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Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002)

Board Notices

Determination on the requirements for hedge funds

Part 3 : Retail Hedge Fund

9. Collateral

 

(1)        A retail hedge fund may—

(a)        post collateral to its counterparties; or

(b)        receive collateral:

(i)        to manage its counterparty exposure;

(ii)        where counterparty limits have been breached.

 

(2) A manager must ensure that collateral arrangements satisfy the following rules and principles—
(a) Legal Agreements: Collateral arrangements must be governed by appropriate global master collateral agreements.
(b) Liquidity: Collateral must be sufficiently liquid to ensure that it can be converted to cash within seven days in a default event at a price that is close to its pre-sale valuation.
(c) Valuations: Collateral must be capable of being valued on a daily basis and must be marked-to-market daily taking into account any haircuts on non-cash collateral, where applicable.
(d) Issuer credit quality: Creditworthiness of the issuer of the collateral must be taken into account and relevant haircuts must be applied to take into account issuer default risk.
(e) Legal rights: A manager must ensure that the collateral obligation is legally enforceable and that the collateral will be available to a portfolio without recourse to a counterparty, in the event of a default by the counterparty.
(f) Concentration risks: A manager must take into account the concentration risks to a single issuer in a portfolio.
(g) Relatedness: A manager may not accept securities issued by the counterparty as collateral.
(h) Cash collateral: A manager must appropriately manage the reinvestment risk of cash collateral.