and en­force them un­der the law. The reg­u­lat­ory audit com­pany must re­view the con­firm­at­ory doc­u­ment­a­tion be­fore out­sourcing takes place.

⁶Li­censees pur­su­ant to para­graph 1 shall set out the del­eg­ated tasks as well as in­form­a­tion on the scope for fur­ther del­eg­a­tion in their or­gan­isa­tion­al reg­u­la­tions.

¹The board of dir­ect­ors of the fund man­age­ment com­pany, SICAV or as­set man­ager of col­lect­ive in­vest­ment schemes shall put in place an in­tern­al con­trol sys­tem based on sys­tem­at­ic risk ana­lys­is and mon­it­or it in such a way as to en­sure that all ma­ter­i­al risks of the li­censee are ap­pro­pri­ately and ef­fect­ively cap­tured, as­sessed, man­aged and mon­itored.

²The ex­ec­ut­ive board of the fund man­age­ment com­pany, SICAV or as­set man­ager of col­lect­ive in­vest­ment schemes shall im­ple­ment the re­quire­ments of the board of dir­ect­ors with re­gard to the set­ting up, main­ten­ance and reg­u­lar re­view of the in­tern­al con­trol sys­tem. It shall de­vel­op suit­able pro­cesses to im­ple­ment the con­trol activ­it­ies that are to be in­teg­rated in­to work­ing pro­cesses and to con­trol risks.

¹The fund man­age­ment com­pany, SICAV and as­set man­ager of col­lect­ive in­vest­ment schemes shall set down ap­pro­pri­ate risk man­age­ment and risk con­trol prin­ciples as well as the or­gan­isa­tion of risk man­age­ment and risk con­trol in in­tern­al guidelines.

²They shall in­clude the risks that:

a.

they are or could be ex­posed to as a res­ult of the en­tirety of their busi­ness activ­it­ies;

b.

the col­lect­ive in­vest­ment schemes man­aged by them as well as oth­er as­sets man­aged by them un­der the terms of man­dates are or could be ex­posed to.

³The in­tern­al guidelines shall set out:

a.

the or­gan­isa­tion of risk man­age­ment and risk con­trol, in­clud­ing the re­spons­ib­il­it­ies with­in the li­censee;

b.

the types of risk at the level of the activ­it­ies of the li­censee, the col­lect­ive in­vest­ment schemes man­aged, and the as­sets man­aged un­der the terms of man­dates;

c.

the pro­cesses and sys­tems for as­sess­ing and man­aging all ma­ter­i­al risks of the li­censee and the col­lect­ive in­vest­ment schemes, and in par­tic­u­lar their mar­ket, li­quid­ity and coun­ter­party risk;

d.

the tasks, re­spons­ib­il­it­ies and the fre­quency of re­port­ing to the board of dir­ect­ors and ex­ec­ut­ive board.

⁴When draft­ing the in­tern­al guidelines and struc­tur­ing the or­gan­isa­tion of risk man­age­ment, ac­count must be taken of the nature, scope and com­plex­ity of the trans­ac­tions car­ried out, the col­lect­ive in­vest­ment schemes man­aged, and the as­sets man­aged un­der the terms of man­dates.

⁵The use of in­vest­ment tech­niques and de­riv­at­ives must be gov­erned by in­tern­al guidelines and re­viewed peri­od­ic­ally. With re­spect to the use of de­riv­at­ives, the in­tern­al guidelines shall also gov­ern the fol­low­ing areas, in ac­cord­ance with the struc­ture and risks of the li­censee:

a.

Risk policy:

1.

Per­mit­ted de­riv­at­ives,

2.

Re­quire­ments to be met by coun­ter­parties,

3.

Mar­ket li­quid­ity re­quire­ments,

4.

In re­la­tion to the use of in­dex products: re­quire­ments in terms of rep­res­ent­at­ive­ness and cor­rel­a­tion;

b.

Risk con­trol:

1.

Iden­ti­fic­a­tion, as­sess­ment and mon­it­or­ing (con­trolling) of risks,

2.

Au­thor­it­ies and lim­its,

3.

Risk as­sess­ment pro­ced­ures,

4.

Es­cal­a­tion pro­ced­ures in the event of lim­it over­runs,

5.

Ad­di­tion­ally, for the mod­el ap­proach:

–

Meth­od of veri­fy­ing the risk as­sess­ment mod­els, in par­tic­u­lar VaR

–

Es­cal­a­tion pro­ced­ures and meas­ures in the event of un­sat­is­fact­ory res­ults of veri­fic­a­tion tests

–

Com­pos­i­tion of the bench­mark port­fo­li­os and changes to them, mon­it­or­ing of the pro­cess used to de­term­ine the bench­mark port­fo­lio

–

Stress tests;

c.

Pro­cessing and valu­ation:

1.

Doc­u­ment­a­tion of trans­ac­tions,

2.

Valu­ation mod­els to be used,

3.

Data and data sup­pli­ers to be used.

¹The fund man­age­ment com­pany, SICAV and as­set man­ager of col­lect­ive in­vest­ment schemes shall reg­u­larly re­view the ap­pro­pri­ate­ness and ef­fect­ive­ness of the risk man­age­ment prin­ciples as well as the defined pro­cesses and sys­tems.

²Com­pli­ance with the risk man­age­ment prin­ciples and defined pro­cesses as well as the ap­pro­pri­ate­ness and ef­fect­ive­ness of the meas­ures to rem­edy any short­com­ings in the risk man­age­ment pro­cess are part of the re­port­ing to the board of dir­ect­ors and ex­ec­ut­ive board.

