IOSCO Policies

Conflicts of Interest Disclosure

Introduction

HFR Index, LLC, (“HFR”) is the Index Administrator and Sponsor of the HFR family of Indices. HFR is committed to high standards in benchmark administration and to conducting its business with the highest degree of ethics and integrity in order to best serve its clients. Conflicts of interest could arise from conflicts between HFR, staff, clients, and suppliers, and HFR has policies and procedures in place for the management of potential conflicts of interest, including for their identification, disclosure, mitigation or avoidance.

Functional Separation

HFR Index, LLC (“Index Division”) is the Index Administrator of the HFR Indices. The Index Division handles index design, methodology, rebalancing, and calculations functions.  The HFR Database and industry research functions are managed by a separate division, HFR Research, LLC (“Database Division”). The Database Division is responsible for database submissions, implementation of the Database Submitter Code, and production and distribution of Hedge Fund Industry research reports. Each division has its own and separate reporting structures to ensure each business line is a separated.

HFR Employees

HFR employees are subject to the following compliance policies addressing potential conflicts of interest:

• Employee Manual
• Code of Conduct;
• Confidential Agreement;
• Employee Trading;
• Directorships, Outside Activities and Private Securities Transactions;
• Gifts and Entertainment and Charitable Giving;
• Related Party Transactions; and Foreign Corrupt Practices Act (FCPA).

Code of Conduct

HFR employees are trained on compliance polices upon joining HFR, and annually thereafter. Employees certify that they will comply with Conflicts of Interest Policy and other compliance policies annually. The Code of Conduct is reviewed and approved by Senior Management on an annual basis.

Index Constituents

While clients or suppliers may or may not be or become HFR index constituents, inclusion in any HFR index is determined by HFR’s rules-based methodologies. Entities do not and cannot pay to be included in any HFR indices and they are not given advance knowledge of their inclusion, exclusion or treatment in an HFR index.

HFR Index Changes

Any changes to an Index or index methodology will be governed by HFR’s Guidelines for HFR Index Methodology Changes. Final announcements with respect to changes in an HFR Index or index methodology are communicated to the market at the same time. This ensures that one market participant does not have an information advantage over another.

HFR Index Licenses/HFR Trademark

HFR” is the trademark and service mark of Hedge Fund Research, Inc. registered in the US and other countries. Third party entities may use the HFR trademark and service mark under license from HFR. Additionally, third party entities may develop and sponsor financial instruments to hedge its exposure to HFR Indices. HFR itself does not sponsor any financial products linked to the HFR Indices.

HFR Index Administration and Oversight Committee

HFR has an internal Index Administration and Oversight Committee that provides benchmark administration oversight and governance. This helps to ensure that decisions are not made unilaterally and content decisions are made in accordance with published rules-based methodologies. All of HFR’s oversight and governance committees are staffed solely by employees of the HFR Group of Companies. All committee members are expected to act with integrity as is required of all HFR’s employees according to HFR’s Code of Conduct stated in the Employee Manual. HFR’s index methodologies are rules-based. Any exercise of discretion, which is designed to be rare and limited to situations where the rules-based methodology does not effectively address or anticipate a particular market situation, must be approved by HFR’s Index Administration and Oversight Committee.

Conflicts of Interest Policy

A conflict of interest is a situation in which financial or other personal considerations have the potential to compromise or bias professional judgment and objectivity. An apparent conflicts of interest is one in which a reasonable person would think that the professional’s judgment is likely to be compromised. A potential conflict of interest involves a situation that may develop into actual conflicts of interest. It is important to note that a conflict of interest exists whether or not decisions are affected by a personal interest. It is HFR’s policy to avoid any actual or potential conflicts of interest.

HFR employees are prohibited from investing in underlying constituents of an HFR Index and any product related to the performance of an HFR Index. This prohibition does not apply to transactions in accounts where Index employees have no discretion to enter an order in a managed account (e.g., blind trust, discretionary account, or trust managed by a third party) where an employee has no influence or control over trading decisions.

