CIRCULAR CSSF 07/309 ON RISK-SPREADING REQUIREMENTS FOR SIFS

& CIRCULAR CSSF 07/310 AS AMENDED BY CIRCULAR CSSF 08/348 ON FINANCIAL INFORMATION TO BE PROVIDED BY SIFS

Legal AlertNovember 2012

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Introduction

Circular CSSF 07/309

On August 3, 2007, the Commission de Surveillance du Secteur Financier (“CSSF”) issued two new cir-culars with additional guidelines to be followed by specialized investment funds (hereinafter referred to as “SIF” or “SIFs”) subject to the law of 13 February 2007. Circular CSSF 07/309 provides guide-lines regarding the minimum level of risk diversification by SIFs. Circular CSSF 07/310, as amended by Circular CSSF 08/348 provides guidelines concerning the transmission of financial information by SIFs to the CSSF.

Investment restrictions of SIFs have to comply with the following diversification rules, in order to meet the risk-spreading standard established by the CSSF:

a) A SIF may not invest more than thirty percent (30%) of its assets or commitments in securities of the same kind issued by the same issuer. 1

b) Short sales may not result in a SIF holding a short position in securities of the same kind issued by the same body, which represents more than thirty percent (30%) of the assets.

c) Where financial derivative instruments are invested in, a SIF must ensure a comparable spread of risk by an appropriate diversification of the underlying assets. With the same objective, the coun-terparty risk in an OTC transaction must be limited depending on the quality and the qualification of the counterparty.

In principle, these general rules must be followed by all SIFs. The CSSF may, however, grant exemp-tions on the basis of adequate justification.

If a specific investment policy is applied by a SIF, the CSSF may require the compliance with additional investment restrictions.

In order to ensure proper supervision of the SIF by the CSSF, the SIF must provide the CSSF with adequate information and documents.

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1This restriction does not apply to:

- Investments in securities issued or guaranteed by a member state of the Organisation for Economic Cooperation and Development (“OECD”) or by its regional or local authorities or by supranational institutions or organizations, whether regional, EU, or global;

- Investments in target undertakings for collective investments (hereafter the “UCI”) that are subject to risk diversification requirements at least equi-valent to those for SIFs. For the purpose of the application of this restriction, each compartment of a target UCI with multiple compartments is to be considered as a distinct issuer provided that the principle of segregation of the commitments of the different compartments vis-à-vis third parties is ensured.

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Circular CSSF 07/310 as amended by Circular CSSF

According to Article 58 of the law of 13 February 2007, a SIF must provide the CSSF with certain financial information on a monthly and annual basis. The financial information collected will be used by the CSSF for statistical and supervision purposes. The information to be submitted by the SIF is similar to the information required by Luxembourg investment funds under Circular IML 97/136.

More specifically, a SIF has to complete monthly and annual tables the form of which is included in circular 07/310. In practice, this is carried out by a SIF’s administrative agent. The sample tables are available for review at http://www.cssf.lu/index.php?id=23&tx_ttnews[cat]=44&cHash=4ff20227ec.

The Centrale de Communications Luxembourg SA (hereinafter referred to as “CCLux”) is in charge of gathering the required information electronically and communicating the information to the CSSF. An identification number will be given by the CSSF to each SIF, and, if applicable, to each compartment of a SIF. For each SIF, the reference date for the establishment of monthly financial information to be submit-ted is the last day of every month. The reference date for annual financial information to be submitted is the end of the fiscal year of the SIF. However, the required information had to be established for the first time by July 31, 2007.

SIFs must transmit their monthly and annual financial information to CCLux within ten (10) days2, or six (6) months respectively after the reference date. For SIFs with multiple compartments, the monthly and annual financial information must be established separately for each compartment in their respective NAV currency.

BONN STEICHEN PARTNERSNovember 2012

2 As stated by Circular CSSF 08/348.

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