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 situtaitons 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 $$cross$-$trades$).$ The cash raised in the sale was used to fund redemption requests from redeeming investors in SubFund A$.$ The transaction wasn$$t conducted over a regulated exchange or over any other trading venue. In itself, this is not illegal: securities can be bought and

sold privately between parties and of course the record of the fund$$s custodian is conclusive evidence of ownerhip under the law. However, you don$$t know how marketable $($liquid$)$ the securites were and therefore whether the price paid by Sub$-$Fund B was at a price reflecting true market value of the securities $($since they weren$$t traded on a regulated exchange$).$ You are of course aware that investors in Sub$-$Fund A are different from those in Sub$-$Fund B and that each sub$-$fund is legally distinct, meaning that assetrelated risks to which investors in a particular sub$-$fund are exposed are ringfenced from risks associated with the assets in any other sub$-$fund.

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.

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. Instructions:

To complete this assignment, please provide a written response in respect of the following questions:

Scenario $1$:

a$.$ What issues, if any, do the cross$-$trades raise regarding the performance of the manager$$s responsibilities?

b$.$ What are the depositary$$s role and resposnsibilities regarding the crosstrades? c$.$ If the cross$-$trades are deemed improper, what steps should the depositary take? Scenario $2$: a$.$ What is the depositary$$s role regarding whether the investment in Nagatga complies with the Burton Fund$$s investment restrictions? b$.$ If the investment in Nagata is deemed not to comply with the fund$$s investment restrictions, what steps should the depositary take?

c$.$ Even if the investment were to comply with Burton Fund$$s investment restrictions, what considerations should the depositary take into account in order to ensure that the interests of the fund$$s investors are adequately protected in the local market $($Laconia$)?$

d$.$ If the depositary can$$t get comfortable that investor interests are adequately protected, is there some way that the dep