Rulebook on Determining the Net Asset Value and Calculation Unit Value of a Mandatory Pension Fund – Unofficial Consolidated Text (NN, Nos. 128/17, 114/18, 2/20, 139/23 and 51/24)

UNOFFICIAL CONSOLIDATED TEXT
(Official Gazette Nos. 128/17, 114/18, 2/20, 146/22, 139/23, 51/24) RULEBOOK ON DETERMINING THE NET ASSET VALUE AND CALCULATION UNIT VALUE OF A MANDATORY PENSION FUND

General Provisions
Article 1.
This Rulebook regulates:
a) the determination of the net asset value of a mandatory pension fund (hereinafter: pension fund) and the calculation unit value of the pension fund, b) the basis for calculating management fees and depositary fees, c) the method and deadlines by which the depositary reports to Hanfa on the calculation of the net asset value and calculation unit value, d) the method and deadlines by which the pension management company reports to the Central Insurance Register on the calculation unit value, e) the conduct of the pension management company if the calculation and control of the net asset value is not completed within the prescribed deadline.

Determination of Net Asset Value
Article 2.
(1) The total assets of a pension fund on the valuation date consist of the sum of values of all types of pension fund assets.
(2) The net asset value is the total assets reduced by the liabilities of the pension fund.
(3) Pension fund liabilities may arise from:
a) investment of pension fund assets, b) allocation of calculation units and changes in membership or closure of personal accounts, c) management fees to the pension management company, d) depositary fees, and e) other liabilities for unpaid costs in accordance with Article 87(1)(3) and (4), and (2) of the Mandatory Pension Funds Act (Official Gazette, Nos. 19/14, 93/15, 64/18, 115/18, 58/20 and 156/23, hereinafter: the Act).

Calculation of Number of Calculation Units
Article 3.
(1) The Central Insurance Register must, when calculating the number of calculation units:
a) allocate calculation units to personal accounts based on paid contribution funds and transferred funds from other funds due to the transfer of members, at the calculation unit value for the day the funds were received, b) reduce the number of calculation units on personal accounts by amounts due to membership changes to other pension funds and the closure of personal accounts (pension payouts, death of a member), calculated based on the calculation unit value for the last day of membership. (2) The pension management company and depositary must, for each valuation date, align the number of calculation units with the Central Insurance Register.

Determination of Calculation Unit Value
Article 4.
(1) When determining the net asset value and calculation unit value, the pension management company must:
a) calculate the total assets and total liabilities of the pension fund for the valuation date in accordance with this Rulebook, b) calculate the net asset value by reducing total assets by total liabilities for the valuation date, c) calculate the calculation unit value by dividing the net asset value from point b) of this paragraph by the number of calculation units for the valuation date calculated by the Central Insurance Register, and adjusting the calculation units up or down according to the Central Insurance Register's report. (2) The net asset value and calculation unit value are calculated for each subsequent working day, except Saturdays and Sundays. (3) Exception to paragraph 2, the net asset value and calculation unit value are always calculated for the last day of the month on the subsequent working day.

Internal Valuation Procedures
Article 5.
(1) The pension management company must draft an internal act describing the obligations, roles, and responsibilities of all parties involved in the asset and liability valuation process.
(2) The internal act referred to in paragraph 1 must at least:
− ensure a reliable, transparent, comprehensive, and adequately documented valuation process, cover significant aspects of the valuation process as well as valuation procedures and controls, − describe protective measures for functional independence in conducting valuations, including measures to prevent or limit any person from exerting undue influence on the valuation process. (3) The pension management company ensures consistent application of the internal act from paragraph 1. (4) The pension management company must review the appropriateness of the internal act from paragraph 1 at least once a year.

Accounting Policies
Article 6.
(1) The principles and basis for recognition, measurement, and derecognition of pension fund assets and liabilities must be specified by the pension management company in the accounting policies.
(2) The accounting policies from paragraph 1 must comply with this Rulebook and the International Financial Reporting Standards (IFRS) adopted by the European Commission and published in the Official Journal of the European Union.

Documentation of the Valuation Process
Article 7.
(1) The pension management company must retain documentation from Articles 10(5) and (11), 11(1), 12(5), (6) and (8), 14(4) and (5), 15(3) and (8), 16(4) and (5), 17(5) and (6), and 18(5) for at least three years from the date all rights and obligations arising from investments in a specific asset cease. (2) The pension management company must adopt, apply, and regularly update appropriate internal acts containing at least the requirements from Article 5(1), 12(4), 13(4), 14(3) and (11), 15(6) and (7), 16(2) and (7), 17(12) and (13), and 18(4). (3) The pension management company must maintain a register of updates to the internal acts from paragraph 2, listing amendments and reasons for implementation. (4) The pension management company must provide the documentation from paragraph 1 to Hanfa upon request.

