Prime brokers as depositaries

Prime brokers as depositaries (Article 21(4)(b) of the Directive, Article 91 of the Level 2 Regulations)

A prime broker acting as a counterparty to an AIF may be appointed as the depositary for the AIF provided that it has functionally and hierarchically separated the performance of its depositary functions from its tasks as prime broker, and that potential conflicts of interest are properly identified, managed and disclosed to the investors of the AIF. In addition, depositaries of AIFs can delegate custody tasks to one or more prime brokers provided that they meet the conditions above and below.

Where a prime broker has been appointed as sub-custodian, it must provide to the depositary of the AIF, no later than the close of the next business day to which it relates, a statement in a durable medium which contains the following information:

  • at the end of each business day, the total value of assets held by the prime broker for the AIF, including:
      • cash loans made to the AIF and accrued interest;
      • securities to be redelivered by the AIF under open short positions entered into on behalf of the AIF;
      • current settlement amounts to be paid by the AIF under any futures contracts;
      • short sale cash proceeds held by the prime broker in respect of short positions entered into on behalf of the AIF;
      • cash margins held by the prime broker in respect of open futures contracts entered into on behalf of the AIF;
      • mark-to-market close-out exposures of any OTC transaction entered into on behalf of the AIF;
      • total secured obligations of the AIF against the prime broker; and
      • all other assets relating to the AIF.
  • the value of other assets (i.e. not financial instruments) as collateral by the prime broker in respect of secured transactions entered into under a prime brokerage agreement;
  • the value of the assets where the prime broker has exercised a right of use in respect of the AIF’s assets;
  • a list of all the institutions at which the prime broker holds or may hold cash of the AIF in an account opened in the name of the AIF or in the name of the AIFM;
  • details of any other matters necessary to ensure that the depositary of the AIF has up-to-date and accurate information about the value of assets the safekeeping of which has been delegated to the prime broker.