CIS Collective Investment Schemes

Export part as

CIS 1


Introduction - Collective investment
schemes sourcebook

CIS 1.1

Application

CIS 1.1.1

See Notes

handbook-guidance
This sourcebook applies to investment companies with variable capital (ICVCs), directors and depositaries of ICVCs and managers and trustees of authorised unit trusts (AUTs), except for CIS 16 which includes provisions that also apply to operators of collective investment schemes and CIS 17 which applies only to operators of collective investment schemes which are recognised schemes. CIS 10 also applies to auditors of ICVCs and AUTs.

Right to elect to comply with COLL

CIS 1.1.1A

See Notes

handbook-rule
(1) CIS does not apply to any relevant party in relation to an authorised fund if the authorised fund manager of such fund with the consent of each of the other relevant parties has elected on behalf of the fund to comply with the rules in COLL instead of CIS, provided the authorised fund manager notifies the FSA in writing of such election and of the date from which such election is to take effect.
(2) For the purposes of (1) a relevant party in relation to:
(a) any AUT, is its manager and trustee; and
(b) any ICVC, is:
(i) the ICVC;
(ii) its ACD;
(iii) any other directors of the ICVC; and
(iv) its depositary.

Operators of recognised schemes

CIS 1.1.1B

See Notes

handbook-rule
CIS 16 (Application and notification) and CIS 17 (Recognised schemes) do not have any effect in relation to an operator of a recognised scheme or to any person seeking recognition in the United Kingdom for such a scheme after 1 April 2004.

Purpose

CIS 1.1.2

See Notes

handbook-guidance
The general purpose of this sourcebook is to contribute to the FSA meeting its regulatory objective of the protection of consumers (see section 2 and 5 of the Act) by providing a regime of product regulation for ICVCs and AUTs. This regime is intended to ensure a high and uniform standard of protection for investors in those products by specifying a number of features of those products and how they are to be operated. More specific purpose statements covering how the requirements meet the FSA's regulatory objective of the protection of consumers are, where appropriate, given in subsequent chapters.

The products covered

CIS 1.1.3

See Notes

handbook-guidance
Under section 238 of the Act only certain collective investment schemes may be promoted to the public. These are:
(1) ICVCs and AUTs: these are constituted in the United Kingdom and are described in more detail in CIS 1.1.4 G to CIS 1.1.6 G; and
(2) collective investment schemes constituted outside the United Kingdom and recognised by the FSA under:
(a) section 264 of the Act (Schemes constituted in other EEA States): these are schemes that qualify under the UCITS directive;
(b) section 270 of the Act (Schemes authorised in designated countries or territories); and
(c) section 272 of the Act (Individually recognised overseas schemes).

ICVCs

CIS 1.1.4

See Notes

handbook-guidance
Section 262 of the Act empowers the Government to make provisions relating to open-ended investment companies (as defined by section 236 of the Act) and they have made the OEIC regulations to permit establishment of ICVCs in Great Britain. Schedule 5.1(3) of the Act states that authorised open-ended investment companies are authorised persons, hence an ICVC is an authorised person.

CIS 1.1.5

See Notes

handbook-guidance
The ICVC is constituted by an instrument of incorporation, drawn up by its directors. At least one director must be an authorised corporate director ('ACD'). A depositary is also required which is responsible for the safekeeping of the scheme property. In order to comply with section 19 of the Act, the ACD and the depositary must each be authorised persons. The FSA has the power under regulation 14 of the OEIC regulations to authorise the ICVC by making an authorisation order. CIS 16 provides additional guidance on the process of applying to the FSA for authorisation of an ICVC.

AUTs

CIS 1.1.6

See Notes

handbook-guidance
Under section 237 of the Act, an AUT is a collective investment scheme under which the property is held on trust for the participants by the trustee and which is authorised by an authorisation order (made by the FSA) in force under section 243 of the Act. The AUT will be constituted by a trust deed, entered into by the manager and trustee, both of whom must, under section 243(7) of the Act, be authorised persons and have permission to act in their respective capacities. CIS 16 provides more detail on the process of applying to the FSA for the authorisation of an AUT.

Recognised schemes

CIS 1.1.7

See Notes

handbook-guidance
For collective investment schemes constituted outside the United Kingdom and referred to in CIS 1.1.3 G (2), this sourcebook brings together the material relating to the admission to marketing in the United Kingdom of such schemes, complementing material in Chapter V of Part XVII of the Act (Recognised overseas schemes).

Functions of the CIS sourcebook

CIS 1.1.8

See Notes

handbook-guidance
The sourcebook performs three main functions in respect of ICVCs and AUTs, by providing material:
(1) relating to their constitution and management (including rules and guidance on pricing arrangements, investment powers and on certain information to be provided to investors);
(2) relating to the process of authorising them; and
(3) which satisfies the requirements of the UCITS directive (which sets minimum standards for schemes on a basis agreed by all EEA States) thereby enabling ICVCs and AUTs which meet those standards to market elsewhere in the EEA.

CIS 1.1.9

See Notes

handbook-guidance
Together, the material in Chapters 2 to 15 forms a major part of the product regulation regime for ICVCs and AUTs, complementing material in the OEIC regulations and Chapter III of Part XVII of the Act (for Authorised unit trust schemes).

CIS 1.2

Arrangement of this sourcebook and definitions

CIS 1.2.1

See Notes

handbook-guidance
Some of this sourcebook relates only to ICVCs and some only to AUTs. However, parts of this sourcebook cover both ICVCs and AUTs (in particular in CIS 3, CIS 4, CIS 5 and CIS 9). Accordingly, some of the defined terms included relate equally to both ICVCs and AUTs (together called "authorised funds"). Other key examples of these terms are:
(1) "authorised fund manager": covers both the ACD of an ICVC and the manager of an AUT. (The term "ACD" is used only in relation to an ICVC and the term "manager" is used only in relation to an AUT);
(2) "depositary": where used in relation to an authorised fund, covers both the depositary of an ICVC and the trustee of an AUT;
(3) "holder": covers both a "shareholder" of an ICVC and a "unitholder" of an "AUT";
(4) "unit": according to the context, can cover both a "share" in an "ICVC", a "unit" in an AUT and the rights or interests of participants in other types of collective investment scheme;
(5) "prospectus": covers the prospectus of an ICVC and the "scheme particulars" of an AUT, but there is no objection to the use of the latter term as an alternative to "prospectus".

Outline of the content of this sourcebook

CIS 1.2.2

See Notes

handbook-guidance
CIS 2 (Constitution) sets out provisions on the contents of the documents required to form authorised funds, and other matters relating to their constitutional features, such as classes of shares (in ICVCs) and units (in AUTs) and the types of authorised fund (for example, UCITS schemes) that may be established.

CIS 1.2.3

See Notes

handbook-guidance
CIS 3 (Prospectus) includes requirements on the preparation, content, availability of, and changes to, an authorised fund's prospectus.

CIS 1.2.4

See Notes

handbook-guidance
CIS 4 (Single-pricing and dealing) covers the valuation and pricing of authorised funds that are single-priced. In addition, it includes rules on the sale and redemption of units in such funds. CIS 7 Annex 1 G and Appendix CIS G are also relevant to this chapter.

CIS 1.2.5

See Notes

handbook-guidance
CIS 5 and CIS 5A (Investment and borrowing powers) require authorised funds to comply with the rules on investments to ensure funds operate under the principles of risk spreading. The chapter is split in two because of the implementation of the UCITS Amending Directive relating to investment powers and the transitional provisions that Directive allows. Transitional provision 14 provides precise details on the operation but generally speaking:
(1) UCITS qualifying schemes existing on or before 13 February 2002 and which now qualify as UCITS schemes may operate under the rules in CIS 5A and may switch to operate under CIS 5 at any time before 13 February 2007, at which time they must operate under CIS 5; and
(2) UCITS qualifying schemes authorised after 13 February 2002 but before 13 February 2004 may operate under the rules in CIS 5A or CIS 5 but must operate under the rules in CIS 5 by 13 February 2004.

CIS 1.2.6

See Notes

handbook-guidance
CIS 6 (Title, transfer and plan registers) includes requirements relating to the register of unitholders in an AUT. (Provisions concerning the register of an ICVC are in the OEIC regulations.) It also deals with plan registers of ICVCs and AUTs.

CIS 1.2.7

See Notes

handbook-guidance
CIS 7 (Powers and duties) apportions responsibilities between the directors (including the ACD) and depositary of an ICVC and the manager and trustee of an AUT, to the extent that these are not covered in other chapters.

CIS 1.2.8

See Notes

handbook-guidance
CIS 8 (Charges and expenses) lays down conditions concerning charges when investors buy or sell units and payments that can be made out of the scheme property.

CIS 1.2.9

See Notes

handbook-guidance
CIS 9 (Income) deals with the calculation and distribution of income.

CIS 1.2.10

See Notes

handbook-guidance
CIS 10 (Reports and accounts) concerns the content and publication of annual and half-yearly reports and accounts of authorised funds.

CIS 1.2.11

See Notes

handbook-guidance
CIS 11 (Meetings of holders, amendments to the scheme and service of notices) deals with a variety of matters relating to meetings of holders and includes requirements concerning the conditions under which the instrument constituting the scheme may be changed and how the scheme property of an authorised fund may become the property of another scheme (a scheme of arrangement). It also provides for the use of electronic media in respect of any notice, document or information that is required by CIS to be sent to any person.

CIS 1.2.12

See Notes

handbook-guidance
CIS 12 (Special provisions for certain categories of scheme) provides some special rules for certain categories of authorised fund, in particular for umbrella schemes.

CIS 1.2.13

See Notes

handbook-guidance
CIS 13 (Suspension and resumption of dealings) includes requirements for the suspension of dealings in the units of authorised funds.

CIS 1.2.14

See Notes

handbook-guidance
CIS 14 (Termination of schemes) includes requirements relating to the winding-up of authorised funds and the termination of a sub-fund of an ICVC.

CIS 1.2.15

See Notes

handbook-guidance
CIS 15 (Dual-pricing and dealing) sets out rules and guidance on the valuation and pricing of units in a dual-priced AUT. CIS 7 Annex 1 G and Appendix CIS G are also relevant to this chapter.

CIS 1.2.16

See Notes

handbook-guidance
CIS 16 (Application and notification) outlines the application and notification procedures for authorised funds and schemes from other countries or territories which may be recognised by the FSA for marketing in the United Kingdom.

CIS 1.2.17

See Notes

handbook-guidance
CIS 17 (Recognised schemes) sets out the information that the FSA requires so as to consider whether schemes under sections 264, 270 and 272 of the Act should be permitted to market in the United Kingdom.

CIS 1.2.18

See Notes

handbook-guidance
set out the application and periodic fees payable for the authorisation or recognition of regulated schemes.

Related sourcebooks

CIS 1.2.19

See Notes

handbook-guidance
There are a number of other parts of the FSA's Handbook that are relevant to those having a responsibility in relation to authorised funds. These include:
(1) PRIN (The Principles for Businesses);
(2) SYSC (Senior management arrangements, systems and controls);
(3) APER (The Statements of principle and Code of Practice for approved persons) ;
(4) COB (The Conduct of Business sourcebook);
(5) SUP (The Supervision manual);
(6) DEC (the Decision making manual); and
(7) CASS (The Client Assets sourcebook).

CIS 1.2.20

See Notes

handbook-guidance
ENF 16 sets out the FSA's policies and procedures concerning the use of its enforcement powers in relation to ICVCs, AUTs and recognised schemes.

CIS 1.2.22

See Notes

handbook-guidance
Due regard should be given to compliance with the Joint Money Laundering Steering Group Guidance Notes for the Financial Sector in determining compliance with the Money Laundering Regulations.

CIS 1.2.23

See Notes

handbook-guidance
Establishing, operating or winding up a collective investment scheme is a regulated activity. No person may carry on a regulated activity in the United Kingdom, or purport to do so, unless he is an authorised person (or an exempt person). This prohibition is also known as the general prohibition. Guidance for persons considering carrying on regulated activities in the United Kingdom can be found in AUTH. AUTH 3 (Applications for Part IV permission) gives guidance on how to apply to the FSA for a Part IV permission. This authorisation is different to the authorisation of a scheme under Part XVII of the Act, guidance on which is provided in this sourcebook.

Export chapter as

CIS 2


Constitution

CIS 2.1

Introduction

Application

CIS 2.1.1

See Notes

handbook-rule
This chapter applies in relation to ICVCs and AUTs.

CIS 2.1.2

See Notes

handbook-guidance
(1) The persons to whom each respective rule and guidance in this chapter applies, are stated either at the beginning of the rule or guidance or at the beginning of the section that contains the rule or guidance.
(2) However, to assist the understanding of this chapter, CIS 2.1.5 G indicates which provisions in this chapter are relevant for ICVCs and which are relevant for AUTs.

CIS 2.1.3

See Notes

handbook-guidance
This chapter assists in achieving the regulatory objective of protecting consumers (as envisaged by section 2 and 5 of the Act). In particular, this chapter:
(1) lays down some requirements about provisions which must be included in the instrument of incorporation of each ICVC and in the trust deed of every AUT resulting in a similar degree of protection for all investors in an ICVC or in an AUT;
(2) lays down the types to only one of which each authorised fund must belong (see CIS 2.1.4 R);
(3) provides rules which deal with the classes of shares (in ICVCs) and units (in AUTs) which may be issued and sold to investors; those rules will ensure that investors in each class are treated equally and fairly;
(4) provides rules and guidance on the inclusion of the word "guaranteed" or anything implying a degree of capital security in the name of an authorised fund.

Types of authorised fund

CIS 2.1.4

See Notes

handbook-rule
An authorised fund must belong to only one of the following types:
(1) a UCITS scheme which complies with CIS 5;

Types of authorised fund - explanation.

CIS 2.1.4A

See Notes

handbook-guidance
(1) Schemes within CIS 2.1.4 R (1) are UCITS schemes complying with CIS 5 which sets out the extended investment powers available under UCITS Amending Directive 2001/108/EC.
(2) Schemes within CIS 2.1.4 R(2), (7), and umbrella schemes consisting of sub-funds equivalent to CIS 2.1.4 R(2), (7) type schemes are also UCITS schemes but they must comply with the investment rules in CIS 5A. Such schemes may convert to the CIS 2.1.4 R (1) type at any time, however, they must so convert within the timescales set out in transitional provision 14.
(3) Schemes within CIS 2.1.4 R(3) - (6), (8), (9) and type (10) where it is a non-UCITS compliant scheme are non-UCITS schemes. The investment rules in CIS 5A apply and transitional provision 14 has no application to them.

CIS 2.1.5

See Notes

handbook-guidance

Table of application

This table belongs to CIS 2.1.2 G

CIS 2.2

The instrument constituting the scheme

Application

CIS 2.2.1

See Notes

handbook-rule
(1) CIS 2.2.2 R CIS 2.2.4 R apply to the directors of an ICVC.
(2) CIS 2.2.5 R CIS 2.2.8 R apply to managers and trustees of an AUT.

