Conflict of Interest

The firm takes reasonable steps to ensure that conflicts and potential conflicts of interest between the Firm and its clients, between Employees and clients and between one client and another are identified and then prevented or managed in such a way that the interests of its clients are not adversely affected and to ensure that all clients are fairly treated and not prejudiced by such conflicts.

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Clients trust that the Firm will treat them fairly and act in their best interests. Regulators too, expect firms to avoid conflicts wherever possible and to manage any residual conflict fairly, both between itself and its clients and between one client and another.

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The Firm's arrangements are therefore designed to keep conflicts of interest to the minimum. The arrangements are overseen by the Chief Executive Officer and the Compliance Officer on a day to day basis and ultimately governed by the Board of Directors and operate at both the corporate and the personal level.

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Conflict of interest defined

A conflict of interest exists where the Firm, any person who acts for it, or any of its associates:

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1. is likely to make a financial gain, or avoid a financial loss, at the expense of a client;

2. has an interest in the outcome of a service provided to a client or in the outcome of a transaction carried out on behalf of a client, which is distinct from that of the client;

3. has a financial or other incentive to favour the interest of one client over the interests of another client; or

4. receives or will receive from a third party an inducement in relation to a service provided to a client, in the form of monies, goods or services, other than the standard commission or fee for that service.

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Sources of conflict at the corporate level may arise where, for example:

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1. the Firm’s compensation from one client is greater than its compensation from another. 

2. the Firm gives preference to a shareholder or co-investor rather than a client for a transaction or the shareholders interests’ conflict with client obligations.

3. the Firm manages investments on both proprietary and third party basis.

4. An employee of the Firm or other Group company serves as a Director or Officer of a client company.

5. A firm or Group director, senior executive or employee has a shareholding in a client-related company or other material interest in a client transaction.

6. The Firm enters into an exclusivity agreement with one client that precludes dealing for another.

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The few examples shown above are by no means exhaustive.

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Sources of conflict at the personal level may also arise where Employees are seconded to another business while undertaking services for the Firm where, for example:

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1. time spent in conducting the affairs of another business compromise the time, proper attention and care to the Firm;

2. investment advice and management decisions made in another business are different to the advice and decisions undertaken or given while performing such duties at the Firm;

3. the third party may itself have a competing interest or interest which may conflict with those of the Firm’s clients.

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Conflict management procedures

The firm takes the following steps to identify and manage conflicts and material interests to ensure all clients are fairly treated and are not prejudiced by such interests.

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Step 1: Identify

Where Employees become aware that a conflict or a potential conflict of interest exists they must notify the Compliance Officer details of the conflicts of interest.

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Step 2: Investigate and manage

The  Compliance Officer will take the necessary steps to investigate the conflict of interest and prevent or manage that interest by:

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1. establishing and maintaining effective Chinese Walls (a policy or physical arrangement to maintain confidentiality and security of information) to restrict the communication of the relevant information;

2. where a Chinese Wall is not practicable, by disclosing the conflict of interest to the client in writing either generally or in relation to a specific transaction; or

3. where neither a Chinese Wall or disclosure is practicable, by relying on an Undertaking of Independence that requires Employees to confirm that, when assessing the appropriateness of advising or arranging any financial services for or on behalf of a client, only that client’s interests are to be considered and that the interests of the Firm, its Employees, its affiliates or any other client are to be disregarded. All Employees are required to sign the Undertaking of Independence and return it to the CO within 1 month of joining the Firm.

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Where the Firm is unable to prevent or manage the conflict of interest in the above manner, it will decline to act for that client.

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Step 3: Record

The Compliance Officer will record details of the conflict of interest and measures taken to prevent or manage the interest in the Register of Conflicts of Interests. 

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Step 4: Monitor and review

The Compliance Officer will monitor conflicts as part of the Compliance Monitoring Programme.  Any conflicts of interest are reported to the Board on a periodic basis.  The Board is responsible for directing the Firm in the proper management of the conflicts of interest recorded therein.

