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- London Stock Exchange (LSE) launches lightly regulated market for specialist funds; eligibility restricted to “institutional, professional and highly knowledgeable investors”
- FSA announces unitary regime for funds on LSE main market; lifts prohibition on feeder funds
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The London Stock Exchange (LSE) has launched a new Specialist Fund Market (SFM) aimed at hedge funds and other specialist funds. The SFM, which opens in November 2007, will offer hedge funds a lightly regulated market with only the minimum regulatory standards required under the European Markets in Financial Instruments Directive (MiFID).
To qualify for admission to SFM, funds must be targeted towards “institutional, professional and highly knowledgeable investors”. The SFM is not intended to offer funds access to the retail market. It will be open to both UK and international funds.
According to the LSE, the new market will “satisfy a market need” for a regulated market with sufficient flexibility for specialist hedge funds, and will be “complementary” to the FSA’s recently announced Unitary Regime for investment funds listing on the LSE’s Main Market.
The FSA Unitary Regime, which is expected to come into force in March 2008, will prohibit foreign funds from obtaining listings under Chapter 14 of the Listing Rules, a light-touch regulatory regime introduced last year to attract more alternative investment funds to the Main Market, but which was criticised for offering investors too little protection.
However, the new Unitary Regime will make it easier for feeder funds (commonly used to invest in an offshore fund) to list on the Main Market.
Previously, the FSA maintained that feeder funds did not meet its requirements to spread investment risk. However, in a reversal of its existing position, the FSA says it has been persuaded that feeder funds should be permitted to list as long as (i) the board of directors of the feeder fund is “satisfied” the master fund and feeder fund have consistent objectives, and (ii) the master fund delivers sufficient diversification of risk.
The new rules also attach special conditions to listed feeder funds. For example, requiring a company’s board of directors to ensure “appropriate disclosure” of arrangements made with master funds. In addition, the FSA says the usual board independence rules that apply will be extended to master funds and their managers.
For more information on the Specialist Fund Market, see: SFM – Guidance for Admission. For more information on the FSA Unitary Regime proposals, click here:FSA Investment Entities Listing Review.