The instrument of incorporation for ICVCs: matters which must be included in the instrument of incorporation

CIS 2.2.2

See Notes

handbook-rule
(1) The instrument of incorporation must not include any provision which is unfairly prejudicial to the interests of shareholders generally or to the holders of any class of shares, except to the extent that (2) applies.
(2) If, subject to compliance with a condition imposed by law or regulation of any part of the United Kingdom, any income property of the ICVC may be allocated or paid to a shareholder without deduction of United Kingdom tax, the instrument of incorporation must provide:
(a) that, if the condition is never, or ceases to be, fulfilled, the relevant shares of that shareholder must be:
(i) redeemed or cancelled; or
(ii) converted into or exchanged for shares where the income allocated or paid is subject to deduction of UK tax; and
(b) the procedure for that redemption or cancellation, conversion or exchange.
(3) The instrument of incorporation must provide that the person designated for the purposes of paragraph (4) of schedule 4 (Share transfers) to the OEIC regulations must be the person who, for the time being, is the ACD of the ICVC.
(4) The instrument of incorporation must provide that the ICVC may (without prejudice to the requirements of regulation 21 of the OEIC regulations (Alterations)), by a resolution passed by a simple majority of the votes validly cast for and against the resolution at a general meeting of shareholders, remove a director before his period of office expires, despite anything else in the ICVC's instrument of incorporation or in any agreement between the ICVC and the director.
(5) Nothing in (4):
(a) deprives a person of any compensation or damages payable to him for terminating his appointment as director or of any appointment which terminates with it; or
(b) restricts the effect of any provision in the instrument of incorporation relating to a notice to be given to the ICVC or to the shareholders of the intention to move a resolution to remove a director or relating to the director's rights to make representations.
(6) The instrument of incorporation must contain a statement that, subject to any restrictions in the rules in this sourcebook or in the instrument of incorporation, the ICVC has the power to invest in any securities market or deal on any derivatives market:
(a) which is an eligible securities or derivatives market for that ICVC under CIS 5 or CIS 5A (Investment and borrowing powers); or
(b) to the extent that power to do so is conferred by CIS 5 or CIS 5A (Investment and borrowing powers), irrespective of any issue of eligibility.
(7) The instrument of incorporation must not contain a provision preventing its shares being marketed in the United Kingdom.

The instrument of incorporation for ICVCs: matters which may be included in the instrument of incorporation

CIS 2.2.3

See Notes

handbook-guidance
The instrument of incorporation may provide that, if the holding of any shares by a shareholder is (or is reasonably considered by the directors to be) an infringement of any law or governmental regulation, the shares so held must be redeemed or cancelled; if the instrument of incorporation contains such a provision, it should also provide the procedure for that redemption or cancellation.

Relationship between instrument of incorporation and the rules in this chapter

CIS 2.2.4

See Notes

handbook-rule
Any power conferred on any ICVC by these rules is subject to any express restriction contained in the ICVC's instrument of incorporation.

The trust deed for AUTs

CIS 2.2.5

See Notes

handbook-rule
An AUT must be constituted by a trust deed made between the manager and the trustee.

Matters that must be included in the trust deed

CIS 2.2.6

See Notes

handbook-rule
The trust deed of an AUT must contain at least:
(1) Name of AUT: a statement of the name of the AUT which must not be inconsistent with the AUT's authorised status under (2) and any restricted economic or geographic objectives;
(2) Authorised status
(a) a statement:
(i) in all cases, of the type to which the AUT belongs under CIS 2.1.4 R (Types of authorised fund);
(ii) for a feeder fund, of the name and authorised status of the regulated collective investment scheme (or a sub-fund of such a scheme) or the eligible investment trust into which the feeder fund is to invest;
(iii) for a fund of funds scheme, identifying the types of scheme in which the fund of funds scheme may invest; and
(iv) for an AUT that is an umbrella scheme, identifying the type to which each sub-fund would belong if the sub-fund were itself the subject of a separate authorisation order;
(3) Governing law: a statement that the trust deed is made under and governed by the law of England and Wales, or the law of Scotland or the law of Northern Ireland;
(4) Trust deed to be binding and authoritative: a statement that the trust deed:
(a) is binding on each unitholder as if he had been a party to it and that he is bound by its provisions; and
(b) authorises and requires the trustee and the manager to do the things required or permitted of them by its terms;
(5) Base currency: a statement of the base currency of the AUT;
(6) Investment powers in eligible markets: except in the case of a feeder fund, a statement that, subject to any restriction in the rules in this sourcebook or the trust deed, the AUT has the power to invest in any securities market or deal on any derivatives market:
(a) which is an eligible securities or derivatives market for that AUT under CIS 5 or CIS 5A (Investment and borrowing powers); or
(b) to the extent that power to do so is conferred by CIS 5 or CIS 5A (Investment and borrowing powers), irrespective of any issue of eligibility;
(7) Declaration of trust: a declaration that, subject to the provisions of the trust deed and all rules made under section 247 of the Act and for the time being in force:
(a) the scheme property (other than sums standing to the credit of the distribution account) is held by the trustee on trust for the unit holders according to the number of units held by each unit holder or, in the case where income units and accumulation units are both in issue, according to the number of undivided shares in the scheme property represented by the units held by each unit holder; and
(b) the sums standing to the credit of the distribution account are held by the trustee on trust to distribute or apply them in accordance with CIS 9 (Income);
(8) Unit holder's liability to pay a provision that a unit holder is not liable to make any further payment after he has paid the price of his units (or, in the case of a dual-priced AUT, purchase price) and that no further liability can be imposed on him in respect of the units which he holds; and
(9) Single-priced AUTs : for a single-priced AUT:
(a) a provision that there must be only a single price for any unit, determined by reference to any particular valuation point;
(b) provisions additional to, but subject to the requirements of, CIS 4.8 (Valuation) stating how the value of the scheme property of the AUT is to be determined; and
(c) if provisions in (a) and (b) do not take effect when the trust deed or (where appropriate) supplemental trust deed takes effect, a statement of the time from which those provisions are to take effect or how it will be determined.
(10) The trust deed must not contain a provision preventing its units being marketed in the United Kingdom.

Provisions that may be included in the trust deed

CIS 2.2.7

See Notes

handbook-guidance
  1. (1) There are a number of provisions in this sourcebook that only apply to the extent that they are provided for in the trust deed. Sub-paragraphs (a) to (n) include some provisions that may be contained in the trust deed for this purpose.
    1. (a) Duration of the AUT: if the AUT is to terminate after a particular period expires, a statement to that effect;
    2. (b) Manager's preliminary charge: a statement
      1. (i) authorising the manager to make a preliminary charge; and
      2. (ii) specifying a maximum to that charge, expressed either as a fixed amount in the base currency or as a percentage of the price (or in the case of a dual-priced AUT, the issue price of a unit);
    3. (c) Manager's periodic charge: a statement authorising the manager to make a periodic charge payable out of the scheme property; any statement under this paragraph should:
      1. (i) provide for the charge to be expressed as an annual percentage (to be specified in the prospectus and taken in accordance with the rules in CIS 8 (Charges and expenses)) of the value of the scheme property (and the statement may provide for the addition to the charge of value added tax, if any, payable on it);
      2. (ii) specify the accrual intervals and how the charge is to be paid; and
      3. (iii) specify a maximum to that charge, expressed as an annual percentage of the scheme property value;
    4. (d) Manager's charge on an exchange of units: for an AUT that is an umbrella scheme, a statement authorising the manager to make a percentage charge or a charge of a fixed amount on the exchange of units in one sub-fund for units in another (other than the first such exchange by a unitholder in any one annual accounting period) and specifying what the maximum of that percentage or amount may be;
    5. (e) Manager's charge on redemption: a statement authorising the manager to deduct a redemption charge out of the proceeds of redemption;
    6. (f) Trustee's remuneration: a statement authorising any payments to the trustee by way of remuneration for its services to be paid (in whole or in part) out of the scheme property and specifying the basis on which that remuneration is to be determined and how it should accrue and be paid;
    7. (g) Constituents of property, permitted transactions and borrowing powers: a statement of any of:
      1. (i) the description of assets which the capital property may consist of;
      2. (ii) the proportion of the capital property which may consist of an asset of any description;
      3. (iii) the descriptions of transactions which may be effected on behalf of the AUT;
      4. (iv) the borrowing powers exercisable in relation to the AUT;
    8. where they are narrower than those permitted for the type of authorised fund to which the AUT belongs under CIS 5 or CIS 5A (Investment and borrowing powers);
    9. (h) Restricted economic or geographic objectives: a statement of any restrictions on the geographic areas or economic sectors in which the capital property of the AUT may be invested;
      1. (i) Classes of units: a statement specifying which of the following classes of unit may be issued:
      2. (i) income units;
      3. (ii) accumulation units;
      4. (iii) limited issue units that are also income units;
      5. (iv) limited issue units that are also accumulation units.
    10. (j) Limited categories of unitholder: a provision that holders of units in the AUT apart from the manager must be persons who hold units such that any gain accruing upon the disposal of the units at any time will be wholly exempt from capital gains tax and corporation tax in the United Kingdom other than by reason of residence;
    11. (k) Certificates
      1. (i) a provision authorising the issue of bearer certificates, accompanied by a statement of how the holders of bearer certificates are to identify themselves;
      2. (ii) a provision authorising the trustee to charge a fee for issuing any document recording, or for amending, an entry on the register, other than on the issue or sale of units;
    12. (l) Income equalisation: a provision for income equalisation including a statement of how income equalisation is to be calculated, paid and accounted for;
    13. (m) Relevant pension schemes: for a scheme formed with the intention of it being a relevant pension scheme, additional provisions included with a view to the scheme's satisfying the requirements of HM Revenue and Customs (Pension Schemes Office and National Insurance Contributions Office), or those of any agency which may regulate a relevant pension scheme from time to time;
    14. (n) Relevant charitable schemes: for an AUT formed with the intention of it being a relevant charitable scheme, additional provisions included with a view to the AUT qualifying as a relevant charitable scheme and to the maintenance of its tax status after it has qualified.
  2. (2) The trust deed of an AUT may also include any provision:
    1. (a) dealing with a matter not referred to in CIS 2.2.6 R (Matters that must be included in the trust deed) or this guidance (CIS 2.2.7 G) the inclusion of which serves to enable the AUT, the manager or the trustee to obtain any privilege or power conferred by the rules in this sourcebook; or
    2. (b) which is expressly contemplated in this sourcebook.

Relationship between trust deed and rules in this sourcebook

CIS 2.2.8

See Notes

handbook-rule
(1) A trust deed must not contain any provision that conflicts with any rule in this sourcebook.
(2) Any power conferred, by the rules in this sourcebook, on the manager, on the trustee, or on them together is subject to any express prohibition contained in the trust deed.
(3) CIS 5 or CIS 5A (Investment and borrowing powers) has effect in relation to any AUT which is subject to any restriction imposed by the trust deed.

CIS 2.3

UCITS obligations

Application

CIS 2.3.1

See Notes

handbook-rule
This section (CIS 2.3) applies to ICVCs and to managers of AUTs.

UCITS schemes

CIS 2.3.2

See Notes

handbook-guidance
(1) A UCITS scheme may exercise the investment powers in CIS 5, which reflect those available under the UCITS Amending Directive 2001/108/EC.
(2) Transitional provision 14 permits a UCITS scheme to exercise the narrower range of investments and investment powers in CIS 5A for a specified duration.
(3) A securities scheme or a warrant scheme or an umbrella scheme consisting of sub-funds which if separately authorised would be a securities scheme or a warrant scheme will be a UCITS scheme. Transitional provision 14 specifies the period after which such schemes must comply with certain rules including those in CIS 5.

Requirements

CIS 2.3.3

See Notes

handbook-rule
(1) The instrument constituting a UCITS scheme may not be amended in such a way that it ceases to be a UCITS scheme.
(2) If an ICVC that is a UCITS scheme, or the manager of an AUT that is a UCITS scheme, proposes to market units in any EEA State other than the United Kingdom, the ICVC or the manager must notify the FSA of its proposal, specifying the EEA State concerned. The ICVC or the manager must do this at the same time as, or before, notifying the authorities in that EEA State of that proposal.

Outward passporting of UCITS schemes

CIS 2.3.4

See Notes

handbook-guidance
(1) Section VII of the UCITS directive provides the framework by which a UCITS scheme may undertake marketing in another EEA State. Article 44 has the effect of requiring the UCITS scheme to comply with the marketing and advertising rules in the relevant Host State. Article 45 requires the UCITS scheme to maintain certain facilities in the Host State and paragraph 25 of CIS 3.5.2 R(contents of the prospectus) requires these to be set out in the scheme's prospectus.
(2) Article 46 sets out the documentation requirements that need to be provided to the competent authority in the relevant EEA State. The documents have to be provided in a compliant manner at the same time as notification of the proposal to market there. The UCITS scheme may begin marketing two months following notification.
(3) Article 47 requires the relevant information and documents distributed in the Host State to be the same as those that the UCITS scheme provides in its Home State. The documents must be published in at least one of the official languages of the Host State. CIS 3 (prospectus) and CIS 10 (report and accounts) will be applicable in this case.
(4) If the UCITS scheme is being marketed in another EEA State, Article 34 requires the publication of prices in the Host State. CIS 4.4.8 R (4) and CIS 15.4.14 R (4) will be applicable in this case.

CIS 2.4

Share classes

Application

CIS 2.4.1

See Notes

handbook-rule
This section (CIS 2.4) applies to ICVCs and their ACDs.

Classes of shares in an ICVC

CIS 2.4.2

See Notes

handbook-guidance
(1) The OEIC regulations (schedule 2, paragraph (4)(1)(e)) require the instrument of incorporation of an ICVC to state what classes of shares may be issued, and, in the case of an ICVC that is an umbrella scheme, require the instrument of incorporation to state the classes that may be issued in respect of each sub-fund.
(2) Classes of shares may include:
(d) currency class income shares, which are currency class shares in respect of which income is allocated periodically to shareholders under CIS 9.2.5 R (Annual distribution to holders of income shares or income units);
(e) currency class net accumulation shares, which are currency class shares in respect of which income (net of any tax deducted or accounted for by the ICVC) is credited periodically to capital under CIS 9.2.4 R (Annual distribution to accumulation shares or accumulation units);
(f) currency class gross accumulation shares, which are currency class shares in respect of which income is credited periodically to capital under CIS 9.2.4 R, but, in accordance with relevant tax law, without deduction by the ICVC of any income tax; and
(g) limited issue shares which will also be shares of another class.

Classes of shares other than those listed in CIS 2.4.2 G

CIS 2.4.3

See Notes

handbook-guidance
(1) An instrument of incorporation may provide for classes of shares different from those listed in CIS 2.4.2 G(2). The guidance in this paragraph relates only to those classes of shares (and in this paragraph they are referred to as "new share classes").
(2) Subject to this guidance (CIS 2.4.3 G) and the restriction in CIS 2.4.6 R(2) (Rights of share classes), no special conditions are laid down in this chapter as to the nature or operational features of new share classes.
(3) CIS 2.2.2 R(1) does not permit a provision in an instrument of incorporation which is unfairly prejudicial to the interests of shareholders generally or to the holders of any class of shares. In order to be satisfied that CIS 2.2.2 R(1) is complied with, the FSA will take into account the principles in (a) to (c) when considering any proposals for new share classes. Those principles, which are not in any particular order of importance, are:
(a) the new share class should not provide advantages for that class if that would result in prejudice to shareholders of any other class;
(b) the nature, operation and effect of the new share class should be capable of being explained clearly to prospective investors in the prospectus; and
(c) the effect of the new share class should not appear to be contrary to the purpose of any part of this sourcebook.
(4) The FSA would encourage firms with proposals for new share classes to raise them informally with it so it can determine whether the following steps are necessary:
(a) submitting the proposal to the FSA, in draft, considerably in advance of any application for authorisation of an ICVC or proposal to change the instrument of incorporation; and
(b) accompanying the proposal in (a) with a detailed explanation of the purpose of the new share class and its intended operation and effect. In particular, the FSA would wish to receive:
(i) the provisions for inclusion in the instrument of incorporation for that new share class, which should describe clearly the nature of that new share class and deal comprehensively with the rights of shareholders of that new share class;
(ii) a separate and detailed explanation of how the new share class will operate in practice, which should describe the circumstances in which the rights and obligations of shareholders of that new share class depart from the rights and obligations of other shareholders;
(iii) an explanation of the operational features of administrative and accounting systems supporting the new share class.

What are currency class shares?