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Redemption

The ability of a client to redeem their Virtual Assets from the Fund will be subject to the Redemption Process as detailed in the Private Placement Memorandum (PPM) of the Nine Blocks Offshore Feeder Fund dated July 2023. For example, for Class L, redemption is on a monthly + 30 day redemption cycle. For access to this document, please email us at info@nineblockscapital.com

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Protection and usage of client assets

The details of protections afforded to client assets as well how the client assets can be used are found in Sections 2 (About the Fund - Investment Objective), 3 (Management and Administration), and 4 (Fees and Expenses) of the PPM of the Nine Blocks Offshore Feeder Fund dated July 2023.  In short, all client subscriptions are made into the Nine Blocks Feeder Fund that then invests in the Nine Blocks Master Fund. The Master Fund then invests in digital assets. For access to this document, please email us at info@nineblockscapital.com

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Whistleblowing

Staff of Nine Blocks are encouraged to report any potential violations in a manner that will facilitate effective investigation and remediation, which in general will mean open or confidential, rather than anonymous, reporting. Nine Blocks will ensure that confidentiality will be maintained not just of the name of the whistleblower but also to the disclosure of any “identifying information”, as  often when facts are known only to a few, that information can easily be traced back to the  source and are the equivalent to a signature. A staff member who chooses to report on an anonymous basis must provide enough  information concerning the basis of the allegations and sufficient detail or supporting evidence  that the matter can be pursued responsibly. Otherwise, the matter usually cannot be pursued further.  Even where anonymous allegations are sufficiently detailed or supported to permit a  responsible investigation to be conducted, no final finding of misconduct will be made based  solely on the anonymous allegations without independent corroboration.

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Counterparty risk

Except for transactions involving Digital Assets, the Master Fund will transact most of its investments through financial institutions including brokers, dealers, banks, and etc. All purchases and sales of securities carry counterparty risks (the risk that the counter party might default) until the transactions are settled.

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All financing transactions such as borrowing or lending of funds or securities will carry counterparty risks until such borrowing or lending has terminated and the relevant collateral is returned. Deposits of securities or cash with a custodian, bank or financial institution will carry counterparty risk.

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Upon default by a counterparty, the Master Fund may be forced to unwind certain transactions and the Master Fund may encounter delays and difficulties with respect to court procedures in seeking recovery of such assets.

 

These risks could differ materially where transactions are not exchange-traded transactions, which normally are backed by clearing organization guarantees, daily mark-to-market and settlement, and segregation and minimum capital requirements. Transactions entered directly between two counterparties may not benefit from such protections and expose the parties to the risk of counterparty default.

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Usage of client virtual assets

For details on the usage of subscription made by clients in virtual assets please refer to Section 1 (Key Features of the Fund - Base Currency) in the PPM of the Nine Blocks Offshore Feeder Fund dated July 2023.  In short, all client subscriptions are made into the Nine Blocks Feeder Fund that then invests in the Nine Blocks Master Fund. The Master Fund then invests in digital assets. For access to this document, please email us at info@nineblockscapital.com

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Certain risk factors

An investment in the Fund is speculative and involves a high degree of risk, and there can be no assurance that the Master Fund will achieve its investment objectives. Prospective investors could lose all or a substantial portion of its investment in the Fund. There is no guarantee that implementation of the investment objective or strategy with respect to the assets of the Fund will not result in losses to holders of Participating Shares.

For details on risk factors incurred upon subscription to the Fund, please refer to Section 8 (Certain Risk Factors) in the PPM of the Nine Blocks Offshore Feeder Fund dated July 2023. For access to this document, please email us at info@nineblockscapital.com

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Liquidity risk management

To help mitigate the liquidity risk, liquidity management policy is implemented and is responsible for establishing prudent liquidity risk management including the following aspects: governance at the firm level, product design and disclosure, on-going liquidity risk assessment, exercise of power on suspension and redemption gates, stress testing, and liquidity risk management tools.

