The Financial Supervisory Commission issued the Jin-Guan-Zheng-Tou-1060023388 Directive of June 29, 2017 (hereinafter, the “Directive”) to communicate that if a securities investment trust fund engages in the trading of credit default swap indexes to enhance its investment efficiency, the total nominal principal shall not exceed 40% of the net asset value of such fund.
According to this Directive, a securities investment trust enterprise which engages in CDS index trading to enhance its investment efficiency by utilizing a securities investment trust fund, shall specifically indicate this in the trust deed with a full disclosure of relevant risks and examples illustrating the impact of such transactions on the performance of the fund in the prospectus. In addition, a planning report on the trading of such products (including documents supporting the personnel’s relevant trading knowledge and experience with such products and explanation about the appropriateness in the allocation of researchers and resources to such products by the securities investment trust enterprise) as well as relevant control measures (including control measures for trading counterparties, liquidity risk control measures, stop-loss mechanisms and verification mechanisms for product valuation) shall also be included in the application to the Financial Supervisory Commission for approval pursuant to Point 3 of the Guidelines for the Utilization of Securities Investment Trust Funds in Relevant Securities Product Transactions by Securities Investment Trust Enterprises. For an established securities investment trust fund, its trust deed and prospectus should also be amended accordingly, and the above-mentioned materials and a lawyers’ opinion should also be included in the application to the Financial Supervisory Commission for approval.
This Directive further points out that if a securities investment trust fund engages in such transactions to enhance its investment efficiency, its aggregate nominal principal should be included in the total market value and total nominal value of other relevant securities products traded to enhance investment efficiency with the total amount not exceeding 40% of the net asset value of the fund.