³The use of in­vest­ment tech­niques and de­riv­at­ives, the man­age­ment of col­lat­er­al and the res­ult­ing risks must be ap­pro­pri­ately in­cor­por­ated in­to the risk man­age­ment of the col­lect­ive in­vest­ment schemes man­aged.

¹The fund man­age­ment com­pany, SICAV and as­set man­ager of col­lect­ive in­vest­ment schemes shall have suf­fi­ciently qual­i­fied spe­cial­ist per­son­nel to carry out risk con­trol.

²Risk con­trol shall identi­fy, as­sess and mon­it­or:

a.

the risks entered in­to by the li­censee;

b.

the risks of each in­di­vidu­al po­s­i­tion of the col­lect­ive in­vest­ment schemes man­aged and their over­all risk; and

c.

the risks of any oth­er man­age­ment man­dates.

³Risk con­trol shall be kept func­tion­ally and hier­arch­ic­ally sep­ar­ate from op­er­a­tion­al busi­ness units, in par­tic­u­lar the func­tion con­cerned with in­vest­ment de­cisions (port­fo­lio man­age­ment). It must be able to act in­de­pend­ently.

¹When us­ing de­riv­at­ives, cal­cu­la­tion of the cur­rent over­all ex­pos­ure lim­its and on­go­ing com­pli­ance with them must be en­sured at all times.

²Risk con­trol shall re­view the valu­ation mod­els and pro­cesses.

³In the case of phys­ic­al de­liv­ery ob­lig­a­tions arising from de­riv­at­ives, risk con­trol shall reg­u­larly re­view and en­sure that cov­er in ac­cord­ance with Art­icles 44 and 45 is avail­able in the ne­ces­sary amount.

⁴In the case of col­lect­ive in­vest­ment schemes to which the mod­el ap­proach is ap­plied, the ex­ec­ut­ive board shall, in ac­cord­ance with their risk pro­file, ap­prove a doc­u­mented sys­tem of up­per lim­its for po­ten­tial risk amounts (VaR lim­its).

⁵In the case of col­lect­ive in­vest­ment schemes to which the mod­el ap­proach is ap­plied, the risk con­trol func­tion of the fund man­age­ment com­pany or SICAV shall be ac­count­able and re­spons­ible for the fol­low­ing tasks in re­spect of risk as­sess­ment pro­cesses:

a.

re­view­ing, main­tain­ing and re­fin­ing the risk as­sess­ment mod­el;

b.

en­sur­ing that the risk as­sess­ment mod­el is suit­able for the col­lect­ive in­vest­ment scheme con­cerned;

c.

val­id­at­ing and im­ple­ment­ing the sys­tem of VaR lim­its for each col­lect­ive in­vest­ment scheme in ac­cord­ance with its risk pro­file;

d.

de­term­in­ing and ana­lys­ing the po­ten­tial risk amounts on an on­go­ing basis and mon­it­or­ing the up­per lim­its;

e.

reg­u­larly mon­it­or­ing the gross over­all ex­pos­ure of the col­lect­ive in­vest­ment scheme, in par­tic­u­lar its lever­age;

f.

re­port­ing reg­u­larly to the in­tern­al body re­spons­ible re­gard­ing the cur­rent po­ten­tial risk amounts, back-test­ing and the res­ults of stress tests.

¹The fund man­age­ment com­pany and self-man­aged SICAV shall en­sure that the valu­ation of in­vest­ments is sep­ar­ated from the func­tion con­cerned with in­vest­ment de­cisions (port­fo­lio man­age­ment), both func­tion­ally and in terms of per­son­nel.

²They shall have suf­fi­cient qual­i­fied spe­cial­ist staff to carry out the valu­ation.

¹When cal­cu­lat­ing the thresholds for as­sets man­aged by the as­set man­ager of col­lect­ive in­vest­ment schemes, as­sets whose man­age­ment has been del­eg­ated by the as­set man­ager to third parties must also be taken in­to ac­count.

²Where an as­set man­ager of col­lect­ive in­vest­ment schemes man­ages a col­lect­ive in­vest­ment scheme that holds units of an­oth­er col­lect­ive in­vest­ment scheme man­aged by that as­set man­ager, the as­sets con­cerned need only be taken in­to ac­count once when cal­cu­lat­ing the thresholds.

¹The value of the as­sets un­der man­age­ment must be de­term­ined for each col­lect­ive in­vest­ment scheme man­aged on the basis of the leg­al pro­vi­sions ap­ply­ing in the state of dom­i­cile of the col­lect­ive in­vest­ment scheme as well as any valu­ation rules set down in the rel­ev­ant doc­u­ments of the col­lect­ive in­vest­ment scheme.

²The con­ver­sion amount for the over­all ex­pos­ure arising from lever­age fin­an­cing is cal­cu­lated in ac­cord­ance with com­mit­ment ap­proach II.

³The cap­it­al com­mit­ments in ac­cord­ance with Art­icle 1b para­graph 1 let­ter d CISO¹ are cal­cu­lated as the sum of all amounts that the col­lect­ive in­vest­ment scheme / its fund man­age­ment com­pany can call from in­vestors on the basis of bind­ing com­mit­ments.

⁴The nom­in­al value of a col­lect­ive in­vest­ment scheme in ac­cord­ance with Art­icle 1b para­graph 1 let­ter d CISO is the sum of the cap­it­al com­mit­ments less the re­pay­ments already made to in­vestors.