Recognition and Measurement of Assets and Liabilities
Article 8.
(1) Recognition of pension fund assets and liabilities is conducted depending on the type of asset or liability and the classification performed in accordance with accounting policies.
(2) Financial assets and liabilities are initially recognized at fair value, adjusted up or down for transaction costs directly attributable to the acquisition or issuance of financial assets/liabilities not measured at fair value through profit or loss. An exception applies to financial assets and liabilities measured at fair value through profit or loss, which do not include transaction costs upon initial recognition as they are recognized in the profit and loss statement upon incurrence. (3) Assets acquired in foreign currency and subsequent measurement of assets/liabilities denominated in foreign currency are converted to EUR using European Central Bank (ECB) reference rates valid on the valuation date, or rates arising from contractual relationships related to the transaction. If the currency is not listed on the ECB exchange rate list, Croatian National Bank (HNB) mid-rates valid on the valuation date or mid-rates for currencies linked to the denominated currency, published on financial information services, are applied. Values expressed in linked currencies are converted to EUR using ECB reference rates on the valuation date. For currencies without published ECB reference rates, the pension management company uses HNB mid-rates valid on the valuation date.

Article 9.
(1) Financial assets and liabilities are recognized from the date the contractual terms of the instrument begin to apply, where the pension fund is a contracting party.
(2) Purchases and sales of financial instruments are recognized in the pension fund's assets on the trade date. A concluded purchase transaction is recognized in assets according to type and classification, simultaneously forming a settlement liability. On the trade date of a sale, the financial instrument ceases to be recognized in assets, and a receivable from the sale begins to be recognized. (3) In public offers, transferable securities are initially presented as receivables for the amount of funds offered, if there is an unconditional obligation to pay under public offer terms. After acceptance and receipt of the acceptance notice from the issuer, arranger, or depositary (whichever is earlier), and upon assignment of all necessary characteristics, they are recognized in assets according to financial asset classifications. (4) Transferable securities in assets under mandatory and voluntary takeover bids are valued from the date of the depositary's notice of accepted bid by the issuer at the redemption price in the public offer. (5) Changes to assets and liabilities are recorded in accounting books based on proper and authentic accounting documents. (6) Receivables or liabilities for interest and similar rights are presented in assets/liabilities upon establishment of the holder's right. (7) Receivables for dividends or profit shares, and stock dividends, are recognized in assets on the first day the stock trades ex-dividend. (8) Exception to paragraph 7, the pension management company may recognize dividend/profit share receivables or stock dividends on the date establishing the holder's right, based on a dividend payment decision or profit distribution by the competent body (e.g., general meeting) or received depositary notice. (9) Paragraph 3 applies mutatis mutandis to money market instruments.

Financial Instruments Measured at Fair Value
Article 10.
(1) Fair value of transferable debt securities and money market instruments traded in Croatia on an active market is calculated using the weighted average trading price by volume of securities traded on a regulated market under capital markets law, and reported OTC transactions on the valuation date, considering criteria in Article 13(9)(a) and (b). (2) Fair value of equity securities traded in Croatia on an active market is calculated using the weighted average trading price by volume, or multilateral trading facilities under capital markets law, on the valuation date, considering Article 13(9)(c). (3) Exception to paragraph 1, money market instruments issued by the Republic of Croatia may be valued using amortized cost via effective interest rate method based on yield to maturity relevant until a new transaction in the same pension fund or primary issuance with identical maturity. (4) Fair value of transferable securities and money market instruments traded in another EU/OECD member state on an active market is valued using the last published trading price on a regulated/multilateral platform under capital markets law, or official financial information services, on the valuation date. (5) Exception to paragraphs 4 and 5, the pension management company may use another price if it determines the paragraph 4 price does not represent fair value, provided written justification and documentation are submitted. (6) Exception to paragraphs 4 and 5, fair value of money market instruments issued by another EU/OECD member state may be valued using amortized cost via effective interest rate method based on yield to maturity relevant until a new transaction or primary issuance with identical maturity. (7) UCITS fund shares are valued at the applicable share price on the valuation date, published by the management company or official financial information services. If no publication exists for the valuation date, fair value is the share price from the last dated valuation date with a published price. (8) Paragraph 7 applies mutatis mutandis to shares in open-ended investment funds with public offers approved in an EU/OECD member state. (9) Shares of open-ended and closed-ended alternative investment funds without legal personality are valued per paragraph 7, if applicable, or according to notices from the alternative investment fund management company. (10) Exception to paragraphs 9, 12, and 13, when valuing investments in shares or business interests of alternative investment funds with return guarantees under Article 126(1)(2) and 126.a(1)(2) of the Act, fair value of the guarantee must be assessed. Fair value is calculated by discounting the guaranteed amount to the calculation date. The discount rate equals the estimated yield on transferable debt securities issued by Croatia, another EU/OECD state, or an international public body (depending on issuer), denominated in EUR and with comparable maturity to the alternative fund. (11) If fair value of return
guarantee from paragraph 10 exceeds fair value under paragraph 9, the pension management company recognizes the difference. Assessment must be in writing.

