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Matthias Knab reports from Madrid: According to Jorge Canta and Jesus Mordomingo, both lawyers at Cuatrecasas (derechobancario@cuatrecasas.com), the activities of prime brokers new Spanish rules are an important aspect of the new hedge fund regulation. Currently, prime broker regulation is based on the Spanish implementation of the Collaterals Directive (Royal Decree 5/2005). Under these rules, it is allowed to rehypothecate the assets; the rules are very flexible. To ensure the control over the assets, the new regulation specifies the following rules:

• Disclosure obligations concerning the prime broker and its solvency (creditworthiness)
• The prime broker is obliged to enter into a subcustody agreement with the fund’s custodian (when the prime broker is allowed to use the assets.) The agreement must be disclosed in the prospect.
• The prime broker has to provide information to the fund management and the custodian about the guaranteed assets and the guaranteed financial obligations.
• The prospectus must include information about the maximum fair market value of collateralized assets in relation to the obligations of the fund
• The fund’s periodic information must include current market value of the assets covered by the prime broker’s guarantee in relation to the obligations.

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