¹Pro­fes­sion­al in­dem­nity in­sur­ance for as­set man­agers of col­lect­ive in­vest­ment schemes in ac­cord­ance with Art­icle 21 para­graph 3 let­ter b CISO¹ must meet the fol­low­ing re­quire­ments:

a.

It must be taken out with an in­sur­ance com­pany with­in the mean­ing of the In­sur­ance Su­per­vi­sion Act of 17 Decem­ber 2004².

b.

The term must be at least one year.

c.

The no­tice peri­od must be at least 90 days.

d.

As a min­im­um, the pro­fes­sion­al in­dem­nity risks set out in Art­icle 76 must be covered.

²In­sur­ance cov­er­age for an in­di­vidu­al claim must cor­res­pond to at least 0.7 per­cent of the total as­sets of the col­lect­ive in­vest­ment schemes man­aged by the as­set man­ager of col­lect­ive in­vest­ment schemes.

³In­sur­ance cov­er­age for all claims in a year must cor­res­pond to at least 0.9 per­cent of the total as­sets of the col­lect­ive in­vest­ment schemes man­aged by the as­set man­ager of col­lect­ive in­vest­ment schemes.

⁴The re­quire­ments with re­gard to pro­fes­sion­al in­dem­nity in­sur­ance must be com­plied with at all times.

¹The pro­fes­sion­al in­dem­nity in­sur­ance pur­su­ant to Art­icle 21 para­graph 3 let­ter b CISO¹ must cov­er the risk of loss or dam­age caused by the neg­li­gent per­form­ance of activ­it­ies for which the as­set man­ager of col­lect­ive in­vest­ment schemes is leg­ally re­spons­ible.

²The pro­fes­sion­al in­dem­nity risks pur­su­ant to para­graph 1 in­clude, inter alia:

a.

the risk of the loss of doc­u­ment­ary evid­ence prov­ing the col­lect­ive in­vest­ment scheme’s own­er­ship of as­sets un­der man­age­ment;

b.

the risk of mis­rep­res­ent­a­tions or mis­lead­ing state­ments to the col­lect­ive in­vest­ment scheme man­aged or its in­vestors;

c.

the risk of con­duct that vi­ol­ates:

1.

stat­utory and con­trac­tu­al ob­lig­a­tions,

2.

du­ties of loy­alty, due di­li­gence and dis­clos­ure to the col­lect­ive in­vest­ment scheme man­aged and its in­vestors,

3.

pro­vi­sions of the as­set man­age­ment agree­ment re­lat­ing to the col­lect­ive in­vest­ment scheme, the fund con­tract or the art­icles of as­so­ci­ation of the col­lect­ive in­vest­ment scheme;

d.

the risk that ap­pro­pri­ate pro­cesses for pre­vent­ing dis­hon­est, fraud­u­lent or ma­li­cious ac­tions are not es­tab­lished, im­ple­men­ted or main­tained;

e.

the risk of as­sets not be­ing val­ued in ac­cord­ance with the rules;

f.

the risk of losses due to an in­ter­rup­tion of busi­ness, sys­tem out­ages or a fail­ure of trans­ac­tion pro­cessing or pro­cess man­age­ment.

¹The cus­todi­an bank shall en­sure that its premises, staff and func­tions are in­de­pend­ent of the fund man­age­ment com­pany or SICAV.

²Where tasks are del­eg­ated to the cus­todi­an bank by the fund man­age­ment com­pany or the SICAV, meas­ures must be put in place to en­sure that no con­flicts of in­terest arise. Ma­na­geri­al in­de­pend­ence between the del­eg­at­ing fund man­age­ment com­pany or SICAV and/or its agents, on the one hand, and those en­trus­ted with the tasks of the cus­todi­an bank in ac­cord­ance with Art­icle 73 CISA must be en­sured. Where con­flicts of in­terest are un­avoid­able, they must be dis­closed to the in­vestors.

³Those en­trus­ted with the tasks of the cus­todi­an bank in ac­cord­ance with Art­icle 73 CISA may not sim­ul­tan­eously per­form tasks del­eg­ated by the fund man­age­ment com­pany or SICAV.

¹In or­der to carry out its con­trol tasks in ac­cord­ance with Art­icle 73 para­graph 3 let­ters a and b CISA, the cus­todi­an bank shall as­sess the risks in con­nec­tion with the nature, scope and com­plex­ity of the strategy of the col­lect­ive in­vest­ment scheme in or­der to de­vel­op con­trol pro­cesses that are ap­pro­pri­ate to the col­lect­ive in­vest­ment scheme and the as­sets in which it in­vests.

²The cus­todi­an bank shall is­sue ap­pro­pri­ate in­tern­al guidelines to this ef­fect set­ting out, as a min­im­um:

a.

how it or­gan­ises its con­trol func­tion, in par­tic­u­lar what roles there are and who is re­spons­ible for what;

b.

the con­trol pro­cesses in ac­cord­ance with which the con­trols, in­clud­ing those car­ried out when trans­fer­ring safe­keep­ing to a third-party cus­todi­an or col­lect­ive se­cur­it­ies de­pos­it­ory with­in the mean­ing of Art­icle 105a CISO¹, are to be car­ried out;

c.

the con­trol plan and the con­trol pro­cesses, in par­tic­u­lar the meth­ods, data basis and fre­quency of con­trols;

d.

the es­cal­a­tion pro­cesses that are triggered when ir­reg­u­lar­it­ies are iden­ti­fied, in par­tic­u­lar the pro­cess steps, dead­lines, con­tacts with the fund man­age­ment com­pany or SICAV and oth­er rel­ev­ant parties, pro­ced­ures for de­fin­ing meas­ures and du­ties of dis­clos­ure;

e.

the cus­todi­an bank’s re­port­ing on its con­trol activ­it­ies to the gov­ern­ing bod­ies, in par­tic­u­lar the fre­quency, form and con­tent there­of as well as any fur­ther ad­dress­ees.