CIS 2.4.4

See Notes

handbook-guidance
A currency class share differs from other shares mainly in that its price, having been calculated initially in the base currency, will be quoted, and normally paid for, in the currency of the designation of the class. Income distributions will also be paid in the currency of designation of the class.

Currency class shares: requirements

CIS 2.4.5

See Notes

handbook-rule
In the case of currency class shares:
(1) the currency of the class concerned must not be the base currency (or, in the case of a sub-fund which, in accordance with a statement in the prospectus, is to be valued in some other currency, the currency of the class may be in the base currency, but must not be in that other currency);
(2) the price must be expressed in the currency of the class concerned;
(3) any distribution must be paid in the currency of the class concerned; and
(4) statements of amounts of money or values included in statements and in certificates prepared under CIS 9.2.8 R (Tax certificates) must be given in the currency of the class concerned (whether or not also given in the base currency).

What are limited issue shares?

CIS 2.4.5A

See Notes

handbook-guidance
(1) Limited issue shares are a class of share that may only be issued if permitted by the instrument of incorporation. Sales by the ACD will also need to be restricted by the instrument of incorporation, although there need be no restriction on the ACD's sale of shares held in its "box" (see CIS 4.1.4 G (3)) as a result of a previous redemption or an issue to the ACD when shares were available for issue. The issue and sale of limited issue shares may be confined to the occasion or occasions or up to the amount or value provided for by the prospectus.
(2) ICVCs that are umbrella schemes are reminded of the requirements under section 235(4) of the Act when setting up sub-funds with limited issue shares. Accordingly, when an umbrella scheme is considering setting up one or more sub-funds to issue limited issue shares then it will also need to have in addition two or more sub-funds issuing shares which are not limited issue shares to enable holders to exchange rights between the latter sub-funds. It is, therefore, not possible for an umbrella scheme to consist of only two sub-funds in circumstances where, one or more of those sub-funds issues limited issue shares. However, it is possible for an umbrella scheme, but only for the limited period specified in CIS 12.5.5 R (An ICVC with only one sub-fund), to consist of one sub-fund and for this sole sub-fund to issue limited issue shares. These requirements should be provided for in the instrument of incorporation of the ICVC.

Limited issue shares: requirements

CIS 2.4.5B

See Notes

handbook-rule
(1) The ACD must ensure that limited issue shares are not in issue at the same time as any shares in the same ICVC or (in the case of an ICVC that is an umbrella scheme) sub-fund that are not limited issue shares.
(2) After any initial offer of a class of limited issue shares or, if there is no initial offer, the time at which shares of that class are first issued, a subsequent issue of shares of that class must not be made unless:
(a) the ACD is satisfied on reasonable grounds that the proceeds of that subsequent issue can be invested without compromising the ICVC's or sub-fund's investment objective or adversely affecting its future investment performance; and
(b) that subsequent issue will not materially prejudice the existing holders of that class of shares.
(3) The restrictions relating to any class of limited issue shares in a sub-fund must not prevent the holder of shares in that, or holders of shares in any other, sub-fund from exchanging those shares for shares in at least one other sub-fund of the umbrella scheme.

Rights of share classes

CIS 2.4.6

See Notes

handbook-rule
(1) If any class of shares in the ICVC has different rights from any other class of shares in the ICVC, the instrument of incorporation must provide how the proportion of the value of the scheme property and the proportion of income available for allocation attributable to each such class must be calculated.
(2)
(a) For an ICVC which is not an umbrella scheme, the instrument of incorporation must not provide for any class of shares in respect of which:
(i) the extent of the rights to participate in the capital property, income property or distribution account would be determined differently from the extent of the corresponding rights for any other class of shares; or
(ii) payments or accumulation of income or capital would differ in source or form from those of any other class of shares;
(b) For an ICVC which is an umbrella scheme, the provisions in (a) apply to classes of shares in respect of each sub-fund as if each sub-fund were a separate ICVC; and
(c) Paragraphs (a) and (b) do not prohibit a difference between the rights attached to one class of shares and to another class of shares that relates solely to:
(i) the accumulation of income by way of periodical credit to capital rather than distribution;
(ii) charges and expenses that may be taken out of the scheme property or payable by the shareholder; and
(iii) the currency in which prices or values are expressed or payments made.

CIS 2.5

Denomination of shares and their sub-division and consolidation

Application

CIS 2.5.1

See Notes

handbook-rule
(1) CIS 2.5.2 G and CIS 2.5.3 R apply to an ACD.
(2) CIS 2.5.4 R applies only to directors of an ICVC.

Characteristics of larger and smaller denomination shares

CIS 2.5.2

See Notes

handbook-guidance
Although fractions of a share are not possible, regulation 45 of the OEIC regulations (Shares) provides that the rights attached to a share of any class may be expressed in two denominations, in which case the "smaller" denomination must be such proportion of the "larger" denomination (that is, a standard share) as is fixed by the ICVC's instrument of incorporation. This will enable holdings to consist of more or less than a complete number of larger denomination shares. If an ICVC wishes to take advantage of this provision, the relevant proportion must be stated in its instrument of incorporation. A single document of title, tax certificate or cheque may cover a single holding of both larger denomination shares and smaller denomination shares of any class.

Requirement

CIS 2.5.3

See Notes

handbook-rule
(1) This rule (CIS 2.5.3 R) applies whenever the instrument of incorporation provides, in relation to any class, for smaller denomination shares and larger denomination shares.
(2) Whenever a registered holding includes a number of smaller denomination shares that can be consolidated into a larger denomination share of the same class, the ACD must consolidate the relevant number of those smaller denomination shares into a larger denomination share.
(3) The ACD may at any time, for the purpose of effecting a transaction in shares, substitute for a larger denomination share the relevant number of smaller denomination shares. If it does this, (2) does not apply to the resulting smaller denomination shareholding or holdings until immediately after the completion of the transaction.
(4) For the purpose of (2) and (3) the relevant number must be calculated by reference to the proportion, stated in the instrument of incorporation, of a larger denomination share represented by a smaller denomination share.

Sub-division and consolidation of shares

CIS 2.5.4

See Notes

handbook-rule
(1) The directors of an ICVC may, unless expressly forbidden to do so by its instrument of incorporation, determine:
(a) that each share of any class is to be subdivided into two or more shares (whereupon each such share will stand subdivided accordingly); or
(b) that two or more shares of any class are to be consolidated (whereupon those shares will stand consolidated).
(2) The ICVC must (unless it has done so before the sub-division or consolidation became effective) immediately give notice to each shareholder (or the first named of joint holders) of any subdivision or consolidation under (2).

CIS 2.6

Units and classes of units in AUTs

CIS 2.6.1

See Notes

handbook-rule
This section (CIS 2.6) applies to the classes of units, which may exist within an AUT.

CIS 2.6.2

See Notes

handbook-rule
(1) The interests of the unitholders in an AUT consist of units (including fractions of a unit), each representing one undivided share in the AUT's scheme property.
(2) This system of single undivided shares is modified where both income units and accumulation units are in existence, because:
(a) when income is accumulated and capitalised under CIS 9.2.4 R (Annual allocation to accumulation shares or accumulation units), that accumulation is achieved by increasing the number of undivided shares (including fractions) which together constitute the accumulation units then in existence; and
(b) any accumulation units issued subsequently must represent when issued the same number (including fractions) of undivided shares in the capital property of the AUT as each other accumulation unit then in existence.
(3) Every unit must be either:
(a) an income unit; or
(c) a limited issue unit that is also an income unit; or
(d) a limited issue unit that is also an accumulation unit.
(4) The AUT will consist of income units only unless the trust deed provides, or the manager decides, under a power contained in the trust deed, that the AUT will consist of another class, or other classes, of unit.

What are limited issue units?

CIS 2.6.3

See Notes

handbook-guidance
(1) Limited issue units are a class of unit that is permitted in an AUT. Limited issue units may only be issued if permitted by the trust deed. Sales by the manager will also need to be restricted by the trust deed, although there need be no restriction on the manager's sale of units held in its "box" (see CIS 4.1.4 G (3)) as a result of a previous redemption or an issue to the manager when units were available for issue. The issue and sale of limited issue units may be confined to the occasion or occasions or up to the amount or value provided for by the prospectus.
(2) AUTs that are umbrella schemes are reminded of the requirements under section 235(4) of the Act when setting up sub-funds with limited issue units. Accordingly, when an umbrella scheme is considering setting up one or more sub-funds to issue limited issue units then it will also need to have in addition two or more sub-funds issuing units which are not limited issue units to enable holders to exchange rights between the latter sub-funds. It is, therefore, not possible for an umbrella scheme to consist of only two sub-funds in circumstances where, one or more of those sub-funds issues limited issue units. These requirements should be provided for in the trust deed of the AUT.

Limited issue units: requirements

CIS 2.6.4

See Notes

handbook-rule
(1) The manager must ensure that limited issue units are not in issue at the same time as any units in the same AUT or (if the AUT is an umbrella scheme) sub-fund that are not limited issue units.
(2) After any initial offer of a class of limited issue units or, if there is no initial offer, the time at which units of that class are first issued, a subsequent issue of units of that class must not be made unless:
(a) the manager is satisfied on reasonable grounds that the proceeds of that subsequent issue can be invested without compromising the AUT's or sub-fund's investment objective or adversely affecting its future investment performance; and
(b) that subsequent issue will not materially prejudice the existing holders of that class of units.
(3) The restrictions relating to any class of limited issue units in a sub-fund must not prevent the holder of units in that or holders of units in any other sub-fund from exchanging those units for units in at least one other sub-fund of the umbrella scheme.

CIS 2.7

Undesirable and misleading names

CIS 2.7.1

See Notes

handbook-rule
This section (CIS 2.7) applies to authorised fund managers.

CIS 2.7.2

See Notes

handbook-guidance
(1) Under section 243 of the Act and regulation 15 of the OEIC Regulations:
(a) the name of an authorised fund must not be undesirable or misleading; and
(b) in the case of an ICVC, its aims must be reasonably capable of being achieved and, in the case of an AUT, its purpose must be reasonably capable of being successfully carried into effect.
(2) In order to be satisfied that section 243 of the Act and regulation 15 of the OEIC Regulations are complied with, the FSA will, when considering an application for authorisation of an ICVC or AUT, or considering an alteration to an authorised fund under section 251 of the Act or Regulation 21 of the OEIC Regulations, take into account the principles in (3) and (4).
(3) The name of an authorised fund should not include the word "guaranteed" unless:
(a) the guarantee is given by an authorised person or a person authorised by a Home State regulator or a person subject to prudential supervision by a regulatory body in accordance with provisions equivalent to the Capital Adequacy Directive or the Insurance Directives other than the authorised fund manager or the depositary;
(b) the authorised fund manager can demonstrate that the guarantor has the authority and resources to honour the terms of the guarantee;
(c) the guarantee covers all holders within the authorised fund and the guarantee is legally enforceable by each holder who is intended to benefit from it or by a person acting on that holder's behalf;
(d) the guarantee relates to the total amount paid for a unit which for these purposes includes any preliminary charge or redemption charge or any other costs of buying or selling units in the authorised fund;
(e) the guarantee provides for payment at a specified date or dates and is unconditional although reasonable commercial exclusions such as force majeure may be included; and
(f) where the guarantee applies to different classes of unit, the guarantee is identical in its application to all classes except for the differences attributable to income already received or charges already suffered by the different classes of unit.
(4) The name of an authorised fund may indicate a guaranteed capital return or income return or both but only if the total amount paid for a unit is guaranteed in accordance with (3).
(5) The name of an authorised fund should not include words implying a degree of capital security (such as "capital protected" or anything with a similar meaning) unless the degree of capital security is apparent from the name and clearly stated in the prospectus and (a) or (b) below is satisfied:
(a) the principles in (3) are satisfied except that for the purposes of (3)(d) the guarantee may relate to an amount not materially less than the total amount paid for a unit; or
(b) the investment objective and investment policy for the authorised fund are such as to show a clear intention to provide a material degree of security in respect of the total amount paid for a unit.
(6) When determining whether (5) is complied with, the FSA will take into account whether the degree of capital security implied by the name fairly reflect the nature of the arrangements for providing that security. This assessment will take place on a case by case basis.

CIS 2.7.3

See Notes

handbook-rule
The authorised fund manager must ensure that the name of a sub-fund or of a class of share is not undesirable or misleading.

CIS 2.7.4

See Notes

handbook-guidance
When deciding whether CIS 2.7.3 R is complied with the FSA will take into account the principles in CIS 2.7.2 G(3), (4) and (5) as if they related to the name of a sub-fund or share class as well as to the name of an authorised fund. However, it should be noted that CIS 2.7.3 R applies generally and not just to the names that include the words "guaranteed" or "capital protected".

CIS 2.8

Guarantees and Capital Protection

Application

CIS 2.8.1

See Notes

handbook-rule
This section (CIS 2.8) applies to authorised fund managers and depositaries.

Conflicts of interest

CIS 2.8.2

See Notes

handbook-rule
If there is any arrangement intended to result in a particular capital or income return from a holding of units in an authorised fund, or any investment objective of giving protection to the capital value of, or income return from, such a holding, that arrangement or protection must not be such as to cause the possibility of a conflict of interests as between:
(2) holders intended to benefit from the arrangement and holders not intended to benefit from the arrangement.

Export chapter as

CIS 3


Prospectus

CIS 3.1

Introduction

Application

CIS 3.1.1

See Notes

handbook-rule
The rules and guidance in this chapter apply in accordance with CIS 3.1.2 R (Table of application).

CIS 3.1.2

See Notes

handbook-rule

Table of application

This table belongs to CIS 3.1.1 R

Purpose

CIS 3.1.3

See Notes

handbook-guidance
(1) The purpose of this chapter is to assist in achieving the regulatory objective of protecting consumers as envisaged by sections 2 and 5 of the Act by enabling consumers to have access to up to date detailed information about an AUT or ICVC before units are sold to them. The rules in this chapter also take account of Principle 7 (Communication with clients) that a firm must pay due regard to the information needs of its customers.
(2) In addition, this chapter sets out responsibility for a prospectus and the requirements relating to changes to it.
(3) This chapter contains "scheme particulars rules" as provided for by section 248 of the Act and referred to in regulation 6(1) of the OEIC regulations. The rules in this chapter also satisfy the requirements of the UCITS directive, relating to the minimum information to be included in a prospectus.
(4) Although the term prospectus is used in regulation 6(2) of the OEIC regulations and in this sourcebook, the document that contains the requisite information may be entitled "scheme particulars".
(5) In addition COB 6 (Product disclosure) contains rules and guidance relating to information about authorised funds which must be provided or made available at the point of sale.

CIS 3.2

Drawing up and availability of prospectus

Drawing up of prospectus

CIS 3.2.1

See Notes

handbook-rule
(1) A prospectus must contain the matters specified in CIS 3.5 (Information to be contained in the prospectus) and it must be drawn in English and published as a document up by the authorised fund manager and, in the case of an ICVC, approved by the directors.
(2) A prospectus must not contain any other matter unless the inclusion of it is expressly contemplated in the rules in this sourcebook.
(3) A revised prospectus is subject to this rule as if it were a new prospectus whether or not the revisions were required under CIS 3.4 (Revision of and changes to prospectus).

Availability of prospectus

CIS 3.2.2

See Notes

handbook-rule
(1) An ICVC or the manager of an AUT must supply a copy of the prospectus drawn up in accordance with CIS 3.2.1 R (Drawing up of prospectus) free of charge:
(a) to any person on request; and
(b) to the FSA.
(2) An ICVC which is a UCITS scheme, or the manager of an AUT which is a UCITS scheme:
(a) must not market units in the territory of another EEA State unless a prospectus has been drawn up in an official language of that EEA State and, in the case of an ICVC, approved by the directors; and
(b) must supply the prospectus to any purchaser of units free of charge on request.
(3) An authorised fund manager must, upon the request of a holder in a UCITS scheme, provide information supplementary to the prospectus of that scheme relating to:
(a) the quantitative limits applying in the risk management of that scheme;
(b) the methods used in relation to (a); and
(c) any recent development of the risk and yields of the main categories of investment.

