Holden plc is a large UK bank holding company with headquarters in London, with its main bank, Holden Bank plc: Depositary Functions Assignment, UCC, Ireland

Professional Certificate in International Investment Fund Services Depositary Function – Assignment Background:

Holden plc is a large UK bank holding company with headquarters in London, with its main bank, Holden Bank plc, operating the group’s global custody business in London. Holden Bank’s Irish subsidiary, Holden Trustee Services (Ireland) Ltd. (“HTS”), acts as depositary for Ireland domiciled investment funds. You work in the depositary oversight department of HTS.

Burton Investment Advisors, Ltd. (“Burton”) is a large London headquartered asset manager with global reach: Burton is an important client of the wider Holden group. Burton is the investment advisor appointed by the Management Company of Burton Fund Unit Trust (“Burton Fund”), an Irish UCITS umbrella fund. During the course of your depositary reviews of the activities of Burton Fund you come across two situations that may raise questions:

Scenario 1:

In the course of your review for transactions conducted by Burton, you discover that one of the Burton Fund sub-funds (“Sub-Fund A”) entered into transactions with another of the Burton Fund sub-funds (“Sub-Fund B”) by which Sub-Fund A sold securities to Sub-Fund B in return for cash (such purchase and sale transacitons are commonly referred to as “cross trades”). The cash raised in the sale was used to fund redemption requests from redeeming investors in SubFund A.

 Scenario 2:

According to the fund’s investment restrictions, the Burton Fund is only supposed to invest in listed equity securities in the FTSE 100 Index. The investment manager of Burton Fund, is interested in an investment opportunity in the form of a security issued by a company called Nagata, Inc. (“Nagata”) and is trading on an exchange in the country of Laconia.

Nagata is not in the FTSE 100 index. Moreover, Laconia is considered an “emerging market”, attracting increased international interest, with capital inflows increasing: this is encouraged and partly facilitated by international and national agencies such as the World Bank, IMF and EU agencies.

Despite increased foreign investment interest, the financial sector and market infrastructure in Laconia remain wobbly: there is only one bank of consequence wth international linkages in the country. The law remains uncertain regarding whether segregation of book-entry securities accounts will protect investors in an insolvency of a custodian/intermediary.

The central securities depository (“CSD”) has upgraded its systems but shares of companies are still registered by company registrars manually, which is prone to error. Document Depositary Functions Test Assignment Document  To facilitate the investment, HTS as depositary would need to appoint the one bank provider in Laconia as its sub-custodian (i.e., as a “delegate” under the UCITS Directive) – this would be a new appointment since no other client has yet sought to invest in this market.

At least to some extent, this is because of perceptions of higher local market risk. However, a new government, elected in a free and fair election (per UN observers), has significantly bolstered the rule of law, which – as mentioned above – has created some measure of improved confidence among foreign investors.