All HFR employees are required to obtain approval of outside business activities and other positions in industry associations or groups where they serve as representatives of HFR. While HFR’s revenues may include fees based on assets in investment products linked to HFR indices licensed to clients, remuneration of HFR employees responsible for the design, calculation and/or maintenance of any HFR indices are not linked to the performance of HFR Indices.

Identifying Conflicts of Interest

HFR maintains the following to ensure that all conflicts are identified:

• a register of identified conflicts of interest; and
• a reporting requirement of any conflicts identified by employees.

 Managing Conflicts of Interest

The HFR Index Administration and Oversight Committee will oversee the review and resolution of any identified conflict of interest. The HFR Index Administration will assess the implications of the conflict and if the conflict should be managed or avoided. Additionally, the identification of such conflict may necessitate the need for further disclosure to clients, HFR will, in writing, disclose the conflict at the earliest reasonable opportunity.

Whistleblowing

HFR appreciates that employees may be reluctant to report potential wrongdoing engaged in by fellow employees with regards to the Index Administration process.  It is in the best interests of the Company, Index Stakeholders, Clients, Subscribers, and Suppliers that all violations and suspected violations be reported, so that appropriate remedial actions can be undertaken at the earliest possible opportunity. Suspected violations can be reported directly or anonymously to the Chief Compliance Officer or President. An anonymous report can be made by delivering a written description of the incident in question to the Chief Compliance Officer’s or President’s mail folder.

Complaints Escalation Policy

HFR Index, LLC (“HFR”) holds itself to a high standard and takes all inquiries and complaints seriously. The Complaints Escalation Policy has been established in order to define procedures for the submission, receipt, and investigative processes for complaints related to any aspect of the Index process.  Any inquiries and complaints may relate to any aspect of the Index process, including: whether a specific Index determination is representative, on a proposed change to the Index process, on an application of the Index methodology, and on other decisions in relation to the Index determination process. Complaints can be sent using the “Contact Us” Form on the website or can also be emailed to compliance@hfr.com.

Principles

The following principles apply to all benchmark determination complaints:

• All investigations of a complaint raised by any party are handled in a fair and timely manner;
• The investigation of a complaint is conducted by parties independent of those involved in the subject of the complaint;
•  Resolution of the complaint will be communicated to the third party raising it, once HFR decision has been approved;
•  No complaint should be closed without the party raising the complaint confirming that it has been addressed; and
• All records and correspondence relating to any complaints, queries or issues are kept for five years.

Procedures

• If any party wishes to raise a complaint regarding the Index methodology or any other aspect of the Index process should contact HFR through the Index Complaints Form on the website and detail the basis for the complaint in the free text message form.
• Level 1 inquiries/complaints require no escalation and can be responded to immediately by the analyst in receipt of the inquiry and copying the IOSCO working group on the response. Level 1 inquiries/complaints include the following: factsheet issues, performance updates, reporting updates, and other general inquiries.
• Level 2 inquiries/complaints are escalated to the HFR Administration and Oversight Committee.  Level 2 inquiries/complaints include the following: Index methodology, Index determination process, proposed Index changes, application of the Index methodology, performance errors, website issues, missing data, and other issues focusing on same day changes.
• All priority requests should be stated in the subject line followed by all relevant other details.
• On receipt, Compliance will document Level 2 complaints and open a ticket in the Jira system.
• HFR will seek to acknowledge receipt or send a response to the complaint within two business days by email or phone.
• Once a final resolution has been determined, a response will be sent, and if deemed necessary, a client notice will be issued to all affected users. In the event that the complainant disagrees with such decision, the issue may be reviewed again by the HFR Administration and Oversight Committee. The decision of the Committee is final and the complainant will be notified of the outcome.
• Compliance will track all complaints from open to close.

Policy Review

This policy is updated by Compliance and will be reviewed and approved on an annual basis by the HFR Administration and Oversight Committee.