CIS 3.3

False or misleading prospectus

Requirement

CIS 3.3.1

See Notes

handbook-rule
(1) The authorised fund manager, subject to (3), (4) and (5):
(a) must ensure that the prospectus does not contain any untrue or misleading statement or omit any matter required by the rules in this sourcebook to be included in it; and
(b) is liable to pay compensation to any person who has acquired any units in the authorised fund and suffered loss in respect of them as a result of any such statement or omission. This is in addition to any liability incurred apart from this rule (CIS 3.3.1 R).
(2) The authorised fund manager is not in breach of (1)(a) and is not liable to pay compensation under (1)(b) if at the time when the prospectus was made available to the public it had taken reasonable care to determine that the statement was true and not misleading, or that the omission was proper, and that:
(a) it continued to take such reasonable care until the time of the relevant acquisition of units in the scheme;
(b) the acquisition took place before it was reasonably practicable to bring a correction to the attention of potential purchasers;
(c) it had already taken all reasonable steps to secure that a correction was brought to the attention of potential purchasers;
(d) the person who acquired the units was not materially influenced or affected by that statement or omission in making his decision.
(3) The authorised fund manager is also not in breach of (1)(a) and is not liable to pay compensation under (1)(b) if:
(a) before the acquisition a correction had been published in a manner calculated to bring it to the attention of persons likely to acquire the units in question; or
(b) it took all reasonable steps to secure such publication and had reasonable grounds to conclude that it had taken place before the units were acquired.
(4) The authorised fund manager is not liable to pay compensation under (1)(b) if the person who acquired the units knew at the time of his acquisition that the statement was untrue or misleading or knew of the omission.
(5) For the purposes of this rule (CIS 3.3.1 R) a revised prospectus will be treated as a different prospectus from the prospectus to which the revision was made.
(6) References in this rule (CIS 3.3.1 R) to the acquisition of units include references to contracting to acquire them.

CIS 3.4

Revision of and changes to prospectus

Revision of prospectus

CIS 3.4.1

See Notes

handbook-rule
(1) A prospectus must be:
(a) revised immediately upon:
(i) the occurrence of any materially significant change in the matters stated in it; or
(ii) the occurrence of any materially significant new matter which ought to be referred to in it in advance of an annual review so far as is necessary to take account of that change or matter;
(b) reviewed at least once in every 12 months and revised to take account of any change or any new matter, other than one which reasonably appears to the manager of the AUT or the directors of the ICVC to be insignificant.
(2) A revision of a prospectus may take the form of a complete substitution for the previous prospectus or of a supplement to the prospectus but, whichever it is, the date as at which the revision was made must be prominently displayed.

Changes to prospectus

CIS 3.4.2

See Notes

handbook-rule
(1) Any change to, or introduction of, any of the provisions of the prospectus listed in (2) (other than a reduction in (c) to (e)) requires the prior approval of a resolution of the holders or, (for an ICVC) in the case of a change that affects only the holders of the units of a particular class (or classes), a resolution (or resolutions) of a class meeting (or meetings) of those holders.
(2) The provisions referred to in (1) are those required to be included in the prospectus as a consequence of:
(a) CIS 3.5.2 R(3) (Investment objectives and policy);
(b) CIS 3.5.2 R(12)(1) (Payments to the authorised fund manager), but only so far as it relates to an increase in the maximum rate or amount of the authorised fund manager's remuneration;
(c) CIS 3.5.2 R(12)(2) (Payments to the authorised fund manager) and CIS 3.5.2 R(12)(4) except if it is a change that is of minimal significance;
(d) CIS 3.5.2 R(13) (Other payments out of the scheme property) but excluding:
(i) any current remuneration under CIS 3.5.2 R(13)(2),(3) increased under the provisions of CIS 8.2.6 R or CIS 8.5.4 R; and
(ii) charges and expenses under CIS 3.5.2 R(13)(1) and CIS 3.5.2 R(13)(4).
(e) CIS 3.5.2 R(18) (Dilution); and
(f) CIS 3.5.2 R(24)(1) (Umbrella scheme) in so far as it applies any of (a) to (e) to a sub-fund.
(3) For an AUT, the resolution required under (1) must be an extraordinary resolution, and, in the case of an ICVC, must be an extraordinary resolution if it is to approve a change to, or introduction of, any of the provisions mentioned in (2)(a) or (b), (2)(c), in so far as it relates to CIS 3.5.2 R(12)(4), and (2)(d), in so far as it relates to CIS 3.5.2 R(13)(6).
(4) Paragraph (1) does not apply to a change to a prospectus which is required:
(a) solely to fulfil a requirement (other than a requirement of CIS 6.5 (Plan registers)) resulting from a change in the law (including the OEIC regulations) or a change to the rules in this sourcebook;
(b) to comply with CIS 3.5.2 R(3)(4) (Investment objectives and policy-eligible markets) if the change is, in the context of the investment policy applicable to the authorised fund or sub-fund concerned, of minimal significance only, and the authorised fund manager and the depositary have so agreed in writing, or the authorised fund manager has, not less than 90 days before the intended change:
(i) given written notice of the intended change to the depositary and to the holders; and
(ii) revised the prospectus to reflect the intended change and the date of its commencement;
(c) solely to reflect an amendment to the instrument constituting the scheme:
(i) made either in accordance with CIS 11.4.4 R (Amendments to the instrument constituting the scheme: without meeting) or by a resolution passed at a meeting or, where appropriate, class meeting, of holders and which is not a change to any of the provisions of the prospectus included to comply with CIS 3.5.2 R(3) (Investment objectives and policy) or CIS 3.5.2 R(12)(1) (Payments to the authorised fund managers); or
(ii) of one of the types described in CIS 11.4.2 R (1) (a) or (b) (Amendment to the instrument constituting the scheme: with meeting);
(d) to comply with CIS 3.5.2 R(12)(4) (Payments to the authorised fund manager) or CIS 3.5.2 R(13)(6) (Other payments out of the scheme property) if:
(i) the authorised fund already has clear investment objectives indicating: (1) a greater preference for the generation of income than for capital growth; or (2) capital emphasis on the generation of income and capital growth; and 90 days have elapsed since the holders were notified in writing by the authorised fund manager of the change to the prospectus and of the date when it is to come into effect; or
(ii) in accordance with CIS 8.3.5 R (4) (Allocation of payments to capital or income (for ICVCs)) or CIS 8.5.7 R (4) (Allocation of payments to capital or income (for AUTs)) all of the remuneration of the authorised fund manager was immediately prior to the change in the prospectus, treated as a capital charge and the authorised fund manager and depositary have agreed that the change to the prospectus is of minimal significance; or
(iii) the change is only to reflect a reduction in the types or amounts of the payments which may be treated as a capital expense; or
(e) to comply with CIS 3.5.2 R18 (Dilution), if the authorised fund manager has not less than 90 days before the intended change:
(i) given written notice of the intended change to the depositary and to the holders; and
(ii) revised the prospectus to reflect the intended change and the date of its commencement.
(5) Paragraph (2) does not apply to a change to a prospectus of an ICVC which is required:
(a) solely to reflect action taken for the purpose of compliance with CIS 12.5.5 R (An ICVC with only one sub-fund); or
(b) to comply with CIS 6.5 (Plan register) if the ICVC was incorporated on or before 31 January 1999 and for the year to 5 April 1999 (or, if shorter, the period from the initial issue of its shares to 5 April 1999) was managed with the intention that its shares should be qualifying investments for the purposes of the Personal Equity Plan Regulations 1989.
(6) No significant departure may be made in the management of the scheme property of an authorised fund from the statements in its prospectus current at the relevant time in fulfilment of the requirements of CIS 3.5.2 R(3) (Investment objectives and policy).

CIS 3.5

Information to be contained in the prospectus

Matters to be included in the prospectus

CIS 3.5.1

See Notes

handbook-rule
The statements required by CIS 3.5.2 R must be included in the prospectus of an authorised fund.

CIS 3.5.2

See Notes

handbook-rule

Contents of the prospectus

This table belongs to CIS 3.5.2 R

Export chapter as

CIS 4


Single-pricing and dealing

CIS 4.1

Introduction

Application

CIS 4.1.1

See Notes

handbook-rule
(1) This chapter applies in relation to ICVCs and single-priced AUTs. Accordingly, in this chapter:
(a) references to "authorised funds" and to "units" relate only to ICVCs and single-priced AUTs and to shares or units in them;
(b) references to "authorised fund manager" or to "depositary" relate only to the ACD or depositary of an ICVC or to the manager or trustee of a single-priced AUT; and
(c) references to an "AUT", "manager" or "trustee" relate only to a "single-priced AUT", or to its manager or trustee.
(2) This section (CIS 4.1) applies to ICVCs, their directors (including the ACD) and depositaries, and to the managers and trustees of single-priced AUTs.
(3)
(a) If, and to the extent that, the authorised fund manager and the depositary so agree, income units and accumulation units are to be treated, for the purposes in (b) as belonging to the same class of units.
(b) The purposes to which (a) can apply are:
(i) ascertaining the number of units to be issued or cancelled for the authorised fund manager to comply with CIS 4.3.9 R (2) (Issue of units to meet authorised fund manager's obligation to sell) and CIS 4.3.10 R (2)(Cancellation and payment for cancelled units); or
(ii) compliance with requirements of this chapter relating to information to be given by the authorised fund manager to the depositary.
(c) Paragraphs (a) and (b) do not apply to the income units and accumulation units of an ICVC unless the rights attached to those classes provide for their prices to be calculated by reference to undivided shares (whatever called) in a manner similar to that resulting from CIS 2.6.1 R (Units and classes of units in AUTS).

Persons to whom the provisions apply

CIS 4.1.2

See Notes

handbook-guidance
The persons to whom each rule and guidance in this chapter applies are stated either at the beginning of the rule or guidance or at the beginning of the section containing the rule or guidance.

Purpose

CIS 4.1.3

See Notes

handbook-guidance
(1) This chapter helps in achieving the regulatory objective of protecting consumers (consumer's interests) as envisaged by sections 2 and 5 of the Act. In accordance with Principle 6, this chapter is intended to ensure the authorised fund manager pays due regard to its customers' interests and treats them fairly.
(2) An authorised fund manager is responsible for valuing the scheme property of the authorised fund it manages and for calculating the price of units in the authorised fund. As well as arranging for the issue and the cancellation of units for the account of the authorised fund, the authorised fund manager is permitted to sell and redeem units for its own account. The rules in this chapter are intended to ensure that the price of units is properly related to the net value of the authorised fund and, in accordance with Principle 6, that the authorised fund manager treats customers fairly with investors when they purchase or sell units. This chapter provides common standards for these purposes.

Explanation of this chapter

CIS 4.1.4

See Notes

handbook-guidance
(1) The rules in this chapter make apparent the extent to which any of them, or any paragraph in any of them, applies only to a single-priced AUT or to an ICVC. In particular, CIS 4.3.3 R (Issue and cancellation of shares by an ICVC) applies only to an ICVC and the following rules apply only to a single-priced AUT: CIS 4.3.4 R (Issue and cancellation of units in an AUT); CIS 4.3.5 R (Trustee's refusal to issue or cancel units); CIS 4.3.6 R (Instructions or notifications between managers and trustees).
(2) Shares in an ICVC are issued or cancelled when the ACD records the issue or cancellation. Units of an AUT are issued or cancelled by the trustee on the manager's instructions. In the case of an issue, payment in cash of the price of the units or a transfer of assets of an equivalent value must be made to the depositary for the account of the authorised fund concerned. Payment by the depositary for cancelled shares is normally to be made by the close of the fourth business day after the cancellation.
(3) An authorised fund manager may hold units for its own account (in its 'box'): so a purchaser of units from the authorised fund manager may receive units which have been issued to the authorised fund manager or that have been redeemed (that is repurchased) by the authorised fund manager from a previous holder. In addition to selling and redeeming units for its own account, the authorised fund manager may arrange for the trustee or the ICVC to issue units direct to an investor or to cancel a holder's units.
(4) The authorised fund manager must be prepared to redeem units of a holder who wishes to realise the value of them. The authorised fund manager can then retain the units in its box or it can cancel them.
(5) The special provision about initial issues and sales at the start of an authorised fund's life are in CIS 4.2, separately from the rules about issues and sales in an ongoing authorised fund.
(6) Under this chapter, the price at which a unit is issued, sold, redeemed or cancelled will be a single price. Although certain additions to, or deductions from, the price are provided for and affect payments, they do not affect the single price. Except for the initial issues and sales, the single price will be determined in accordance with CIS 4.3.11 R (Price of a unit) and, in broad outline, will be calculated by valuing the scheme property attributable to the class of units in question and dividing that value by the number of those units in issue. The valuation of the scheme property must be in accordance with CIS 4.8 and with the relevant provisions of the instrument constituting the scheme.
(7) CIS 4.6 (Dilution and SDRT provision) enables the authorised fund manager to choose whether or not:
(a) to require for the benefit of the authorised fund, as an addition to, or deduction from, the single price (but not part of it), a provision (SDRT provision) against certain stamp duty reserve tax that is payable out of the scheme property; and
(b) for the purpose of reducing dilution (see CIS 4.6.2 G (1) (Purpose)) either:
(i) to require, for the benefit of the authorised fund, a dilution levy as an addition to, or deduction from, the single price (but not part of it); or
(ii) to make a dilution adjustment in the calculation of the single price.
(8) The requirements in this chapter are to be applied separately to each sub-fund of an umbrella scheme.

CIS 4.2

Initial offers

Application

CIS 4.2.1

See Notes

handbook-rule
This section (CIS 4.2) applies to authorised fund managers and CIS 4.2.4 R (1) (Issue of units : initial offer) also applies to any directors of an ICVC additional to the ACD.

Purpose

CIS 4.2.2

See Notes

handbook-guidance
This section (CIS 4.2) helps to protect investors by rules intended to ensure the authorised fund receives subscriptions for units and that neither the authorised fund nor the investor will suffer any material loss, as a result of fluctuations in the value of the scheme property, for so long as units are available at the fixed price.

Period of initial offer

CIS 4.2.3

See Notes

handbook-rule
(1) The period of the initial offer must not exceed 21 days and an initial offer must, subject to CIS 4.2.5 R (Compulsory termination of initial offer), be kept open for the period of the initial offer.
(2) Where an initial offer is of units in a sub-fund, CIS 4.2.4 R and CIS 4.2.5 R apply as if references in those rules to a unit were to a unit in that sub-fund.

Issue of units: initial offer

CIS 4.2.4

See Notes

handbook-rule
(1) The price to be paid for a unit of any class issued during the period of the initial offer must be the initial price of a unit of that class, as determined by the directors of the ICVC or the manager of the AUT. The price must be notified in writing to the depositary before the start of the period of the initial offer.
(2) For the purpose of (1), a unit is treated as issued during the period of the initial offer if the authorised fund manager had agreed to its sale or received an order for it to be sold before the close of the period, and it was issued only afterwards.
(3) The authorised fund manager must, by the close of business on the fourth business day after receiving the price from the purchaser, pay the depositary the price of any unit it agreed to sell during the period of the initial offer, unless payment by the authorised fund manager is due earlier under CIS 4.3.7 R (Payments for units issued). The authorised fund manager may retain for its own account any preliminary charge it makes under CIS 8.2.2 R (Preliminary charge: ICVCs and single-priced AUTs).
(4) During the period of the initial offer, the authorised fund manager must not agree to cause units to be issued under CIS 4.5 (Issues and cancellations through the authorised fund manager and in specie cancellations) at a price other than the initial price.
(5) The initial price of a unit must, subject to CIS 12.5.2 R (Base currency), be expressed in the base currency of the authorised fund (or, for a currency class share, in the currency of designation of that class). However, during the period of the initial offer, the authorised fund manager may agree to sell units, or cause units to be issued under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager) in any other currency.
(6) Nothing in this rule affects the powers of the authorised fund manager to require a payment of SDRT provision under CIS 4.6.3 R (Dilution levy and SDRT provision).
(7) Where the initial offer is made in a country outside the United Kingdom, an amount may be added to the initial price of units offered in that country which is sufficient to cover additional duty or taxation leviable in that country and the cost of remitting money to the United Kingdom.

