SD-10.2 — Investment Restriction Coding & Rule Library

Business Domain: BD-10 Investment Compliance & Guideline Monitoring (Middle office) · Applies: BOTH

Purpose

Turns the rules a portfolio must obey into a coded, machine-checkable library — the rule set SD-10.1 runs. Every binding constraint on a portfolio starts as prose: a clause in a client investment-management agreement, a paragraph in a fund prospectus, a limit in a limited-partnership agreement, a provision of securities regulation. SD-10.2 is the capability that interprets that prose, codes it as a logical rule, and maintains the library of those rules under governance. It exists because a guideline only becomes monitorable once it is coded — the gap between the legal text and the machine rule is where compliance is won or lost. It is not the monitoring itself — SD-10.1 runs the library — and it does not own the mandate the rules express, which is SD-01.2’s; SD-01.2 owns the prose, SD-10.2 owns the machine rule. For the regulation-sourced rules it codes, it does not own the regulatory interpretation either — which regime applies and what it requires is SD-10.3’s regulatory-domain judgement; SD-10.2 codes the interpreted requirement it is handed and keeps the coded form correct, but it does not judge the regulation.

Service Operations

Interpret the guideline source — read the mandate-origin sources (the investment-management agreement, prospectus, LPA) and determine what each clause requires as a checkable rule. For a regulation-sourced rule the interpretation of what the regulation requires is not done here — it is the regulatory-domain judgement SD-10.3 holds; SD-10.2 codes the interpreted regulatory requirement SD-10.3 hands it.
Code the rule — express the interpreted guideline as a logical rule the compliance engine can evaluate, with its scope, threshold, basis and the action a breach triggers.
Onboard a new mandate — code the full rule set for a newly signed mandate, fund or account, so it is monitorable from its first trade.
Maintain the rule library — keep the coded library current as guidelines change, holding the universal rules (regulation, house policy) separate from the bespoke per-mandate rules. For a regulation-sourced rule, “current” means coded faithfully to the interpreted requirement SD-10.3 maintains — SD-10.2 keeps the coding current; SD-10.3 keeps the regulatory interpretation current.
Tune for false positives — review and refine rules that raise spurious alerts, so the alert stream stays meaningful.
Govern rule changes — control every change to the library under a documented governance process, with the change recorded and approved.

Inputs and outputs

Inputs: the mandate and its constraint set from SD-01.2; fund prospectuses and LPA terms (PM-10 Fund Terms); the interpreted regulatory requirement from SD-10.3 (which regime applies and what it mandates, judged and kept current by SD-10.3); rule-change requests; false-positive analysis from SD-10.1.
Outputs: the coded, governed rule library — consumed by SD-10.1 Investment Guideline Monitoring, which runs it, and the compliance reporting in BD-13.

Entities

Consumes: E-03 Portfolio / Mandate (the mandate facet, from SD-01.2), PM-10 Fund Terms; the SD-10.1 false-positive analysis; the SD-10.3 interpreted regulatory requirement (the judgement of which regime applies and what it mandates).
Owns: the coded investment-restriction library — the machine-checkable expression of the rules. a mandate-derived constraint is carried as E-16 Risk Limit with limit_type = mandate.
Open question: whether a dedicated Compliance Rule entity is warranted — the coded rule as a versioned, owned record, distinct from E-16’s mandate-typed limits.

Standards

UCITS / AIFMD / the US Investment Company Act 1940 / MiFID II as the regulatory source text the rules are coded from (the interpretation of what each regime requires is owned by SD-10.3; SD-10.2 codes the interpreted requirement).
The rule-coding conventions of the compliance vendors (Charles River IMS, Bloomberg AIM, BlackRock Aladdin Compliance); NLP-assisted guideline extraction as an emerging practice.

Open extensions

The Compliance Rule entity — the open question above.
The universal-versus-bespoke library split.
The rule-coding sub-model — how a prose clause becomes a logical rule.