³In re­spect of the fund man­age­ment com­pany, the cus­todi­an bank has the right and duty to in­ter­vene to pre­vent in­vest­ments that are not per­mit­ted. If, in the ex­er­cise of its con­trol func­tion, it be­comes aware of such in­vest­ments, it shall re­store com­pli­ance with the law by, for ex­ample, ar­ran­ging for the in­vest­ments to be re­versed.

(Arts. 87 and 91 CISA)

¹Un­less the CISA and this Or­din­ance provide oth­er­wise, the pro­vi­sions set out in the Code of Ob­lig­a­tions¹ (CO) in ac­cord­ance with Art­icle 87 CISA ap­ply in re­spect of ac­count­ing.

²Ac­count­ing must com­ply with the stat­utory re­quire­ments for the an­nu­al and semi-an­nu­al re­ports (Art. 89 et seq. CISA) and be con­duc­ted in such a way that the ac­counts provide a true and fair view of the fin­an­cial situ­ation and in­come.

³Trans­ac­tions, in­clud­ing off-bal­ance-sheet trans­ac­tions, must be re­cog­nised im­me­di­ately after con­clu­sion of the con­tract. Con­cluded trans­ac­tions that have not yet been ex­ecuted must be ac­coun­ted for by us­ing the clos­ing date prin­ciple.

⁴The ac­count­ing must take ac­count of the tax law re­quire­ments.

(Arts. 26 para. 1, 108 CISA; Art. 35a para. 1 let. o CISO¹)

¹A for­eign cur­rency may be des­ig­nated as the unit of ac­count for:

a.

an in­vest­ment fund or its sub-funds in the fund reg­u­la­tions;

b.

the sub-funds of a SICAV in the in­vest­ment reg­u­la­tions;

c.

a lim­ited part­ner­ship for col­lect­ive in­vest­ment in the part­ner­ship agree­ment.

²In its in­vest­ment reg­u­la­tions, a SICAV must also spe­cify the cur­rency which will serve as the unit of ac­count for the over­all ac­counts (Art. 98), as well as the con­ver­sion pro­cess.

³If a for­eign cur­rency is used in ac­count­ing, the val­ues must not also be giv­en in the loc­al cur­rency.

(Arts. 92–94 CISA; Arts. 112 and 113 CISO¹)

¹In the case of col­lect­ive in­vest­ment schemes which in­clude sub-funds, the pro­vi­sions of this title ap­ply to each in­di­vidu­al sub-fund.

²The sub-funds must be presen­ted sep­ar­ately in the an­nu­al and semi-an­nu­al re­ports.

³The ac­count­ing year ends on the same date for all sub-funds.

⁴In the case of unit classes, the net as­set value must be dis­closed for each class.

(Arts. 11 and 73 para. 1 CISA)

¹The cus­todi­an bank shall re­cord the is­sue and re­demp­tion of units, in­clud­ing frac­tions there­of, on a con­tinu­ous basis. It shall re­cord the fol­low­ing de­tails:

a.

the date of is­sue or re­demp­tion;

b.

the num­ber of units is­sued or re­deemed;

c.

the gross amount paid by the in­vestor or net pay­ment made to the in­vestor;

d.

the fees and in­cid­ent­al costs in re­la­tion to the is­sue or re­demp­tion;

e.

the amount cred­ited or deb­ited to the col­lect­ive in­vest­ment scheme;

f.

the net as­set value of the unit.

²In the case of re­gistered units, the iden­tity of the in­vestor must also be re­cor­ded.

³The cus­todi­an bank shall re­cord the is­sue and re­demp­tion of unit cer­ti­fic­ates sep­ar­ately.

(Arts. 59 para. 1 let. b, 83 CISA; Arts. 86 para. 3 let. b and 93 CISO¹)

¹The real es­tate fund and real es­tate com­pan­ies owned by it must close their ac­counts on the same day. FINMA may grant ex­emp­tions provided con­sol­id­ated fin­an­cial state­ments are pro­duced.

²The cal­cu­la­tion of the net as­set value must take ac­count of taxes (in­come and real es­tate gains tax and, if ap­plic­able, real es­tate trans­fer tax) in­curred in con­nec­tion with any li­quid­a­tion of the real es­tate fund.

³De­pre­ci­ation of build­ings, in­clud­ing fix­tures, may be charged to the profit and loss ac­count provided it is eco­nom­ic­ally reas­on­able.

(Arts. 88 and 89 para. 2 CISA)

¹In­vest­ments are val­ued at mar­ket value (Art. 88 CISA).

