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  • CIU-1.7 CIU-1.7 Borrowing, Lending and Short Selling

    • Borrowing

      • CIU-1.7.1

        A Bahrain domiciled retail CIU may only borrow subject to the following conditions:

        (a) The borrowing is temporary and not persistent;
        (b) The borrowing is to be repayable out of the assets of the CIU;
        (c) The assets of the CIU are not hypothecated or mortgaged or otherwise encumbered, except for the purposes of stock lending;
        (d) The borrowing does not at any time exceed 20% of the CIU's assets; and
        (e) The circumstances and applicable conditions for such borrowings are disclosed in its prospectus.

      • CIU-1.7.2

        The CBB expects any borrowing to be exceptional and to assist with liquidity management, rather than to leverage returns. With regards to Rule CIU-1.7.1(a), the CBB will take into account both the duration of any period of borrowing and the number of occasions on which resort is had to borrowing in any given period. Thus, occasional, short-term borrowings might be viewed as permissible, whilst longer-term frequent borrowings, such that the CIU was commonly or permanently indebted, would generally not. In the case of investment companies, longer-term borrowings may be allowed where required to make possible the acquisition of immovable assets essential to the direct pursuit of its business.

    • Lending

      • CIU-1.7.3

        A Bahrain domiciled retail CIU may not lend its assets, except as otherwise provided for in Rule CIU-1.7.5 (in relation to stock lending) or for the purposes of meeting margin requirements where the CIU is using financial derivatives.

      • CIU-1.7.4

        For the purpose of Rule CIU-1.7.3, the placing of money on short-term deposit (i.e. for a term of less than one year) or in a current account is not considered lending.

      • CIU-1.7.5

        A Bahrain domiciled retail CIU may only enter into stock lending arrangements (including repurchase arrangements) in respect of any securities held by it, provided that:

        (a) The counterparty is a licensed financial institution;
        (b) The arrangement is consistent with good market practice;
        (c) Acceptable collateral with a value equal to the securities lent is obtained to secure the obligation;
        (d) The aggregate value of stocks lent does not at any time exceed 20% of the net asset value of the CIU's assets; and
        (e) The circumstances and applicable conditions for such borrowings are disclosed in its prospectus.

    • Short Selling

      • CIU-1.7.6

        A Bahrain domiciled retail CIU may not undertake uncovered sales of its assets ('short selling').