Compulsory termination of initial offer

CIS 4.2.5

See Notes

handbook-rule
(1) The period of the initial offer comes to an end immediately if:
(a) the authorised fund manager does not carry out a valuation immediately, but after having taken reasonable care, it ascertains that, if the current price of a unit were to be calculated by reference to an immediate valuation, it would be likely to vary from the unit's initial price by 2% or more of the initial price; or
(b) the authorised fund manager carries out a valuation immediately after it has ascertained the circumstances mentioned in (a) and the valuation shows there is a variation of 2% or more.
(2) If the period of the initial offer comes to an end under (1), the authorised fund manager must immediately refrain from:
(a) agreeing to sell units at the initial price; and
(i) in the case of an ICVC, arranging for the ICVC to issue shares at the initial price, except to fulfil an existing obligation of the ACD to sell shares at the initial price or to fulfil an order for shares at the initial price which the ACD received before the initial offer came to an end; or
(ii) in the case of an AUT, instructing the trustee to issue units at the initial price, unless to fulfil an existing obligation of the manager to sell units at the initial price or to fulfil an order for units at the initial price which the manager received before the initial offer came to an end.
(3) The current price of a unit for the purpose of (1):
(a) must be calculated on the basis that the number of units of each relevant class in existence immediately before the valuation is the number for which the initial price has been paid, or for which assets have been transferred to the depositary in exchange (or treated for the purpose of the valuation as having been paid or exchanged), before the valuation; and
(b) must not include any dilution adjustment.

CIS 4.3

Issue and cancellation

Application

CIS 4.3.1

See Notes

handbook-rule
This section (CIS 4.3) applies in relation to the issue, cancellation and pricing of units of an authorised fund after the close of any initial offer of units at a fixed price. However, the rules in CIS 4.3.3 R to CIS 4.3.7 R and CIS 4.3.12 R also apply to the initial issue of units under CIS 4.2.4 R.

Purpose

CIS 4.3.2

See Notes

handbook-guidance
This section (CIS 4.3) protects investors by means of rules intended to ensure the authorised fund receives or pays out the right amounts when units are issued or cancelled. Accordingly, it lays down certain basic procedures for the issue and cancellation of units and sets out how, except for an initial offer, the prices of those units are to be calculated, and paid.

Issue and cancellation of shares by an ICVC

CIS 4.3.3

See Notes

handbook-rule
(1) This rule (CIS 4.3.3 R) applies to ICVCs and to ACDs and depositaries of ICVCs.
(2) Shares in an ICVC are issued or cancelled by the ACD making a record for the ICVC of the issue or cancellation and of the number of the shares of each class concerned. Shares must not be issued or cancelled in any other manner.
(3) The time of the issue or cancellation under (2) is the time when the record is made.
(4) References in these rules to arrangements for the ICVC to issue or cancel shares means arrangements for making a record of the issue or cancellation.
(5) The ACD may arrange for the ICVC to issue shares in exchange for assets other than money if the depositary has taken reasonable care to determine that acquiring the assets in exchange for the issue of shares is not likely to result in any material prejudice to the interests of shareholders or potential shareholders. For this purpose the depositary must take account of any payment that would have been required under CIS 4.6.3 R (Dilution levy and SDRT provision) had the shares been issued for cash.
(6) An issue under (5) must not be made in breach of CIS 11.5.2 R (Schemes of arrangement: requirements).

Issue and cancellation of units in an AUT

CIS 4.3.4

See Notes

handbook-rule
(1) This rule (CIS 4.3.4 R) applies to managers and trustees.
(2) Where the manager wishes new units to be issued or wishes units to be cancelled and, in either case, complies with CIS 4.3.11 R (4) and CIS 4.3.11 R (5) (Price of a unit), it may instruct the trustee to issue or cancel units. Any instructions given by the manager must state, for each class of unit to be issued or cancelled, the number to be issued or cancelled, expressed either as a number of units or as an amount in value (or as a combination of the two).
(3) The trustee must issue or cancel units on receipt of, and in accordance with, instructions given by the manager under (2) and must not issue or cancel units otherwise, but this is subject to (4) and CIS 4.3.5 R (2).
(4) The trustee may issue units in exchange for assets other than money, but its obligation to comply with an instruction to issue units in such a case arises only:
(a) if it has taken reasonable care to determine that (taking account of any payment that would have been required under CIS 4.6.3 R (Dilution levy and SDRT provision) if the units had been issued for cash) the acquisition of the assets in exchange for the number of units to be issued is not likely to result in any material prejudice to the interests of unitholders or potential unitholders;
(b) in a case governed by CIS 11.5.2 R (5) (Schemes of arrangement: requirements) if the resolution concerned in relation to the AUT of which it is the trustee has been duly carried or is not required.
(5) The manager may, at any time during the period of an initial offer, instruct the trustee to issue units. Furthermore, as soon as the period of the initial offer has come to an end, the manager must instruct the trustee to issue any units which were sold, or treated as sold, during that period and which it has not already instructed the trustee to issue.

Trustee's refusal to issue or cancel units

CIS 4.3.5

See Notes

handbook-rule
(1) This rule (CIS 4.3.5 R) applies to managers and trustees of AUTs.
(2) If, on receiving instructions to issue or cancel units, the trustee is of the opinion that (in the case of an issue) the issue would be in breach of a restriction on issue relating to a class of limited issue shares or limited issue units or that it is not in the interests of unitholders that:
(a) units should be issued; or
(b) units should be cancelled; or
(c) units should be issued or cancelled in the number requested by the manager;
the trustee must give notice to the manager that it refuses to issue or, as the case may be, cancel, all, or a specified number of, the units.
(3) On giving such a notice, the trustee is relieved of the obligation to issue or cancel the number of units to which the notice relates.

Instructions or notifications between the manager and trustee

CIS 4.3.6

See Notes

handbook-rule
(1) This rule (CIS 4.3.6 R) applies to managers and trustees of AUTs.
(2) Any instruction or notification given (or report supplied) under this chapter by the manager to the trustee:
(a) must be in writing or in such other form as enables the recipient to know or record the time of receipt and to preserve a legible copy of it; and
(b) must be recorded by the manager at the time when it is given or supplied.
(3) Instructions or notifications are given within any period under this chapter if they are received by the trustee within that period, and instructions or notifications received by the trustee after the expiry of any period are treated as given after that expiry.
(4) This rule also applies, with the substitution of "manager" for "trustee" and "trustee" for "manager", to any instruction or notification given by the trustee to the manager.

Payment for units issued

CIS 4.3.7

See Notes

handbook-rule
(2) This rule applies to a unit issued during the period of the initial offer (and for this purpose the time of issue is not governed by CIS 4.2.4 R(2) (Issue of units: initial offer)).
(3) The authorised fund manager must, by the close of business on the fourth business day following the issue of any units:
(a) pay to the depositary, in cash or cleared funds, the price of the units and any payment required under CIS 4.6.3 R (Dilution levy and SDRT provision) to the extent that either remains unpaid; or
(b) for an exchange under CIS 4.3.3 R (5) or CIS 4.3.4 R (4), ensure transfer to the depositary of the assets to be taken in exchange.
(4) For an exchange under CIS 4.3.3 R (5) or CIS 4.3.4 R (4), the authorised fund manager must ensure the beneficial interest in the assets is transferred to the ICVC or to the trustee with effect from the issue of the units, even if the legal ownership is not then transferred.

Box management errors

CIS 4.3.8

See Notes

handbook-guidance
(2) An authorised fund manager is not permitted to sell or cancel units that it does not own. To do so would be in breach of CIS 4.3.9 R (2) (Issue of units to meet authorised fund manager's obligation to sell) or CIS 4.3.10 R (2) (Cancellation and payment for cancelled units). Errors relating to the number of units issued or cancelled can be corrected to the extent permitted by CIS 4.3.12 R (Modification to number of units issued or cancelled).
(3) An authorised fund manager's holding of units for its own account is commonly known as its 'box' of units. Appendix CIS G (Correction of box management errors) contains further guidance on:
(a) controls relating to the management of the authorised fund manager's box of units;
(b) recording and reporting errors in calculating the number of units in the box;
(c) correcting such errors; and
(d) the payment of compensation in relation to particular categories of error.

Issue of units to meet authorised fund manager's obligation to sell

CIS 4.3.9

See Notes

handbook-rule
(2) If, at any valuation point, the authorised fund manager has any outstanding obligation to sell units of any class, it must arrange for the ICVC or instruct the trustee before the earlier of:
(a) the expiry of two hours since the valuation point; or
(b) the next valuation point;
to issue units of that class in such number (expressed either as a number of units or as an amount in value (or as a combination of the two)) as will at least enable the authorised fund manager to fulfil the obligation immediately whether from the units so issued or from other units of that class which it owned immediately before the valuation point (or notified point if there is one).
(3) If the authorised fund manager wishes regularly to have a notified point, it may notify the depositary of its intention, indicating the period of time not exceeding two hours after the valuation point at which it wishes the notified point to occur. Any change in the period is ineffective unless agreed by the depositary.

Cancellation and payment for cancelled units

CIS 4.3.10

See Notes

handbook-rule
(1) Paragraphs (2) and (3) and (7) to (9) apply to authorised fund managers; (4) applies only to ICVCs and their depositaries and ACDs; (5) and (6) apply only to managers and trustees of AUTs.
(2) The authorised fund manager must not arrange for the ICVC, or instruct the trustee, to cancel units of any class if, or to the extent that, by so doing the authorised fund manager would be prevented from immediately fulfilling any outstanding obligation to issue units which had been assumed before the relevant valuation point (or notified point if there is one).
(3) For the purpose of (2), the authorised fund manager must take account of all units sold or redeemed by reference to the relevant valuation point (or notified point if there is one).
(4) On cancelling shares the ACD must, within the period specified in (7), require the depositary to pay the price of the shares (less any deduction required under CIS 4.6.3 R (Dilution levy and SDRT provision)) to, or to the order of, the shareholder or the ACD (as the case may be).
(5) Where instructions are given to cancel units in an AUT at a time which is less than two hours after the last valuation point and the trustee has received but not yet executed instructions previously given, the later instructions must enable the trustee to execute both or all sets of instructions simultaneously.
(6) On cancelling units in an AUT, the trustee must within the period specified in (7) pay the price of the units (less any deduction required under CIS 4.6.3 R (Dilution levy and SDRT provision):
(a) (except where (b) applies) to, or to the order of, the unitholder or the manager (as the case may be); or
(b) in the case of a relevant pension scheme, in accordance with the relevant provisions of the trust deed.
(7) The period for payment expires at the close of business on the fourth business day following the cancellation of the units or, if later, as soon as practicable after delivery to the trustee or the ICVC of such evidence of title to the units as it may reasonably require.
(8) If the authorised fund manager has not ensured that the scheme property includes or will include sufficient cash in the appropriate currency (or a sufficient facility to borrow without infringing any applicable restriction in CIS 5A.15.3 R (General power to borrow) or CIS 5A.15.4 R (Borrowing limits) or CIS 5.5 within the period in (7)), that period is extended, for any relevant currency, until the shortage is rectified.
(9) Paragraphs (4) and (6) do not apply where units are cancelled following a cancellation for property transferred or sold under CIS 4.5.4 R (In specie redemption).

Price of a unit

CIS 4.3.11

See Notes

handbook-rule
(1) Paragraphs (2) to (3) apply to authorised fund managers; (4) and (5) apply only to ICVCs and their depositaries and ACDs; (6) and (7) apply only to managers and trustees.
(2) The price of a unit of any class must, subject to (3), be calculated as follows:
(a) take the proportion, attributable to the units of the class in question, of the value of the scheme property (excluding, in the case of an ICVC, the distribution account and the unclaimed payments account), by reference to the most recent valuation of the scheme property;
(b) compute the number of units of the relevant class in issue immediately before the valuation in (a);
(c) divide the total at (a) by the number of units at (b);
(d) if the authorised fund manager makes a determination under CIS 4.6.4 R (Dilution adjustment), increase or decrease the resulting amount by an adjustment (the "dilution adjustment") made for the purpose of reducing dilution; and
(e) Except for smaller denomination shares, express the price in a form that is accurate to at least four significant figures.
(3) If a method of calculation other than that at (2) is used, the authorised fund manager must be sure it is bound to produce the same result.
(4) Where an issue or cancellation of shares is made at a time which is less than two hours after the last valuation point and before the next valuation point, it must be made by reference to the price of the relevant class of shares calculated (or being calculated) for the last valuation point.
(5) Any issue or cancellation of shares to be made more than two hours after the last valuation point must be made by reference to the price of the relevant class of shares next to be calculated and made only after the next valuation point has been reached.
(6) Where the manager gives instructions to the trustee to create or cancel units and those instructions are given less than two hours after the last valuation point and before the next valuation point, the instructions must be given by reference to the price of the relevant class of units calculated (or being calculated) for the last valuation point.
(7) Where the manager gives instructions to the trustee to create or cancel units and those instructions are given more than two hours after the last valuation point:
(a) the instructions must be given by reference to the price of the relevant class of units next to be calculated, and
(b) the trustee must not issue or cancel the units before the next valuation point has been reached.

Modification to number of units issued or cancelled

CIS 4.3.12

See Notes

handbook-rule
(1) This rule applies to authorised fund managers and depositaries.
(2) The number of units issued or cancelled may be modified by the authorised fund manager (in the case of shares) making a record for the ICVC of the modification or (in the case of units in an AUT) changing an instruction to issue or cancel units which has been complied with, provided that:
(a) the authorised fund manager ensures that any appropriate consequential payment between the authorised fund manager and the depositary is made; and
(b) the requirements of (3) are satisfied.
(3) The authorised fund manager may only make a modification under (2) with the agreement of the depositary and the depositary may not agree unless it has taken reasonable care to determine:
(a) that the purpose of the modification is to rectify the consequences of an error relating to the number of units held by the authorised fund manager, or issued or cancelled in connection with the sale or redemption of units by the authorised fund manager; and
(b) that in view of the quality of the authorised fund manager's control systems the circumstance that resulted in the error in question is an isolated one which is unlikely to recur.
(4) A modification under (2) is of no effect unless the corrected number of units is calculated by the end of the business day next following the valuation point for the issue or cancellation in question or, if the depositary agrees, within the payment period applicable to that issue or cancellation under CIS 4.3.7 R (3) (Payment for units issued) or CIS 4.3.10 R (7) (Cancellation and payment for cancelled units).

CIS 4.4

Sale and redemption

Application

CIS 4.4.1

See Notes

handbook-rule
(1) This section (CIS 4.4) applies to authorised fund managers. CIS 4.4.5 R (4) (Payment on redemption) also applies to ICVCs and depositaries.
(2) This section (CIS 4.4) applies to the sale and redemption of units after the close of any initial offer. However, the following rules also apply to the sale of a unit during an initial offer:
(a) CIS 4.4.3 R (1), (2) and (3) (other than the provision in (2)(a) relating to a sale at a forward price); and
(b) CIS 4.4.8 R (but as if CIS 4.4.8 R (2) related to the initial price).

