Rule - Calculation of Asset Values - Regulated Mutual Funds (July 2020)

Summary

This is a CIMA Rule, issued under section 34 of the Monetary Authority Law, setting out mandatory requirements for how regulated mutual funds must calculate their Net Asset Value (NAV). It applies to all mutual funds licensed or registered under section 4 of the Mutual Funds Law and should be read together with CIMA's Rule on Contents of Offering Documents of Regulated Mutual Funds.

The Rule requires each fund to adopt a written NAV Calculation Policy, based on IFRS or US/Japan/Switzerland/Non-High Risk Jurisdiction GAAP, that is consistent with the accounting basis used in its audited financial statements. The policy must be disclosed in the fund's offering document and must cover the following matters:

• Valuation practices
• Frequency of NAV calculation (at least quarterly)
• Publication timing
• Service provider roles
• Price sourcing and escalation procedures for exceptions
• Internal controls proportionate to the fund's size and complexity

The Rule also imposes substantive valuation requirements, summarized below:

• Pricing priority: Priority must be given to observable market prices, with a valuation hierarchy for hard-to-value securities and requirements for calibrating pricing models.
• Independence of NAV calculation: NAV calculation must generally be performed by a service provider independent of the investment manager/advisor and Operators, with disclosure and safeguards where the manager or Operators are instead involved in pricing or NAV calculation, including specific offering document disclosures of conflicts of interest.
• Investor communication: NAV must be communicated directly to investors.
• Operator oversight: Operators retain ultimate oversight responsibility, including at least annual review and approval of the NAV Calculation Policy and any pricing models.

Breach of the Rule triggers CIMA's enforcement powers under its Enforcement Manual, the Mutual Funds Law and the Monetary Authority Law.

Key obligations

• Establish, implement and maintain a written NAV Calculation Policy that ensures NAV is fair, complete, neutral, free from material error and verifiable.
• Base the NAV Calculation Policy on IFRS or US/Japan/Switzerland/Non-High Risk Jurisdiction GAAP, consistent with the accounting principles used in the fund's audited financial statements.
• Disclose the NAV Calculation Policy in the fund's offering document, covering pricing/valuation procedures, timing and use of NAV, accounting standards, service provider roles, price sources/escalation procedures, and appropriate internal controls.
• Calculate the fund's NAV regularly, at least quarterly.
• Give priority to unadjusted market prices when valuing portfolio securities, and for hard-to-value securities prioritize observable inputs over unobservable inputs.
• Where pricing models are used for hard-to-value securities, calibrate the models by verifying inputs and testing against current market conditions.
• Require relevant service providers calculating NAV to apply the NAV Calculation Policy and pricing models consistently; disclose deviations in marketing material and immediately disclose to investors and obtain Operator agreement where deviations affect reported NAV.
• Ensure NAV is calculated by a service provider independent of the fund's investment manager/advisor and Operators, unless an exception applies.
• Where the manager/advisor or Operators provide or source prices, provide supporting information and ensure the calculating service provider takes reasonable steps to verify the facts and appropriateness of those prices.
• If the investment manager/advisor or Operators calculate or assist in calculating NAV, explicitly disclose this in the offering document with an explanation why another service provider could not perform the calculation.
• Explicitly describe in the offering document the inherent limitations of the NAV Calculation Policy, any material involvement of the investment manager/advisor in pricing or NAV determination, and any resulting conflicts of interest.
• Communicate the NAV, including each investor's share, directly to investors as recorded on the official register.
• Ensure Operators approve and review the NAV Calculation Policy and any pricing models at least annually, and maintain ultimate oversight responsibility for the valuation process.

Applies to

Regulated Mutual Funds licensed or registered under section 4 of the Mutual Funds Law, Fund Operators (directors, general partners, trustees, managing members), Fund Service Providers (administrators, auditors, custodians, investment managers/advisors, prime brokers, promoters, registrars, and their delegates)

Deadlines

• at least quarterly: The NAV Calculation Policy must require calculation of the Fund's NAV at least quarterly.
• at least annually: The Fund's Operators must approve and review the NAV Calculation Policy and any Pricing Models at least annually.

Related documents

• This document is made under Monetary Authority Law (2020 Revision)