Practical Example

There is a prospectus rule of Minimum 70% in Equities

This could be written by:

1. Selecting all the different asset types related to Equity – there could be 20 or more. However,

• The rule would need to be updated each time there is a new asset type added that is an equity asset type
• You could not easily include asset types for funds / derivatives etc. that give exposure to equity.

2. Creating and using an Asset Category of Equity. However, this would rely on all the equity asset types having been assigned to the asset category of Equities (and any other relevant asset categories) when created. Also, you could not easily include asset types for funds / derivatives etc. that give exposure to equity.

3. Using the Asset Group of Equities. This should be straight-forward and reliable. New Asset types will automatically come within the scope of the rule once they have been added to the Asset Group (mandatory to select one asset group) as the time the new asset type is set-up.

However, you could not easily include asset types for funds / derivatives etc. that give exposure to equity.

4. Write the rule based on all assets, where the Rule Custom Attribute. UL Asset Type = Equities. This will be straight-forward and reliable. New assets and Asset types will automatically come within the scope of the rule once they have been added created so long as the Rule Custom Attribute UL Asset Type is maintained well; hence the need for on-going governance to check that there are no blanks etc.

The following is the standard listing of Asset Groups. This is groupings of the different asset types. To the greatest extent possible, these should be used in rule writing and rule custom attributes rather than asset types.

1 Asset Type goes into 1 Asset Group. It is mandatory to assign one Asset Type to one Asset Group.

Unstructured vs. Structured Rule Custom Attribute Definitions

Rule Custom Attributes enable holdings to be classified according to any required taxonomy.

They can be “unstructured” or “structured”

“Unstructured Rule Custom Attributes”

Unstructured means that a grouping can be created quickly without having regard to the whether all assets have been classified or not and without considering whether there is any overlap

For example, in a portfolio of 10,000 holdings, you could create the following two unstructured rule custom attributes:

• European corporate bonds AAA rated
• EU denominated assets

In this case, there will be holdings that go into both different groupings of assets and many assets that do not go into either.

Rather, than creating a brand new Rule Custom Attribute for each new unstructured asset grouping, we recommend that these just get created under the “Rule Custom Attribute. User Asset Selections [JW4] .” A range of “User asset selections” are set-out in Appendix 3.1.

“Structured Rule Custom Attributes”

“Structured Rule Custom Attributes” can be used to systemically define all assets in terms of their asset type according to any required data taxonomy (including any bespoke client requirement). These are particularly important for supporting different types of regulatory rules and reports.

This requires care to ensure that all assets within the portfolio are classified and that there are no overlaps. It requires on-going governance.

“Underlying Asset Type” – this is a particular important Rule Custom Attributes. Every portfolio holding should be analysed into one and only one Underlying Asset Type. This enables rules and reporting to consider the underlying asset type, considering look through of derivatives, funds etc.

There are a number of these which are key to supporting the Regulatory Rules and Prospectus rules, including:

• UCITS Asset Types – see Appendix 3.2
• Is OTC
• Has Reliable Valuation
• Settlement Type (cash or physical)

Other examples of “Structured Rule Custom Attributes” are for example:

• Investment Grade – to classify all debt by whether investment grade or not
• Liquidity – For grouping all portfolio assets into specific buckets of liquidity

Appendix 3.1 Unstructured Rule Custom Attribute Examples

A range of “User asset selections” include:

• Debt – Investment grade (S&P or moodys, highest applies)
• Debt – BBB+, BBB, BBB- lowest applies
• Contingent convertible bonds
• Exchange is regulated + a region of emerging markets
• Short term debt emerging market debt in hard currencies
• Convertible bonds and similar
• Inflation linked bonds

Appendix 3.2 Rule Custom Attribute. UCITS Asset Types

This is a rule custom attribute defining all holdings in terms of their Underlying Asset Type for UCITS purposes.

It uses the UCITS eligible assets typology. The following are the available options. All portfolio holdings should be classified into one “UCITS Asset Types only”