Purpose

CIS 4.4.2

See Notes

handbook-guidance
(1) This section (CIS 4.4) protects investors by means of rules intended to ensure the authorised fund manager deals fairly with investors when they purchase or redeem units. Accordingly, this section lays down the basic procedures for the sale and redemption of units in an authorised fund and sets out how the resulting payments should be calculated and by when they should be made.
(2) Sales and redemptions of units in futures and options schemes or geared futures and options schemes are, in addition, subject to the special rules in CIS 12.2.1 R (Special rules for sales and redemptions).

Authorised fund manager's obligation to sell

CIS 4.4.3

See Notes

handbook-rule
(1) The authorised fund manager must, at all times during the dealing day, be willing to sell units in the authorised fund and, subject to (2), must, at the request in writing of any person, agree to sell to that person units of at least one class or, in the case of an umbrella scheme, one class for each of its sub-funds.
(2) The authorised fund manager's obligation to sell units under (1) does not apply:
(a) if it has not received payment for the units of an amount complying with (4) or (if the sale was at a forward price of a stated number of shares) if it has not received payment of an amount it estimated to be required; or
(b) if the number or value of the units sought to be purchased is less than any number or value stated in the prospectus as the minimum number or value of units, or units of the class concerned, that may be purchased or held; or
(c) for a property scheme if the authorised fund manager, having taken reasonable care, determines that the number or value of units sought to be purchased would lead to any one person (or any one person and any other person who appears to the authorised fund to be acting in concert with that person) holding more than any number or value stated in the prospectus as the maximum number or value to be purchased or held; or
(d) if it has reasonable grounds for refusing to sell units to the person concerned; and
(e) for an AUT, if the sale would be in breach of a provision in the trust deed of any of the types described in paragraphs (j) (Limited categories of unitholder), (m) (Relevant pension schemes) or (n) (Relevant charitable schemes) of CIS 2.2.7 G (Provisions that may be included in the trust deed).
(3) Paragraph (1) does not apply to units of any class:
(a) if no units of that class are in issue; or
(b) if the sale of units of that class:
(i) is prohibited by the rules in CIS 13 (Suspension and resumption of dealings); or
(ii) would breach a restriction on sale applicable to a class of limited issue shares or limited issue units.
(4) The authorised fund manager must not sell a unit for more than the price of a unit of the relevant class notified, or to be notified, to the depositary for the last valuation point (or, for a sale at a forward price, to be notified for the next valuation point) to which may be added any preliminary charge permitted under CIS 8.2.2 R (Preliminary charge: ICVCs and single-priced AUTs) and any payment required under CIS 4.6.3 R (Dilution levy and SDRT provision).
(5) Units must be sold in the base currency, or, for a currency class share, in the currency of designation of that class, unless the person concerned requests and the authorised fund manager agrees that the units should be sold in another currency.

Authorised fund manager's obligation to redeem

CIS 4.4.4

See Notes

handbook-rule
(1) The authorised fund manager must at all times during the dealing day be willing to redeem units in the authorised fund; and, accordingly, must at the request in writing of any holder agree to redeem units owned by that holder for the amount to be paid under CIS 4.4.6 R (Proceeds of redemption).
(2) Paragraph (1) does not apply:
(a) if the number or value of the units sought to be redeemed is:
(i) less than the entirety of the holder's holding of units of the class concerned, and
(ii) less than any number or value stated in the prospectus as the minimum number or value of units, or units of the class concerned, that may be redeemed;
(b) if the number or value of the units sought to be redeemed would result in the holder holding less than any number or value stated in the prospectus as the minimum number of units, or units of the class concerned, that may be held;
(c) if the ICVC or the manager ensures that the holder is able to sell his units on an investment exchange at a price not significantly different from the price at which they would have been redeemed;
(d) where units are redeemed in return for property transferred or sold under CIS 4.5.4 R (In specie redemption);
(e) during the period of the initial offer; or
(f) if redemption of the units of the class concerned is prohibited by the rules in CIS 13 (Suspension and termination).

Payment on redemption

CIS 4.4.5

See Notes

handbook-rule
(1) On agreeing to redeem units, the authorised fund manager must, within the period specified in (2):
(a) (except where (b) applies) pay the holder the appropriate proceeds of redemption under CIS 4.4.6 R (less, where applicable, the cost of remitting the sum abroad); or
(b) if a manager of a relevant pension scheme, pay or arrange for the payment of the proceeds of redemption in compliance with the trust deed (including, where applicable, any time limit in it for payment which is shorter than the period specified in (2)).
(2) The period expires at the close of business on the fourth business day following the later of:
(a) the valuation point immediately after the authorised fund manager received the request to redeem; or
(b) the time when the authorised fund manager has all duly executed instruments and authorisations to effect (or enable the authorised fund manager to effect) transfer of title to the units.
(3) Neither this rule nor CIS 4.4.6 R (Proceeds of redemption) applies where the authorised fund manager is not redeeming units in accordance with this chapter but is buying them as principal on an investment exchange (in the case of an AUT, in accordance with a power in the trust deed) and settlement will be in accordance with the rules of that exchange.
(4) Nothing in this rule or CIS 4.3.10 R(5) and (6) (Cancellation and payment for cancelled units) requires an ICVC, a depositary or an authorised fund manager to part with money for a cancellation or redemption of units where any money due on the earlier issue or sale of those units has not been received by the person entitled to it under this chapter.

Proceeds of redemption

CIS 4.4.6

See Notes

handbook-rule
The amount to be paid by the authorised fund manager as the proceeds of redemption of a unit must not be less than the price of a unit of the relevant class notified or to be notified to the depositary at the last valuation point (or, for a redemption at a forward price, to be notified in respect of the next valuation point) less any redemption charge permitted under CIS 8.2.7 R (Redemption charge: ICVCs) or CIS 8.5.2 R (Redemption charge: single-priced AUTs) and any deduction required under CIS 4.6.3 R (Dilution levy and SDRT provision).

Notification of price to the depositary

CIS 4.4.7

See Notes

handbook-rule
(1) Immediately after completing a valuation under CIS 4.8 (Valuation) (whether regular or otherwise) the authorised fund manager must notify the depositary of:
(a) the price, in the base currency (or, in the case of a currency class share, the currency of designation) of a unit of each class in issue as determined for the relevant valuation point; and
(b)
(i) the amount or rate of any dilution levy which applies to any issue or cancellation of units made by reference to that valuation; or
(ii) the amount or rate of any dilution adjustment taken into account in calculating that price and whether it was an addition or deduction.
(2) Each notification under (1) must include a statement of the number of units of each class in issue owned by the authorised fund manager at the valuation point (or notified point if there is one).
(3) As soon as practicable after each notification under (1), the authorised fund manager must notify the depositary of the transactions, or types of transaction, for which an SDRT provision is applied and the amounts or rates of those SDRT provisions.

Publication of prices

CIS 4.4.8

See Notes

handbook-rule
(1) Where the authorised fund manager holds itself out as willing:
(a) to sell or redeem units of any class; or
(b) to issue or cancel units of any class under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager);
it must make public the prices of units of each of those classesin an appropriate manner.
(2) The prices made public under (1) are to be the price or prices last notified to the depositary under CIS 4.4.7 R or, in the case of publication in a newspaper, last notified before the relevant newspaper ceased to accept material for publication in the relevant edition.
(3) [deleted]
(4) Where the authorised fund manager holds itself out as willing to sell and redeem units (or, as the case may be, to issue or cancel units under CIS 4.5.3 R) in any other EEA State, it must also comply with (1) in the manner provided for by the law of that EEA State.
(5) Paragraphs (1) to (4) do not apply to units in relation to which the authorised fund manager is excused from dealing with the public.

Manner of price publication

CIS 4.4.9

See Notes

handbook-guidance
(1) In determining the appropriate manner of making prices public under CIS 4.4.8 R (1), the authorised fund manager should ensure that:
(a) a unitholder or potential unitholder can obtain the prices at a reasonable cost;
(b) prices are available at reasonable times;
(c) publication is consistent with the manner and frequency at which the units are sold;
(d) the manner of publication is disclosed in the prospectus; and
(e) prices are published in a consistent manner.
(2) Examples of what might be deemed appropriate include:
(a) publication in a national newspaper;
(b) supply through an advertised local rate or freephone telephone number;
(c) publication on the internet;
(d) inclusion in a database of prices which is publicly available; or
(e) communication to all existing unitholders.
(3) The authorised fund manager should make previous prices available to any unitholder or potential unitholder.

CIS 4.5

Issues and cancellations through the authorised fund manager and in specie cancellations

Application

CIS 4.5.1

See Notes

handbook-rule
This section (CIS 4.5) applies to authorised fund managers. CIS 4.5.3 R (6) and CIS 4.5.4 R (4) also apply to ICVCs and depositaries.

Purpose

CIS 4.5.2

See Notes

handbook-guidance
(1) CIS 4.5.3 R ensures investors are able, in certain circumstances, to require direct issues or cancellations of units by an ICVC, or by the trustee of an AUT, as an alternative to buying units from, or redeeming them with, the authorised fund manager.
(2) CIS 4.5.4 R protects investors in the authorised fund by enabling an authorised fund manager, subject to the conditions in that rule, to require a holder who wishes to redeem or cancel his units to take, instead of the usual proceeds of redemption or cancellation, a transfer of assets of the authorised fund or, if the holder requires, to take the net proceeds of the sale of those assets.

Issues and cancellations through the authorised fund manager

CIS 4.5.3

See Notes

handbook-rule
(1) At the request of any person, the authorised fund manager is obliged to arrange for the ICVC, or instruct the trustee, to issue units to that person where the authorised fund manager would otherwise be obliged to sell them under CIS 4.4.3 R (Authorised fund manager's obligation to sell).
(2) At the request of any holder, the authorised fund manager is obliged to arrange for the ICVC, or instruct the trustee, to cancel units held by that holder where the authorised fund manager would otherwise be obliged to redeem them under CIS 4.4.4 R (Authorised fund manager's obligation to redeem).
(3) The price of a unit issued or cancelled under this rule (CIS 4.5.3 R) must be the price of a unit of the relevant class notified to the depositary at the next valuation point after the request referred to in (1) or (2), except for an issue to which CIS 4.2.4 R (Issue of units: initial offer) applies, when it must be the initial price.
(4)
(a) In the case of an issue, the authorised fund manager may require to be paid, in addition to the price under (3):
(i) for the account of the authorised fund manager, any preliminary charge permitted under CIS 8.2.2 R (Preliminary charge: ICVCs and single-priced AUTs);
(ii) for the account of the authorised fund, any payment required under CIS 4.6.3 R (Dilution levy and SDRT provision).
(b) In the case of a cancellation, the authorised fund manager may require to be deducted from the proceeds:
(i) for the account of the authorised fund manager, any redemption charge permitted under CIS 8.2.7 R (Redemption charge: ICVCs) or CIS 8.5.2 R (Redemption charge: single-priced AUTs);
(ii) for the account of the authorised fund, any deduction required under CIS 4.6.3 R (Dilution levy and SDRT provision).
(5) The authorised fund manager must pay the depositary in accordance with CIS 4.3.7 R (Payments for units issued) the price of any units issued under this rule (CIS 4.5.3 R) and any payment required under (4)(a)(ii) whether or not the authorised fund manager has received payment from the investor. However, the authorised fund manager may defer arranging for the ICVC, or instructing the trustee, to issue the units until full payment for them has been received.
(6) Nothing in this rule (CIS 4.5.3 R) requires an ICVC, a depositary or an authorised fund manager to part with money for a cancellation of units in the circumstances described in CIS 4.4.5 R(4) (Payment on redemption).
(7) Paragraph (1) does not apply if the issue would breach a restriction on issue applicable to a class of limited issue shares or limited issue units.

In specie redemption

CIS 4.5.4

See Notes

handbook-rule
(1) Whenever a holder requests the redemption or cancellation of units, the authorised fund manager may arrange for the cancellation of those units and that, instead of payment in cash to the holder of the price for the units, scheme property selected in accordance with (c) and (d) is transferred to the holder, or, if required by the holder, the net proceeds of the sale of that property is paid to him, provided that:
(a) the prospectus contains a statement describing the circumstances in which the authorised fund manager is permitted to arrange for, and describing the procedures for, a cancellation of units in the manner described above;
(b) the authorised fund manager gives the holder written notice before the proceeds of the redemption or cancellation would otherwise become payable in cash, that instead of such payment the depositary will transfer scheme property (or the net proceeds of the sale of the relevant scheme property) to the holder;
(c) the scheme property to be transferred (or sold) is selected by the authorised fund manager in consultation with the depositary and the selection is made with a view to achieving no more advantage or disadvantage to the holder requesting cancellation of his units than to the continuing holders; and
(d) the scheme property to be transferred, or the proceeds of the sale of the relevant scheme property, is subject to the retention by the depositary of scheme property (including cash) of a value or amount equivalent to any deductions permitted by CIS 4.5.3 R (4)(b) (Issues and cancellations through the authorised fund manager) and the depositary accounts for any such deduction in the manner provided by that rule.
(2) This rule (CIS 4.5.4 R) does not enable the authorised fund manager, when acting as a principal, to cancel units other than for payment in cash.
(3) This rule does not enable units in a relevant pension scheme to be redeemed other than in accordance with that scheme.
(4) Nothing in this rule requires an ICVC, a depositary or an authorised fund manager to transfer scheme property, or the proceeds of the sale of scheme property, in respect of the cancellation of units in the circumstances described in CIS 4.4.5 R (4) (Payment on redemption).

CIS 4.6

Dilution and SDRT provision

Application

CIS 4.6.1

See Notes

handbook-rule
This section (CIS 4.6) applies to authorised fund managers.

Purpose

CIS 4.6.2

See Notes

handbook-guidance
(1)
(a) An ICVC or an AUT may suffer dilution (reduction) in the value of the scheme property as a result of the costs incurred in dealing in the underlying investments and of any spread between the buying and selling prices of those investments. In order to enable the authorised fund manager to decide what, if any, response to make to issues about dilution, an authorised fund manager is permitted to:
(i) require the payment of a dilution levy, as an addition to (but not part of) the price of units when they are issued by the ICVC or the trustee or sold by the authorised fund manager, and as a deduction when they are cancelled by the ICVC or the trustee or redeemed by the authorised fund manager; or
(ii) make a dilution adjustment in accordance with CIS 4.3.11 R (2)(d) (Price of a unit) so that the price of a unit is above or below that which would have resulted from a mid-market valuation; or
(iii) decide not to require the payment of a dilution levy or make a dilution adjustment.
(b) An authorised fund manager is not obliged by CIS to make any dilution levies or dilution adjustments.
(c) The choice between (1)(a)(i), (ii) or (iii) will be governed by a statement in the prospectus, but only one can apply at any time.
(2) Certain transactions in units can result in stamp duty reserve tax being paid out of the scheme property of an authorised fund. However, with a view to protecting investors from a resulting diminution in the value of their units, an authorised fund manager is permitted to require the payment of an SDRT provision as an addition to (but not as part of) the price of units when they are issued or sold, and as a deduction when they are cancelled (other than certain in specie cancellations) or redeemed.
(3) Any dilution levy or SDRT provision paid or received by deduction is for the account of the authorised fund. However, there are provisions to prevent a dilution levy or SDRT provision being imposed twice on both the issue and subsequent sale of a unit, or on the redemption and subsequent cancellation of a unit.
(4) For the purposes of (1) to (3) it does not matter whether the issue or cancellation is under CIS 4.3 (Issue and cancellations) or under CIS 4.5 (Issues and cancellations through the authorised fund manager and in specie redemptions).
(5) CIS 4.6.3 R (3) (Dilution levy and SDRT provision) requires a dilution levy or SDRT provision to be imposed only in a manner that, so far as practicable, is fair to all holders and potential holders. However there are exceptions to this in respect of large deals. In addition, certain transactions (such as transactions in units within an individual pension account) are specifically excluded from a charge to stamp duty reserve tax.
(6) Where there is more than one class of unit of an authorised fund, or in the case of an umbrella scheme, a sub-fund, the price of a unit of each class must be calculated separately under CIS 4.3.11 R (Price of a unit). Notwithstanding this, the FSA envisages that any dilution adjustment should in percentage terms affect the price of a unit of each class identically even if there were net issues of units of one class and net cancellations of the other.
(7) It should be noted that, in determining the rate of any dilution levy or dilution adjustment, an authorised fund manager may, in order to reduce volatility in the rate, take account of:
(a) the trend of the authorised fund or sub fund in question to expand or contract; and
(b) the transactions in units at a particular valuation point.