Guidelines for HFR Index Methodology Changes

HFR Index Administration and Oversight Committee (“Committee”) reviews and approves the Index Methodology including any changes to the Index Methodology. A change is considered material if:

• it affects the calculation methodology of the index
• a portion or all of the underlying data used for the calculation of the index becomes unavailable
• one or more of the underlying assumptions of the methodology change in a way the Committee considers material
• there is an Index Disruption Event (as outlined in the Index Methodology) that permanently impedes the future calculation of the Index as outlined in the most current Methodology
• any other circumstance that prevents HFR from calculating the Index as outlined in the most current Methodology

In the case a material change to the Index Methodology is determined to be necessary, the following actions will be undertaken:

• The change and date for the new calculation methodology will be proposed by the Index Methodology stakeholder to the Committee.
• The Committee will review such proposal and if approved, the proposed change and date will be recorded in Change Management system and signed off by the Committee.
• The change will be registered and dated in the Revision section of the Methodology document.
• The calculation methodology will then be implemented in the system that calculates the index level as of the approved date.
• The Index Methodology stakeholder will confirm that the change has been properly implemented as of the approved date.
• The Index Methodology stakeholder will input the confirmation into the Change Management system
• The Committee will confirm and sign-off the change into the Change Management system.
• HFR will inform Index users via email that a change to the Index Methodology is scheduled to be implemented by a specified date (within 2 weeks of proposed change).
• HFR will review any comments or inquiries prior to the implementation date. Such comments will be made available on the website to stakeholders unless confidentiality is requested. And if necessary the HFR Index Administration and Oversight Committee will approve any adjustments.

The Index Methodology stakeholder is currently: Martin Klein, Director, Quantitative Research, HFR Index, LLC.

Guidelines for the Launching of a New Index

HFR Index Administration & Oversight Committee (“Committee”) reviews the suitability and viability of publishing a new index. There may be several circumstances under which the Committee may consider the appropriateness of launching a new Index, these include:

• There is a market appetite for the new Index.
•  HFR has access to adequate data to ensure the Index is representative of the strategy, sub strategy, region or sector it is meant to represent.
• The quality of the data is adequate for the calculation of the Index.
•  HFR has the appropriate systems in place to calculate the Index.

If the launching of a new Index has been determined to be appropriate, the following actions will be undertaken:

• The Committee will review such proposal and if approved, the proposed Index launch will be recorded in the Change Management system.
• The Index Methodology stakeholder will draft the Index Methodology if the new Index is not already included within a family of published indices.
•  Utilizing the available data, a time series backtest will be computed according to the outlined Index Methodology.
• The Committee reviews, makes recommendations and approves the calculation of the new Index.
• The launch date for the new Index is established with the approval of the Committee.
• The Index Methodology stakeholder will input the launching date into the Change Management system.
• The Committee will confirm and sign-off the launching into the Change Management system.
•  HFR will inform Index users via email and in its website that the new Index has been launched and the effective date.

The Index Methodology stakeholder is currently: Martin Klein, Director, Quantitative Research, HFR Index, LLC.

Guidelines for the Decommissioning of an Index

HFR Index Administration and Oversight Committee (“Committee”) reviews the suitability, viability and continuation of a published index. There may be several circumstances under which the Committee may consider the appropriateness of decommissioning an Index, these include:

• HFR has insufficient data to continue calculating the Index.
• HFR has insufficient data to ensure the Index is representative of the strategy, sub strategy, region or sector it is meant to represent.
• The strategy, sub strategy, region or sector the Index represents has become irrelevant in the industry
• There usage of the Index by industry participants has diminished in a significant way.
• The costs associated with the calculation of the Index have become economically unviable for HFR.
• Any other circumstances that the Committee considers the index should be decommissioned.
• If the decommissioning of an Index has been determined to be necessary, the following actions will be undertaken:
• The Committee will review such proposal and if approved, the proposed decommissioning and date will be recorded in Change Management system and signed off by the Committee.
• The decommissioning will be registered and dated in the Revision section of the Methodology document.
• The Index Methodology stakeholder will confirm that the decommissioning has been properly implemented as of the approved date.
• The Index Methodology stakeholder will input the decommissioning into the Change Management system.
• The Committee will confirm and sign-off the decommissioning into the Change Management system.
• HFR will inform Index users via email and in its website that the Index has been decommissioned and the effective date.

Version#: IOSCO20200520, Dated May 20, 2020

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