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

Board Notices

Determination of Securities, Class of Securities, Assets or Classes of Assets that may be included in a portfolio of a Collective Investment Scheme in Securities and the manner in which and the limits and conditions subject to which Securities or Assets may be so included

Chapter V : Inclusion of Financial Instruments in a Portfolio

16. Maintaining of certain assets in a portfolio of listed financial instruments
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(1) A manager which, in accordance with the provisions of this Notice,—
(a) sells future contracts, call options or call warrants, or buys put options or put warrants, based on specific underlying assets which are not indices or a basket of securities, must maintain an exposure to the market value of such underlying assets which is at least equal to the effective exposures of the mentioned underlying assets;
(b) sells futures contracts, call options or call warrants, or buys put options or put warrants, based on index futures or a basket of securities, must maintain an exposure to the same or similar underlying assets or other financial instruments with positive exposures to the same or similar underlying assets in the relevant portfolio, which is at least equal to the effective exposure of such listed financial instruments;
(c) buys futures contracts, call options or call warrants, or sells put options or put warrants based on any underlying asset, must maintain an exposure to assets in liquid form, which is at least equal to the effective exposure of such listed financial instruments;
(d) sells put options or put warrants, may maintain a bought put option or bought put warrant in place of assets in liquid form as required in sub-paragraph (c) only if the strike price of the bought put option or bought put warrant is not lower than the price of the sold put option or put warrant;
(e) sells call options or call warrants, may maintain a bought call option or bought call warrant in place of underlying assets as required in subparagraph (a) or (b) only if the strike price of the bought call options or call warrants is lower than the price of the sold call option or call warrant;
(f) sells or buys multiple options or multiple warrants or futures based on the same underlying assets which are not indices or a basket of securities with positive net effective exposure, must maintain assets in liquid form as prescribed in sub-paragraph (c);
(g) sells or buys multiple options or multiple warrants or futures based on index futures or a basket of securities with positive net effective exposure, must maintain assets in liquid form as prescribed in subparagraph (c);
(h) sells or buys multiple options or multiple warrants or futures or basket of securities based on the same or similar underlying asset with negative net effective exposure, must maintain assets as prescribed in sub-paragraph (a) or (b) as applicable;
(i) invests in currency futures, must maintain an exposure to assets in liquid form which is at least equal to the effective exposure of such currency futures.

 

(2) The duration exposure to non-equity securities may be hedged and netted with a financial instrument whose underlying asset is a government bond, a basket of government bonds or a government bond index, a corporate bond, a basket of corporate bonds or a corporate bond index, Johannesburg Interbank Agreed Rate (JIBAR) swap rate, inflation rate, the repurchase rate, or any other rate that is an index. However, any consequential or residual spread exposure as a result of the netting must be accounted for and disclosed.