²In the notes to the state­ment of net as­sets, or bal­ance sheet and profit and loss ac­count (Arts. 94 and 95), the in­vest­ments are to be sum­mar­ised in a table ac­cord­ing to the fol­low­ing three valu­ation cat­egor­ies:

a.

trad­ing of in­vest­ments lis­ted in a stock ex­change or in an­oth­er reg­u­lated mar­ket open to the pub­lic and val­ued ac­cord­ing to the prices in the primary mar­ket (Art. 88 para 1 CISA);

b.

in­vest­ments that are not priced ac­cord­ing to let. a whose value is based on mar­ket-ob­served para­met­ers;

c.

in­vest­ments whose value can­not be based on mar­ket-ob­served para­met­ers and are val­ued with suit­able valu­ation mod­els tak­ing ac­count of the cur­rent mar­ket cir­cum­stances.

(Arts. 88 para. 2 and 108 CISA)

¹Private equity in­vest­ments are val­ued in ac­cord­ance with re­cog­nised in­ter­na­tion­al stand­ards, provided the valu­ation is not gov­erned by this Or­din­ance.

²The stand­ards ap­plied must be de­scribed in de­tail in the pro­spect­us or reg­u­la­tions.

(Arts. 88 and 90 CISA)

Build­ings un­der con­struc­tion must be re­cog­nised at mar­ket price in the state­ment of net as­sets. The fund man­age­ment or SICAV provides an es­tim­a­tion of build­ings un­der con­struc­tion re­cog­nised at mar­ket price at the clos­ing of the fin­an­cial year.

¹The tan­gible and in­tan­gible as­sets of the com­pany share­hold­ers of a SICAV must be val­ued at ac­quis­i­tion or pro­duc­tion cost less any eco­nom­ic­ally ne­ces­sary de­pre­ci­ation.

²The valu­ation prin­ciples for the tan­gible and in­tan­gible as­sets must be dis­closed un­der ad­di­tion­al in­form­a­tion. If they are amended, the re­stated data for the pre­vi­ous year must also be dis­closed for in­form­a­tion pur­poses.

³The oth­er as­sets of a SICAV shall be val­ued in ac­cord­ance with Art­icles 84 to 86.

(Arts. 88 para. 2 and 108 CISA)

Art­icles 84–87 ap­ply mu­tatis mutandis to the valu­ation pro­cess.

(Art. 117 CISA)

¹The valu­ation meth­ods ap­plied to pre­pare the single en­tity fin­an­cial state­ments (Art. 109 para. 1) shall be in ac­cord­ance with the pro­vi­sions of ac­count­ing. In ad­di­tion, the mar­ket val­ues of the in­vest­ments must be in­dic­ated for in­form­a­tion pur­poses.

²The valu­ation meth­ods ap­plied to pre­pare the con­sol­id­ated fin­an­cial state­ments (Art. 109 para. 2) are as stip­u­lated in the or­din­ance in ac­cord­ance with in­ter­na­tion­ally re­cog­nised ac­count­ing stand­ards of 21 Novem­ber 2012¹ (VASR).

(Arts. 88, 108 CISA)

¹The valu­ation meth­ods ap­plied (Art. 85) must be dis­closed in the an­nu­al and semi-an­nu­al re­ports.

²If an in­vest­ment is re­cog­nised be­low cost, this fact must be dis­closed.

³In the case of col­lect­ive in­vest­ment schemes which can in­vest more than 10 per­cent of their as­sets in private equity, the fol­low­ing min­im­um in­form­a­tion on the in­di­vidu­al private equity in­vest­ments, clas­si­fied by type and phase of de­vel­op­ment, must be provided if they ac­count for more than 2 per­cent of the as­sets of the col­lect­ive in­vest­ment scheme:

a.

de­scrip­tion of the in­vest­ment (name, re­gistered of­fice, pur­pose, cap­it­al stock and equity stake);

b.

de­scrip­tion of the busi­ness activ­ity and any sig­ni­fic­ant de­vel­op­ments;

c.

in­form­a­tion on the board of dir­ect­ors and ex­ec­ut­ive board;

d.

cat­egor­isa­tion by de­vel­op­ment phase (such as seed, early stage or buy­out);

e.

scope of com­mit­ments entered in­to.

(Art. 90 para. 1 CISA; Art. 68 CISO¹)

¹If sub­si­di­ary com­pan­ies are used to im­ple­ment the in­vest­ment policy, a trans­par­ent sub­stance-over-form ap­proach must be ap­plied to the ac­counts (such as in the state­ment of net as­sets, or the bal­ance sheet and profit and loss ac­count, in­vent­ory, buy and sell trans­ac­tions).

²The com­pan­ies must be con­sol­id­ated in ac­cord­ance with a VASR² stand­ard. There­fore, the ac­count­ing prin­ciples ap­plied to them must be for con­sol­id­a­tion pur­poses.

(Art. 36 para. 1b CISA; Arts. 68, 70, 86 and 99 CISO¹)

¹The an­nu­al ac­counts of a SICAV com­prise the an­nu­al ac­counts re­lat­ing to the in­di­vidu­al pools of in­vestor as­sets (sub-funds) and the an­nu­al ac­counts re­lat­ing to the share­hold­ers’ as­sets, and the over­all ac­counts of the SICAV.

²The an­nu­al ac­counts dis­close the per­mit­ted in­vest­ments pur­su­ant to Art­icles 70, 86 and 99 CISO in re­spect of the in­vestors' as­sets.

³In re­spect of the share­hold­ers' as­sets, the an­nu­al ac­counts dis­close the fol­low­ing:

a.

per­mit­ted in­vest­ments with­in the mean­ing of para­graph 2 and the mov­able, im­mov­able and in­tan­gible as­sets es­sen­tial for im­me­di­ate busi­ness op­er­a­tions of the SICAV;

b.

the per­mit­ted li­ab­il­it­ies.