For details on how liquidity risk is managed, please refer to Section 2 (About the Fund - Liquidity Risk Management) in the PPM of the Nine Blocks Offshore Feeder Fund dated July 2023. For access to this document, please email us at info@nineblockscapital.com

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Order Execution

Portfolio transactions for the Master Fund are allocated to brokers and dealers on the basis of best execution and in consideration of relevant factors, including, but not limited to: commission rates, reliability, financial responsibility, strength of the broker or dealer and the ability of the broker or dealer to efficiently execute transactions, the broker's and/or dealer's facilities, and the broker's and/or dealer's provision or payment of the costs of brokerage and research products or services that are of benefit to the Fund, the Manager and Other Accounts.

For details on how order execution is conducted, please refer to Section 9 (Conflicts of Interest - Brokerage Commissions/Soft Dollars) in the PPM of the Nine Blocks Offshore Feeder Fund dated July 2023. For access to this document, please email us at info@nineblockscapital.com

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Virtual Asset (VA) Standards

With respect to the requirements stipulated by the Virtual Assets Regulatory Authority (VARA) in its Market Conduct Rulebook - Part VIII (VA Standards), Nine Blocks discloses that it conducts its operations with respect to the following standards:

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VASPs shall take all reasonable steps including, but not limited to, conducting relevant due diligence to ensure all Virtual Assets meet its VA Standards prior to, and at all times during, the VASP providing any VA Activities in relation to such Virtual Assets.

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VA Standards shall, to the extent relevant to the VA Activity, include but not be limited to the following considerations in respect of all Virtual Assets—

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(a) its market capitalisation, fully diluted value and liquidity, and whether such metrics have trended downwards over time;

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(b) its design, features and use cases, whether or not intended by the Issuer or relevant developers;

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(c) whether there are features which may materially affect a VASP’s compliance with applicable laws, Regulations, Rules or Directives, including but not limited to those relating to AML/CFT, sanctions, securities, intellectual property;

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(d) regulatory treatment by VARA and other appropriate authorities [including those outside of the Emirate], in particular whether the issuance of the Virtual Asset has received any regulatory approvals;

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(e) whether a Virtual Asset is prohibited by VARA or any other appropriate authorities [both inside or outside the UAE] in jurisdictions in which the VASP will provide VA Activities, or equivalent activities, in relation to such Virtual Asset;

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(f) the security and immutability of the underlying DLT protocol;

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(g) its future development [e.g. “roadmap”] as communicated by the Issuer and/or relevant developers;

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(h) whether it may be susceptible to price manipulation for any reason and relevant mitigations that will be implemented by the VASP;

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(i) whether potential or actual conflicts of interest may arise should a VASP provide any VA Activities in relation to the Virtual Asset and relevant mitigations;

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(j) the background of its Issuer including, but not limited to, relevant experience in the Virtual Asset sector and whether it has been subject to any investigations or claims in relation to fraud or deceit;

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(k) if the Virtual Asset represents rights to any other assets, the enforceability of such rights;

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(l) sufficient assets are available to satisfy any obligation with respect to any VA Activities;

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(m) VASPs shall ensure that Virtual Asset terms and conditions reflect, to the extent possible, the operation of any existing underlying physical market and avoid adverse impacts to such market [if applicable]; and

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(n) VASPs should review Virtual Asset terms and conditions on a periodic basis for appropriate correlation with any physical market to ensure such terms and conditions conform to standards and practices in that physical market [if applicable].

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Implementation and control

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1. VASPs shall regularly, and on an ongoing basis, assess relevant information to ensure that a Virtual Asset that it provides VA Activities in relation to continues to meet its VA Standards.

2. VASPs must maintain all records relevant to such assessments for eight [8] years and provide such records for VARA’s inspection upon request.

3. VASPs shall set conditions under which VA Activities in relation to a Virtual Asset may be suspended, including where a Virtual Asset no longer meets its VA Standards. VASPs shall have and implement all necessary operational procedures and controls in the event such conditions are met.

4. VASPs shall notify VARA as soon as possible after becoming aware that a Virtual Asset no longer meets its VA Standards and shall take such steps as VARA may direct to minimise any adverse impact on clients arising as a result.

5. VARA shall have the right to require the suspension of a VA Activity in respect of any Virtual Asset upon reasonable grounds it deems appropriate.

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