(12) Shares of closed-ended alternative investment funds and shares/units of ETFs are valued according to provisions for transferable equity securities.
(13) Business interests of closed-ended alternative investment funds, unlisted transferable securities, money market instruments, infrastructure financing/securitization bonds, and crowdfunding platform offerings are valued per Article 14. (14) Exception to paragraph 4, under conditions of paragraph 5, debt securities and money market instruments traded in another EU/OECD state without an active market may be valued using prices from official financial information services, calculated by algorithms generating composite prices consistently using available market data, indicative or binding quotes.
Article 11.
(1) Upon initial investment, the pension management company must define via internal act how each financial instrument is valued. The internal act must at least contain:
a) primary price source for valuation, i.e., primary market where the instrument trades and from which quoted prices are applied, b) secondary price source for valuation, if available, and conditions for using it when primary prices (Articles 10(1), (2), (4), (5), and (10)) are unavailable, c) valuation techniques for determining fair value of transferable securities/money market instruments when active market conditions are not met (inactive markets). (2) If no active market exists for a transferable security or money market instrument (defined in Article 13), provisions of Article 14 apply.

Derivatives
Article 12.
(1) Investments in derivative financial instruments are valued at publicly available daily settlement prices on regulated markets under capital markets law, in another EU/OECD state, or official financial information services.
(2) Exception, derivatives without available paragraph 1 prices are valued at fair value using the last available purchase bid price for long positions, and the last available sale offer price for short positions.
(3) FX forward transactions are valued daily at fair value using forward points for specific currencies (close-out method), available on official services. If forward points are unavailable, reference interest rates (close-out method) for the currency from official services are used. ECB reference rates or HNB mid-rates (if not in ECB list) serve as reference exchange rates. (4) The pension management company must specify OTC derivative valuation in the internal act, if permitted by statute. (5) When preparing fair value estimates for OTC derivatives, the pension management company must ensure documented verification that valuations are not solely based on market prices quoted by the counterparty in informal markets, meeting:
a) fair value basis is relevant market value from appropriate source, or calculated via valuation technique if unavailable, b) verification performed by:
− an independent third party regularly and verifiably, or − an appropriate internal organizational unit independent of asset management.
(6) Considering type and complexity, the pension management company must establish, implement, regularly update, and document measures/procedures ensuring appropriate, transparent, and fair valuation of OTC derivative investments. (7) Exception to paragraphs 1, 2, and 3, the pension management company may value portfolio derivatives defined as hedging instruments using IFRS 9 risk accounting provisions. (8) If applying risk accounting from paragraph 7, the pension management company must in writing draft an internal act defining hedging instruments and hedged items, plus evidence of IFRS 9 compliance.

Active and Inactive Markets
Article 13.
(1) For transferable equity securities, an active market is one where trading occurred for at least 20 trading days in a three-month period.
(2) For transferable debt securities and money market instruments listed on Croatian regulated markets, an active market is one where trading occurred for at least 15 trading days in a three-month period.
(3) For transferable debt securities and money market instruments traded in another EU/OECD state, an active market is one where fair value could be determined for at least 15 days in a three-month period.
(4) The pension management company must specify clear criteria for distinguishing active and inactive markets in the internal act for derivative investments per Article 12(1).
(5) The pension management company must assess monthly for the preceding three months, on the last working day of the month, whether transferable securities, money market instruments, and derivatives meet conditions in paragraphs 1-4. (6) The pension management company must begin applying the price from Article 14 no later than the seventh working day after the date in paragraph 5.