⁴Short-term li­ab­il­it­ies and li­ab­il­it­ies se­cured by mort­gage, entered in­to in con­nec­tion with the SICAV's im­me­di­ate busi­ness op­er­a­tions, are per­mit­ted.

⁵The an­nu­al ac­counts re­lat­ing to one or more se­lec­ted pools of in­vestor as­sets may only be pub­lished to­geth­er with the over­all ac­counts of the SICAV.

⁶The an­nu­al ac­counts form part of the an­nu­al re­port, which re­place the busi­ness re­port un­der the CO². A man­age­ment re­port and a cash flow state­ment are not re­quired.

(Art. 91 CISA)

The state­ment of net as­sets, or the bal­ance sheet and profit and loss ac­count for in­vest­ment funds and sub-funds must be pub­lished in the an­nu­al and semi-an­nu­al re­ports, whereby a min­im­um break­down un­der Art­icles 67-71 must be en­sured.

(Arts. 53–57 and 89 CISA; Arts. 70–85 CISO¹

For se­cur­it­ies funds, the state­ment of net as­sets, or the bal­ance sheet and profit and loss ac­count, have the min­im­um struc­ture set out in An­nex 2.

(Arts. 58–57 and 67 CISA; Arts. 86-98 CISO¹)

For real es­tate funds, the state­ment of net as­sets, or the bal­ance sheet and profit and loss ac­count, have the min­im­um struc­ture set out in An­nex 3.

(Arts. 68–71 and 89 CISA; Arts. 99–102 CISO¹)

The pro­vi­sions on the min­im­um break­down for se­cur­it­ies funds (Art. 67) ap­ply mu­tatis mutandis to oth­er funds. They also in­clude the in­vest­ments per­mit­ted for oth­er funds.

(Art. 53 et seq. CISA; Art. 68 CISO¹)

¹The share­hold­ers’ as­sets must be broken down in­to:

a.

in­vest­ments;

b.

busi­ness as­sets.

²For the break­down of in­vest­ments, Art­icles 94–96 ap­ply.

³For the break­down of the busi­ness as­sets, Art­icles 959 and 959a CO² ap­ply mutatis mutandis.

⁴For the notes, Art­icle 959c CO ap­ply mu­tatis mutandis. In ad­di­tion, the valu­ation prin­ciples for the tan­gible and in­tan­gible as­sets of the com­pany share­hold­ers must be dis­closed. The notes must also provide in­form­a­tion on the risk as­sess­ment pro­cess.

⁵Com­pany share­hold­ers and share­hold­er as­so­ci­ations with aligned vot­ing rights hold­ing 5 per­cent or more of the shares must be lis­ted in the an­nu­al re­port as fol­lows:

a.

name or com­pany;

b.

place of res­id­ence or dom­i­cile;

c.

per­cent­age of shares held.

(Art. 91 CISA)

¹The over­all ac­counts of a SICAV con­sist of the bal­ance sheet, profit and loss ac­count and the notes pur­su­ant to the CO¹ and in­clude the in­vestors' as­sets and the share­hold­ers' as­sets.

²For the pur­pose of pre­par­ing the bal­ance sheet and profit and loss ac­count, the po­s­i­tions con­sti­tut­ing the in­vestors' as­sets must be ag­greg­ated. Clas­si­fic­a­tion is in ac­cord­ance with Art­icles 94–96.

³The share­hold­ers’ as­sets must be dis­closed sep­ar­ately in the bal­ance sheet and profit and loss ac­count. Items are broken down mu­tatis mutandis in ac­cord­ance with Art­icles 94–96 in the case of in­vest­ments, and Art­icle 959, 959a and 959b CO in the case of busi­ness as­sets.

⁴The over­all ac­counts of a SICAV must be struc­tured in­to in­vestors' as­sets, the share­hold­ers' as­sets and the over­all as­sets of the SICAV.

⁵The in­form­a­tion stated in Art­icle 97 para­graph 5 must also be dis­closed in the over­all fin­an­cial state­ment.

(Art. 89 para. 1 let. c CISA)

¹As a min­im­um, the in­vent­ory must be broken down by type of in­vest­ment such as se­cur­it­ies, bank cred­it bal­ances, money mar­ket in­stru­ments, de­riv­at­ive fin­an­cial in­stru­ments, pre­cious metals and com­mod­it­ies and, with­in such types of in­vest­ment, in ac­cord­ance with the in­vest­ment policy by in­dustry, geo­graph­ic­al loc­a­tion, type of se­cur­ity (An­nex 2 let. 1.4) and cur­ren­cies.

²The total amount and the per­cent­age of the over­all as­sets of the col­lect­ive in­vest­ment scheme must be in­dic­ated for each group or sub­group.

³The share in the over­all as­sets of the col­lect­ive in­vest­ment scheme must be in­dic­ated for each in­di­vidu­al value dis­closed in the in­vent­ory.

⁴Se­cur­it­ies must also be broken down as fol­lows:

a.

traded on an of­fi­cial stock ex­change;

b.

traded on an­oth­er reg­u­lated mar­ket open to the pub­lic;

c.

as defined in Art­icle 70 para­graph 3 CISO¹;

d.

as defined in Art­icle 71 para­graph 2 CISO;

e.

se­cur­it­ies that do not cor­res­pond to cat­egor­ies a–d above.

⁵The valu­ation cat­egory must be in­dic­ated for each value re­cog­nised in the in­vent­ory in ac­cord­ance with Art­icle 84 para­graph 2.