Dilution levy and SDRT provision

CIS 4.6.3

See Notes

handbook-rule
(1) The authorised fund manager may, in accordance with the prospectus, have the power to require any one or more of:
(a) the payment of a dilution levy in respect of the issue or sale of units or any class of units;
(b) the deduction of a dilution levy in respect of the redemption or the cancellation of units or any class of units;
(c) the payment of an SDRT provision in respect of the issue or sale of units or any class of units;
(d) the deduction of an SDRT provision in respect of the redemption or cancellation of units or of any class of units, other than a cancellation of units under CIS 4.5.4 R (In specie redemptions) resulting in a transfer of such part of each description of asset in the scheme property as is proportionate to, or as nearly as practicable proportionate to, the holder's share in the scheme property of the AUT or (as the case may be) share in the ICVC.
(2) Any such payment or deduction becomes due at the same time as payment or transfer of property becomes due in respect of the issue, sale, redemption or cancellation.
(3) A dilution levy or SDRT provision may be imposed only in a manner that is, so far as practicable, fair to all holders and potential holders. However:
(a) the imposition of a dilution levy (or a higher dilution levy) or SDRT provision (or a higher SDRT provision) in respect of large deals in a manner described in the prospectus current at the time of the deal; or
(b) the exclusion from an SDRT provision of any transaction in units where the units are so held that their redemption or cancellation is specifically excluded from a charge to stamp duty reserve tax;
is not unfair.
(4) If the authorised fund manager receives a dilution levy or SDRT provision in respect of any unit sold or to be sold by it, it must, immediately upon receipt of that dilution levy or SDRT provision, pay it to the depositary to become part of the scheme property, except to the extent that it has already been, or will be, paid by the authorised fund to the depositary on the issue of that unit.
(5) If the authorised fund manager deducts a dilution levy or SDRT provision from the proceeds of a unit it redeemed, it must immediately pay it to the depositary to become part of the scheme property, except to the extent that it has already been, or will be, deducted from the depositary's payment to the authorised fund manager on cancellation of that unit.

Dilution adjustment

CIS 4.6.4

See Notes

handbook-rule
(1) The authorised fund manager may, in accordance with the prospectus, have the power to make a dilution adjustment but may only exercise this power:
(a) for the purpose of reducing dilution in the fund; or
(b) to recover any amount which it has already paid or reasonably expects to pay in the future in relation to the issue or cancellation of units (see CIS 4.6.2 G (7) (Purpose)).
(2) Where the authorised fund manager decides not to make an adjustment, this decision must not be made for the purpose of creating a profit or avoiding a loss for the account of the authorised fund manager.
(3) When by reference to any valuation point:
(a) the aggregate value of the units of all classes of the authorised fund or sub-fund issued exceeds the aggregate value of units of all classes cancelled:
(i) any adjustment must be upwards; and
(ii) the dilution adjustment must not exceed the authorised fund manager's reasonable estimate of the difference between what the price would have been had the dilution adjustment not been taken into account and what the price would have been if the scheme property had been valued on the best available market offer basis plus dealing costs; or
(b) the aggregate value of the units of all classes of the authorised fund or sub-fund cancelled exceeds the aggregate value of units of all classes issued:
(i) any adjustment must be downwards; and
(ii) the dilution adjustment must not exceed the authorised fund manager's reasonable estimate of the difference between what the price would have been had the dilution adjustment not been taken into account and what the price would have been if the scheme property had been valued on the best available market bid basis less dealing costs.

Dilution adjustment guidance

CIS 4.6.5

See Notes

handbook-guidance
The effect of CIS 4.6.4 R (1) (Dilution adjustment) is to prohibit authorised fund managers from making a dilution adjustment for reasons or purposes other than set out in CIS 4.6.4 R (1)(a) or CIS 4.6.4 R (1)(b), for example, in order to create a profit or to avoid a loss for the account of the authorised fund manager.

CIS 4.7

Forward and historic pricing

Application

CIS 4.7.1

See Notes

handbook-rule
This section (CIS 4.7) applies to authorised fund managers.

Purpose

CIS 4.7.2

See Notes

handbook-guidance
This section (CIS 4.7) protects investors by means of rules intended to prevent the sale and redemption of units at an historic price where this is liable to be unfair.

Explanation

CIS 4.7.3

See Notes

handbook-guidance
(1) There are two ways in which an authorised fund manager may sell or redeem units; these are at forward and historic prices. A forward price is one which will be fixed at the next valuation point, while a historic price is one fixed on the basis of the last valuation.
(2) The two pricing systems have different characteristics. The investor knows that a forward deal will be priced at the next valuation point, but if he is investing a specified sum, he does not know until then how many units he will receive (or, if he is seeking to redeem, how much he will receive in cash). The investor knows, by contrast, that an historic deal may well represent a price which is outdated (though not by more than 2%), but is able to know, at the time of the deal, how much he must pay (or will receive) or the time of the valuation which will be relevant to that price.
(3) The rules generally express a preference for forward pricing in that there are numerous occasions when a price must be forward, whether or not the authorised fund manager chooses to deal in that way. Issues or cancellations by the authorised fund manager under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager) are always at a forward price.
(4) The diagram in CIS 4.7.6 indicates the valuation point relevant for issues and cancellations and for sales and redemptions in the period between one valuation point and the next. In doing so, it takes account of CIS 4.7.5, and also of earlier provisions in this chapter, including CIS 4.3.11 R(4) to (7) (Price of a unit).

Forward and historic pricing

CIS 4.7.4

See Notes

handbook-rule
(1) For the sale and redemption of units, the authorised fund manager must, subject to this rule (CIS 4.7.4 R), operate on the basis of forward or historic prices, but its power to choose, or its duty to operate on one basis only, is governed by CIS 4.7.5.
(2) If the prices for the sale and redemption of units in any sub-fund of an umbrella scheme are on a forward basis, the prices for the sale and redemption of units related to all sub-funds of that umbrella scheme must be on a forward basis; but this paragraph (2) does not apply merely because of a requirement to price on a forward basis temporarily under Part 2 or Part 3 of CIS 4.7.5.
(3) Prices are to be on a forward basis only for the issue and redemption of units in an authorised fund which is a geared futures and options scheme, a property scheme, a warrant scheme or an umbrella scheme that includes a sub-fund which, if it were the subject of a separate authorisation order, would be an authorised fund of one of those categories.
(4) CIS 4.7.5 does not apply during the period of initial offer at a fixed price. In CIS 4.7.5:
(a) "F Only" means that any price agreed on must be a forward price;
(b) "H" means that any price agreed on must be an historic price unless the authorised fund manager is required by the table to deal at a forward price; and
(c) "General dealing" means in relation to all sales and redemptions agreed on during the remainder of the relevant dealing period (except those that are agreed upon individual deviations); and an "individual deviation" is a decision, in relation to a particular transaction, covered by Part 3 of CIS 4.7.5.

CIS 4.7.5

See Notes

handbook-rule

Forward or historic pricing

This table belongs to CIS 4.7.4 R

CIS 4.8

Valuation

Application

CIS 4.8.1

See Notes

handbook-rule
This section (CIS 4.8) applies to authorised fund managers.

Purpose

CIS 4.8.2

See Notes

handbook-guidance
This section (CIS 4.8) protects investors by stating some basic requirements which apply to the valuation of the scheme property of an AUT or an ICVC for the purposes of determining the price of a unit in it. CIS 4.8.5 R and CIS 4.8.6 R provide for the frequency of valuation and when there are to be valuation points. A valuation which refers to a time that is not a valuation point will not cause that time to become a valuation point.

Valuation: requirements

CIS 4.8.3

See Notes

handbook-rule
(1) An investment included in the scheme property for which different prices are quoted according to whether it is being bought or sold must be valued at its mid-market price.
(2) Any part of the scheme property of an authorised fund that is not an investment must be valued at a fair value, but, for property schemes, this is subject to CIS 12.3.2 R (Functions of the standing independent valuer) and CIS 12.3.3 R (Special rules for pricing).
(3) For the purposes of (1) and (2), any fiscal charges, commissions, professional fees or other charges that were paid, or would be payable, on acquiring or disposing of the investment or other part of the scheme property, must be excluded from the value of an investment or other part of the scheme property.
(4) The value of the scheme property of an authorised fund must be determined in accordance with the relevant provisions of the instrument constituting the scheme, except to the extent that this rule (CIS 4.8.3 R) or CIS 5.2.5 R (Valuation) or CIS 5A.2.5 RCIS 12.3 (Property schemes) applies.
(5) To determine the price at which units of any class in an authorised fund may be issued, cancelled, sold or redeemed, the authorised fund manager must carry out a valuation of the scheme property or of the scheme property attributable to a sub-fund at each valuation point for the authorised fund or the sub-fund (as the case may be).

Valuation: method

CIS 4.8.4

See Notes

handbook-guidance
(1) CIS 4.8.3 R(4) requires that, subject to the exceptions in it, the value of the scheme property of an authorised fund must be determined in accordance with the instrument constituting the scheme. Accordingly, the method of valuing scheme property should be set out in this instrument.
(2) In accordance with CIS 4.8.3 R(1), where different buying and selling prices are quoted for an investment, it should be valued at its mid-market price. The instrument constituting the scheme should set out the valuation method that will apply where a single price for buying and selling a security is quoted and where separate buying and selling prices are quoted.
(3) In the context of SETS, The London Stock Exchange publishes an "official mid-market price" for each security, calculated as the average of the best bid and best offer price, unweighted by deal size. Either the official mid-market price or the last trade price should provide an appropriate basis of valuation. The authorised fund manager should, however, document the choice of methodology and ensure the procedures are applied consistently and fairly. The basis on which the scheme property is to be valued must also be set out in an authorised fund's prospectus as required by CIS 3.5.2 R(17)(2).
(4) Where the authorised fund manager has reasonable grounds to believe that:
(a) no reliable price exists for a security at a valuation point; or
(b) the most recent price available does not reflect the authorised fund manager's best estimate of the value of a security at the valuation point;
he should value the investment at a price which, in his opinion, reflects a fair and reasonable price for that investment (the fair value price).
(5) The circumstances which may give rise to a fair value price being used include:
(a) no recent trade in the security concerned; or
(b) the occurrence of a significant event since the most recent closure of the market where the price of the security is taken.
In (b), a significant event is one that means the most recent price of a security or a basket of securities is materially different to the price that it is reasonably believed would exist at the valuation point had the relevant market been open.
(6) In determining whether to use such a fair value price, the authorised fund manager should include in his consideration:
(a) the type of authorised fund concerned;
(b) the securities involved;
(c) the basis and reliability of the alternative price used; and
(d) the authorised fund manager's policy on the valuation of scheme property as disclosed in the prospectus.
(7) The authorised fund manager should document the basis of valuation (including any fair value pricing policy) and, where appropriate, the basis of any methodology and ensure that the procedures are applied consistently and fairly.
(8) Where a unit price is determined using properly applied fair value prices in accordance with policies in (7), subsequent information that indicates the price should have been different from that calculated will not normally give rise to an instance of incorrect pricing.

Regular valuation points

CIS 4.8.5

See Notes

handbook-rule
(1) There must be at least two valuation points in each calendar month and if there are only two valuation points in any calendar month they must be two weeks or more apart.
(2) Paragraph (1) does not apply to geared futures and options schemes or to warrant schemes or to a sub-fund which is permitted to invest entirely in warrants and there must be at least one valuation point for them on each business day.
(3) The frequency of regular valuation points must be specified in the prospectus.
(4) Despite (1) and (2), no valuation points are required during the period of any initial offer.

Additional valuation points

CIS 4.8.6

See Notes

handbook-rule
The authorised fund manager must inform the depositary if the authorised fund manager determines to have an additional valuation point for the authorised fund or any sub-fund, but this does not prevent the authorised fund manager carrying out a valuation at a time that is not a valuation point.

Market movement

CIS 4.8.7

See Notes

handbook-rule
(1) This rule (CIS 4.8.7 R) applies when an authorised fund manager is operating on the basis of historic prices and decides to carry out an additional valuation for the purpose of paragraph (9) (Market movement) of CIS 4.7.5 (Forward or historic pricing).
(2) When the rule applies:
(a) the valuation must be at an additional valuation point and the authorised fund manager must inform the depositary of that valuation point;
(b) the valuation may be made by reference to fluctuations in an index of property whose composition is reflected by the scheme property, if the authorised fund manager having taken reasonable care determines, and the depositary agrees, that an adequate valuation may be obtained in that way.

Export chapter as

CIS 5


Investment and borrowing powers

CIS 5.1

Introduction

Application

CIS 5.1.1

See Notes

handbook-rule
(1) This chapter applies in relation to ICVCs and AUTs which are not within transitional provision 14 and which:
(a) were UCITS schemes when their authorisation order was made; or
(b) were UCITS schemes immediately after any alteration to the scheme approved under section 251 of the Act or regulation 21 of the OEIC Regulations became effective.
(2) This section (CIS 5.1) applies to authorised fund managers and depositaries of schemes within (1).

Application guidance

CIS 5.1.2

See Notes

handbook-guidance
(1) A scheme may convert to, or be authorised to operate as, a UCITS scheme under the rules in CIS 5 at any time but may not convert back to operate under the rules in CIS 5A. Transitional provision 14 allows certain schemes to continue to operate under the rules in CIS 5A for a specific duration after which they must have converted to operate under CIS 5.
(2) A UCITS scheme authorised on or before 13 February 2002 may operate within the rules in CIS 5A under transitional provision 14(1) It may at any time switch to operate under CIS 5. However, by 13 February 2007 it must have switched to operate under the rules in CIS 5.
(3) A UCITS scheme authorised after 13 February 2002 may operate within the rules in CIS 5A under transitional provision 14(2). However, by 13 February 2004 it must have switched to operate under the rules in CIS 5.

Purpose

CIS 5.1.3

See Notes

handbook-guidance
This chapter helps in achieving the regulatory objective of protecting consumers by laying down minimum standards for the investments that may be held by an authorised fund. In particular:
(1) the proportion of transferable securities and derivatives that may be held by an authorised fund is restricted if those securities and derivatives are not listed on an eligible market; the intention of this is to restrict investment in transferable securities or derivatives that cannot be accurately valued and readily disposed of; and
(2) authorised funds are required to comply with a number of investment rules that require the spreading of risk.

Explanation of this chapter

CIS 5.1.4

See Notes

handbook-guidance
(1) The rules in this chapter set out the investment powers for UCITS schemes operating under the provision of the widened investment powers in UCITS Amending Directive 2001/108/EC. Therefore, this chapter does not apply to UCITS schemes operating under the narrower range of investment powers in the unamended UCITS Directive (85/611/EEC) and which are within transitional provision 14 and authorised under the investment powers contained in CIS 5A (see CIS 5A.1.4 G explanation). This chapter also does not apply to non-UCITS types of schemes (geared futures and option schemes, futures and options schemes, fund of fund schemes, feeder funds and non-UCITS umbrella schemes), which are authorised under the investment powers contained in CIS 5A.