⁶In re­la­tion to the se­cur­it­ies lis­ted in para­graph 3, only the sub­total per cat­egory need be in­dic­ated and each item de­noted ac­cord­ingly.

(Art. 89 para. 1 let. c and 90 CISA)

¹As a min­im­um, the in­vent­ory must be broken down in­to:

a.

res­id­en­tial build­ings;

b.

com­mer­cially used prop­er­ties;

c.

mixed-use prop­er­ties;

d.

build­ing land, in­clud­ing prop­er­ties for de­moli­tion, and build­ings un­der con­struc­tion;

e.

units in oth­er real es­tate funds and real es­tate in­vest­ment com­pan­ies;

f.

mort­gages and oth­er ad­vances se­cured by mort­gage.

²For prop­erty in build­ings with de­vel­op­ment rights and con­domin­i­ums, the cir­cum­stances for each prop­erty and the total for each item in para­graph 1 let­ters a–d are to be in­dic­ated in the in­vent­ory.

³The in­vent­ory must in­clude in­form­a­tion on each item of land and build­ings:

a.

ad­dress;

b.

pur­chase price;

c.

es­tim­ated mar­ket value;

d.

gross in­come gen­er­ated.

⁴Any in­vest­ments in short-term fixed-in­terest se­cur­it­ies, real es­tate cer­ti­fic­ates or de­riv­at­ives must also be dis­closed.

⁵Any mort­gages and oth­er li­ab­il­it­ies se­cured by mort­gage out­stand­ing at the end of the year, as well as loans and ad­vances must be lis­ted stat­ing their in­terest terms and ma­tur­ity peri­ods.

⁶A list of the real es­tate com­pan­ies owned must be pub­lished for each real es­tate fund, in­clud­ing an in­dic­a­tion of the equity stake (vot­ing rights/cap­it­al).

⁷The items in the in­vent­ory must be in­dic­ated in ac­cord­ance with the three valu­ation cat­egor­ies un­der Art­icle 84 para­graph 2. If all the in­vest­ment prop­erty have the same valu­ation cat­egory, they can be put to­geth­er and sum­mar­ised un­der the total prop­erty port­fo­lio.

(Art. 89 para. 1 let. e CISA)

¹All changes in the com­pos­i­tion of the col­lect­ive in­vest­ment scheme, in par­tic­u­lar buy, sell, off-bal­ance-sheet ex­pos­ures, bo­nus shares, sub­scrip­tion rights and splits, must be dis­closed in the an­nu­al re­port. The in­di­vidu­al as­sets must be de­scribed in pre­cise terms.

²In the case of real es­tate funds, each prop­erty ac­quired or sold must be lis­ted in­di­vidu­ally. The agreed price must be dis­closed at the re­quest of any in­vestor.

³In the case of real es­tate funds, trans­ac­tions between col­lect­ive in­vest­ment schemes which are man­aged by the same or an as­so­ci­ated fund man­age­ment com­pany or SICAV must be dis­closed sep­ar­ately.

⁴Mort­gages and ad­vances se­cured by mort­gage which have been gran­ted over the course of the fin­an­cial year and re­deemed pri­or to the end of that fin­an­cial year must be lis­ted, in­clud­ing in­terest terms and ma­tur­ity peri­ods.

⁵Mort­gages and oth­er li­ab­il­it­ies se­cured by mort­gage, as well as loans and ad­vances which have been taken up and re­paid with­in the fin­an­cial year, must be lis­ted, in­clud­ing in­terest terms and ma­tur­ity peri­ods, or sum­mar­ised per cat­egory with an av­er­age ma­tur­ity peri­od and an av­er­age in­terest rate.

(Art. 89 CISA)

¹For each col­lect­ive in­vest­ment scheme, any changes in the fund's net as­sets must be itemised and con­tain at least:

a.

the fund's net as­sets at the be­gin­ning of the re­port­ing year;

b.

dis­tri­bu­tions;

c.

bal­ance from unit trans­ac­tions;

d.

over­all net in­come;

e.

the fund's net as­sets at the end of the re­port­ing year.

²The unit stat­ist­ics for the re­port­ing year must also be dis­closed (Art. 89 para. 1 let. b CISA).

(Art. 91 CISA)

¹In the an­nu­al and semi-an­nu­al re­ports, the pre­vi­ous year’s fig­ures must also be dis­closed in the state­ment of net as­sets, or the bal­ance sheet and profit and loss ac­count.

²The fund's net as­sets and the net as­set value per unit for the past three re­port­ing years must also be itemised in the an­nu­al re­port. The key date shall be the last day of the re­port­ing year.

(Art. 89 para. 1 let. a CISA)

¹The ap­pro­pri­ation of net in­come has the fol­low­ing min­im­um struc­ture:

a.

net in­come for the ac­count­ing year;

b.

cap­it­al gains gen­er­ated dur­ing the ac­count­ing year in­ten­ded for dis­tri­bu­tion;

c.

cap­it­al gains from pre­vi­ous ac­count­ing years ear­marked for dis­tri­bu­tion;

d.

bal­ance brought for­ward from the pre­vi­ous year;

e.

net in­come avail­able for dis­tri­bu­tion;

f.

net in­come ear­marked for dis­tri­bu­tion to in­vestors;

g.

net in­come re­tained for re­in­vest­ment;

h.

bal­ance brought for­ward to new ac­count.

²No re­serves may be cre­ated.

(Art. 91 CISA)

¹In­ter­im dis­tri­bu­tions of net in­come are only per­mit­ted if spe­cified in the fund reg­u­la­tions.

²Cap­it­al gains may only be dis­trib­uted if the fol­low­ing con­di­tions are met:

a.

The fund reg­u­la­tions must provide for the dis­tri­bu­tion.

b.

The cap­it­al gains must be real­ised.

c.

They do not con­sti­tute in­ter­im dis­tri­bu­tions.

³The dis­tri­bu­tion of cap­it­al gains is also per­mit­ted if there are cap­it­al losses from pre­vi­ous years.

⁴No share in profit may be dis­bursed.

(Arts. 26 para. 3, 79, 80, 83 para. 4 CISA; Art. 35a para. 1 let. 1 and 39 CISO¹)

¹The is­sue and re­demp­tion price, or net as­set value, must be pub­lished in the print me­dia or elec­tron­ic plat­forms cited in the pro­spect­us each time units are is­sued and re­deemed.

²Prices for se­cur­it­ies funds and oth­er funds must also be pub­lished at least twice a month.

³Prices of the fol­low­ing col­lect­ive in­vest­ment schemes must be pub­lished at least once a month:

a.

real es­tate funds;

b.

col­lect­ive in­vest­ment schemes for which the right to re­deem at any time is re­stric­ted pur­su­ant to Art­icle 109 para­graph 3 CISO.

⁴The weeks and week­days on which pub­lic­a­tion takes place pur­su­ant to para­graphs 2 and 3 must be stated in the pro­spect­us.

⁵If the net as­set value is pub­lished, it must be flagged «ex­clus­ive of com­mis­sion».

(Art. 76 CISA; Art. 107 CISO¹)

¹Col­lect­ive in­vest­ment schemes, or sub-funds there­of, which com­prise sev­er­al unit classes, must dis­close the in­form­a­tion pur­su­ant to An­nex 2 point 3.3 CISO for each unit class.

²Col­lect­ive in­vest­ment schemes which com­prise sev­er­al sub-funds may pub­lish a sep­ar­ate sim­pli­fied pro­spect­us for each sub-fund. If all sub-funds are lis­ted in one sim­pli­fied pro­spect­us, the in­form­a­tion pur­su­ant to An­nex 2 point 3.3 of the Col­lect­ive In­vest­ment Schemes Or­din­ance must be dis­closed in­di­vidu­ally for each sub-fund.

³Col­lect­ive in­vest­ment schemes or sub-funds com­pris­ing sev­er­al unit classes shall pub­lish the in­form­a­tion for all unit classes in the same sim­pli­fied pro­spect­us.

(Art. 108 CISA)

¹Ac­count­ing shall be based on the pro­vi­sions re­lat­ing to open-ended col­lect­ive in­vest­ment schemes mu­tatis mutandis.

²Par­ti­cip­a­tions which are held purely for in­vest­ment pur­poses may not be con­sol­id­ated, ir­re­spect­ive of the per­cent­age of votes and cap­it­al held in the com­pany con­cerned.

(Art. 117 CISA)

¹The ac­count­ing meth­ods ap­plied to in­di­vidu­al fin­an­cial state­ments shall in prin­ciple be based on the pro­vi­sions of the open-ended col­lect­ive in­vest­ment schemes.

²The duty to con­sol­id­ate un­der the CO¹ is not ap­plied. Con­sol­id­a­tion may be ef­fected in ac­cord­ance with a re­cog­nised VASR² stand­ard.

(Art. 126 para. 2 CISA; Art. 24 FIN­MASA¹)

¹An­nu­al audits are sep­ar­ated in­to a fin­an­cial audit and a reg­u­lat­ory audit.

²The audit com­pany shall con­duct at least one in­ter­im audit of li­censees, ex­cept­ing rep­res­ent­at­ives, every year.

(Art. 126 paras. 5 and 6 CISA; Art. 137 CISO¹

¹For a fin­an­cial audit of col­lect­ive in­vest­ment schemes, the in­form­a­tion is audited in ac­cord­ance with Art­icles 89 para­graph 1 let­ters a-h and 90 CISA.

²The fin­an­cial audit of fund man­age­ment com­pan­ies, as­set man­agers of col­lect­ive in­vest­ment schemes, gen­er­al part­ners of a lim­ited part­ner­ship for col­lect­ive in­vest­ment and rep­res­ent­at­ives of for­eign col­lect­ive in­vest­ment schemes is con­duc­ted in ac­cord­ance with Art­icle 728 et seq. CO².

³FINMA may al­low ex­cep­tions for rep­res­ent­at­ives of for­eign col­lect­ive in­vest­ment schemes.

(Art. 126 paras. 1–4 CISA; Art. 24 FIN­MASA¹; Arts. 2–8 FMAO²)

¹The reg­u­lat­ory audit com­prises ex­am­ine the li­censee’s com­pli­ance with the reg­u­lat­ory pro­vi­sions ap­plied un­der Art­icle 13 para­graph 2 let­ters a-d, f and h CISA in­clud­ing col­lect­ive in­vest­ment schemes.

²For audit scope is to in­clude the gen­er­al part­ner of a lim­ited part­ner­ship for col­lect­ive in­vest­ment.

³The reg­u­lat­ory audit also ex­am­ines the pro­spect­us, the in­form­a­tion it provides for in­vestors and the sim­pli­fied pro­spect­us.

⁴The reg­u­lat­ory audit may also in­clude oth­er in­form­a­tion spe­cified by FINMA.