Distinct meaning of certain terms

CIS 5.1.5

See Notes

handbook-guidance
Terms used in this sourcebook should be interpreted and applied as they are defined. However, because of the distinct nature of investments in which an authorised fund is permitted to invest, some of these terms are not always used in a way that corresponds with their usage in certain markets. For example, the term warrants. In this sourcebook warrants has a slightly wider meaning than is usually attributed to it in warrant markets. The definition of warrants reflects this distinction.

CIS 5.1.6

See Notes

handbook-guidance

Indicative overview of investment and borrowing powers

This table belongs to CIS 5.1.4 G.

CIS 5.2

General investment powers and limits for UCITS schemes

Application

CIS 5.2.1

See Notes

handbook-rule
This section (CIS 5.2) applies to authorised fund managers, in respect of UCITS schemes, except:
(1) CIS 5.2.12 R (2)(c) (Eligible markets: requirements) which applies to depositaries of UCITS schemes only;
(2) CIS 5.2.24 R (Requirement to cover sales) which applies to ICVCs which are UCITS schemes and the managers and trustees of AUTs which are UCITS schemes only;
(3) CIS 5.2.25 R (3) (OTC transactions in derivatives) which also applies to depositaries of UCITS schemes;
(4) CIS 5.2.29 R (Significant influence for ICVCs), which applies to ICVCs which are UCITS schemes only;
(5) CIS 5.2.30 R (Significant influence for managers of AUTs), which applies to managers of AUTs which are UCITS schemes only; and
(6) CIS 5.2.31 R (Concentration), which also applies to ICVCs, only which are UCITS schemes.

Explanation of CIS 5.2

CIS 5.2.2

See Notes

handbook-guidance
This section outlines general investment rules, with which authorised funds must comply, in order to ensure that they qualify as UCITS schemes. The scheme property of an authorised fund may, subject to the rules in this chapter, comprise any assets or investments to which it is dedicated. For ICVCs, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.

Prudent spread of risk

CIS 5.2.3

See Notes

handbook-rule
An authorised fund manager must ensure that, taking account of the investment objectives and policy of the authorised fund as stated in the most recently published prospectus of the authorised fund, the scheme property of the authorised fund aims to provide a prudent spread of risk.

Investment powers: general

CIS 5.2.4

See Notes

handbook-guidance
The scheme property of each authorised fund must be invested only in accordance with the relevant provisions in this chapter that are applicable to that authorised fund and within any upper limit in this chapter. However, the instrument constituting the scheme may further restrict:
(1) the kind of property in which the scheme property may be invested;
(2) the proportion of the capital property of the authorised fund to be invested in assets of any description;
(3) the descriptions of transactions permitted; and
(4) the borrowing powers of the authorised fund.

Valuation

CIS 5.2.5

See Notes

handbook-rule
  1. (1) In this chapter, the value of the scheme property of an authorised fund means the net value of the scheme property determined in accordance with CIS 4.8 (Valuation) (for ICVCs and single-priced AUTs) or CIS 15.8 (Valuation) (for dual-priced AUTs), after deducting any outstanding borrowings, whether immediately due to be repaid or not.
  2. (2) When valuing the scheme property for this chapter:
    1. (a) the time as at which the valuation is being carried out ("the relevant time") is treated as if it were a valuation point, but the valuation and the relevant time do not count as a valuation or a valuation point for the purposes of CIS 4 (for ICVCs and single-priced AUTs) and CIS 15 (for dual-priced AUTs);
    2. (b) initial outlay is regarded as remaining part of the scheme property;
    3. (c) if the authorised fund manager, having taken reasonable care, determines that the authorised fund will become entitled to any unrealised profit which has been made on account of a transaction in derivatives, that prospective entitlement is regarded as part of the scheme property; and
    4. (d) for a dual-priced AUTs, when applying CIS 15.8.4 R (Valuation):
      1. (i) the cancellation basis only is required; and
      2. (ii) paragraphs 1 to 8, 11 and 23 are not applicable.

Valuation

CIS 5.2.6

See Notes

handbook-guidance
It should be noted that for the purpose of CIS 5.2.5 R, CIS 4.8 or CIS 15.8 may be affected by specific provisions in this chapter such as, for example, CIS 5.4.6 R (Stock lending: treatment of collateral) or CIS 12 (Special provisions for certain types of scheme).

Chapter to be construed as a whole

CIS 5.2.7

See Notes

handbook-rule
(1) Where a rule in this chapter allows a transaction to be entered into or an investment to be retained only if possible obligations arising out of the investment transactions or out of the retention would not cause any breach of any limits in this chapter, it must be assumed that the maximum possible liability of the authorised fund under any other of those rules has also to be provided for.
(2) Where a rule in this chapter permits an investment transaction to be entered into or an investment to be retained only if that investment transaction, or the retention, or other similar transactions, are covered:
(a) it must be assumed that in applying any of those rules, the authorised fund must also simultaneously satisfy any other obligation relating to cover; and
(b) no element of cover must be used more than once.

Examples

CIS 5.2.8

See Notes

handbook-guidance
Examples of the "provisions" referred to in CIS 5.2.7 R are: CIS 5.2.19 R (Investment in warrants and nil and partly paid securities) and CIS 5.5.7 R (General power to accept or underwrite placings).

Transferable securities

CIS 5.2.9

See Notes

handbook-rule
(1) Subject to this rule (CIS 5.2.9 R), a transferable security is an investment falling within article 76 (Shares etc), article 77 (Instruments creating or acknowledging indebtedness), article 78 (Government and public securities), article 79 (Instruments giving entitlement to investments) and article 80 (Certificates representing certain securities) of the Regulated Activities Order.
(2) An investment is not a transferable security if the title to it cannot be transferred, or can be transferred only with the consent of a third party.
(3) In applying (2) to an investment which is issued by a body corporate, and which is an investment falling within articles 76 (Shares, etc) or 77 (Instruments creating or acknowledging indebtedness) of the Regulated Activities Order, the need for any consent on the part of the body corporate or any members or debenture holders of it may be ignored.
(4) An investment is not a transferable security unless the liability of the holder of it to contribute to the debts of the issuer is limited to any amount for the time being unpaid by the holder of it in respect of the investment.

UCITS schemes: general

CIS 5.2.10

See Notes

handbook-rule
(1) The scheme property of a UCITS scheme must, except where otherwise provided in the rules in this chapter, only consist of any or all of:
(b) money market instruments permitted under CIS 5.2.20 R (Investment in money market instruments);
(c) derivatives and forward transactions permitted under CIS 5.2.22 R (Permitted transactions (derivatives and forwards));
(d) deposits permitted under CIS 5.2.28 R (Investment in deposits); and
(e) units in collective investment schemes permitted under CIS 5.2.15 R (Investment in collective investment schemes).
(2) Transferable securities and money market instruments held within a scheme must (subject to (3) and (4)) be:
(a) admitted to or dealt on an eligible market within CIS 5.2.12 R (1)(a) (Eligible markets: requirements); or
(b) dealt on an eligible market within CIS 5.2.12 R (1)(b) ; or
(c) dealt on an eligible market within CIS 5.2.12 R (2); or
(d) in the case of a money-market instrument not within (a) to (c) above, within CIS 5.2.20 R (2) .
(3) Not more than 10% in value of the scheme property of a UCITS scheme is to consist of transferable securities, which are not approved securities.
(4) Not more than 10% in value of the scheme property is to consist of money market instruments, which do not fall within CIS 5.2.20 R (Investment in money market instruments).
(5) CIS 5.2.13 R (Spread: general) and CIS 5.2.14 R (Spread: government and public securities) do not apply until the expiry of a period of six months after the date of effect of the authorisation order in respect of the authorised fund (or on which the initial offer commenced if later) provided that CIS 5.2.3 R (Prudent spread of risk) is complied with.
(6) The following sections also apply to UCITS schemes:
(a) CIS 5.3 (Derivatives exposure)
(b) CIS 5.4 (Stock lending); and
(c) CIS 5.5 (Cash, borrowing, lending and other provisions).

Eligible markets regime: purpose

CIS 5.2.11

See Notes

handbook-guidance
(1) To protect investors, this sourcebook provides that markets on which investments of authorised funds are dealt in or traded on should be of an adequate quality ("eligible") at the time of acquisition of the investment and until it is sold. This section specifies criteria based on those in the UCITS Directive, as to the nature of the markets in which the property of an authorised fund may be invested.
(2) Where a market ceases to be eligible, investments on that market cease to be approved securities. The 10% restriction in CIS 5.2.10 R (3), (4) (UCITS schemes: general) applies and exceeding this limit because a market ceases to be eligible will generally be regarded as an inadvertent breach.

Eligible markets regime

CIS 5.2.12

See Notes

handbook-rule
  1. (1) A market is eligible for the purposes of the rules in this sourcebook if it is:
    1. (a) a regulated market; or
    2. (b) a market in an EEA State which is regulated, operates regularly and is open to the public.
  2. (2) A market not falling within (1) is eligible for the purposes of the rules in this sourcebook if:
    1. (a) the authorised fund manager, after consultation and notification with the depositary (and in the case of an ICVC, any other directors), decides that market is appropriate for investment of, or dealing in, the scheme property;
    2. (b) the market is included in a list in the prospectus; and
    3. (c) the depositary has taken reasonable care to determine that:
      1. (i) adequate custody arrangements can be provided for the investment dealt in on that market; and
      2. (ii) all reasonable steps have been taken by the authorised fund manager in deciding whether that market is eligible.
  3. (3) In (2), a market must not be considered appropriate unless it:
    1. (a) is regulated;
    2. (b) operates regularly;
    3. (c) is recognised;
    4. (d) is open to the public;
    5. (e) is adequately liquid; and
    6. (f) has adequate arrangements for unimpeded transmission of income and capital to or to the order of investors.

Spread: general

CIS 5.2.13

See Notes

handbook-rule
(1) This rule (CIS 5.2.13 R) does not apply to government and public securities.
(2) For the purposes of this ruleCIS 5.2.13 R) companies included in the same group for the purposes of consolidated accounts as defined in accordance with Directive 83/349/EEC or in the same group in accordance with international accounting standards are regarded as a single body.
(3) Not more than 20% in value of the scheme property is to consist of deposits with a single body.
(4) Not more than 5% in value of the scheme property is to consist of transferable securities or money market instruments issued by any single body.
(5) The limit of 5% in (4) is raised to 10% in respect of up to 40% in value of the scheme property.
(6) In applying (4) and (5) certificates representing certain securities are treated as equivalent to the underlying security.
(7) The exposure to any one counterparty in an OTC derivative transaction must not exceed 5% in value of the scheme property. This limit is raised to 10% where the counterparty is an approved bank.
(8) Not more than 20% in value of the scheme is to consist of transferable securities and money market instruments issued by the same group (as referred to in (2)).
(9) Not more than 20% in value of the scheme is to consist of the units of any one collective investment scheme.
(10) In applying the limits in (3),(4),(5), (6) and (7), not more than 20% in value of the scheme property is to consist of any combination of two or more of the following:
(a) transferable securities or money market instruments issued by; or
(b) deposits made with; or
(c) exposures from OTC derivatives transactions made with;
a single body.
(11) [deleted]
(12) For the purpose of calculating the limits in (7) and (10), the exposure in respect of an OTC derivative may be reduced to the extent that collateral is held in respect of it if the collateral meets each of the conditions specified in (13).
(13) The conditions referred to in (12) are that the collateral:
(a) is marked-to-market on a daily basis and exceeds the value of the amount at risk;
(b) is exposed only to negligible risks (e.g. government bonds of first credit rating or cash) and is liquid;
(c) is held by a third party custodian not related to the provider or is legally secured from the consequences of a failure of a related party; and
(d) can be fully enforced by the UCITS scheme at any time.
(14) For the purpose of calculating the limits in CIS 5.2.13 R (7) and CIS 5.2.13 R (10), OTC derivative positions with the same counterparty may be netted provided that the netting procedures:
(a) comply with the conditions set out in Section 3 (Contractual netting (Contracts for novation and other netting agreements)) of Annex III to the Banking Consolidation Directive; and
(b) are based on legally binding agreements.
(15) In applying this rule, all derivatives transactions are deemed to be free of counterparty risk if they are performed on an exchange where the clearing house meets each of the following conditions:
(a) it is backed by an appropriate performance guarantee; and
(b) it is characterised by a daily mark-to-market valuation of the derivative positions and an at least daily margining.

Guidance on spread: general

CIS 5.2.13A

See Notes

handbook-guidance
(1) CIS 5.2.13 R (12) to CIS 5.2.13 R (15) reflect the provisions of Article 5 of the Commission Recommendation 2004/383/EC of 27 April 2004 on the use of financial derivative instruments for undertakings for collective investment in transferable securities (in this Section referred to as "the Commission Recommendation on the use of financial derivative instruments"). This Recommendation may be accessed via http://www.europa.eu.int/eur-lex/pri/en/oj/dat/2004/l_199/l_19920040607en00240029.pdf.
(2) The attention of authorised fund managers is specifically drawn to condition (d) in CIS 5.2.13 R (13) under which the collateral has to be legally enforceable at any time. It is the FSA's view that it is advisable for an authorised fund manager to undertake a legal due diligence exercise before entering into any financial collateral arrangement. This is particularly important where the collateral arrangements in question have a cross-border dimension. Depositaries will also need to exercise reasonable care to review the collateral arrangements in accordance with its duties under CIS 7.5.3 R (2) (Duties of the ACD and depositary: investment and borrowing powers) or CIS 7.10.3 R (2) (Duties of the manager and trustee: investment and borrowing powers), as appropriate.

Spread: government and public securities

CIS 5.2.14

See Notes

handbook-rule
(1) This rule (CIS 5.2.14 R) applies to government and public securities ("such securities").
(2) Where no more than 35% in value of the scheme property is invested in such securities issued by any one body, there is no limit on the amount which may be invested in such securities or in any one issue.
(3) An authorised fund may invest more than 35% in value of the scheme property in such securities issued by any one body provided that:
(a) the authorised fund manager has before any such investment is made consulted with the depositary and as a result considers that the issuer of such securities is one which is appropriate in accordance with the investment objectives of the authorised fund;
(b) no more than 30% in value of the scheme property consists of such securities of any one issue;
(c) the scheme property includes such securities issued by that or another issuer, of at least six different issues; and
(d) the disclosures in (4) have been made.
(4) Where it is intended that (3) may apply, the instrument constituting the scheme, and the most recently published prospectus, must clearly state:
(a) the fact that more than 35% of the scheme property is or may be invested in such securities issued by one issuer;
(b) the names of the States, the local authorities or public international bodies issuing such securities in which the authorised fund may invest over 35% of its assets.
(5) In this rule CIS 5.2.14 R) in relation to such securities:
(a) issue, issued and issuer include guarantee, guaranteed and guarantor; and
(b) an issue differs from another if there is a difference as to repayment date, rate of interest, guarantor or other material terms of the issue.

Investment in collective investment schemes

CIS 5.2.15

See Notes

handbook-rule
A scheme may invest in units in a collective investment scheme provided that no more than 30% of the value of that investing scheme is in collective investment schemes which are not schemes which comply with the conditions necessary in order to enjoy the rights conferred by the UCITS Directive and only if the second scheme is permitted under (1) - (4):
(1) it is a scheme which:
(a) Complies with the conditions necessary for it to enjoy the rights conferred by the UCITS Directive; or
(b) is recognised under the provisions of section 270 of the Act (Schemes authorised in designated countries or territories); or
(c) is authorised as a non-UCITS retail scheme (provided the requirements of article 19(1)(e) of the UCITS Directive are met); or
(d) is authorised in another EEA State (provided the requirements of article 19(1)(e) of the UCITS Directive are met);
(2) the second scheme must comply where relevant with CIS 5.2.18 R (Investment in other group schemes);
(3) the second scheme must have terms which prohibit more than 10% in value of the scheme property consisting of units in collective investment schemes; and
(4) for the purposes of this rule (CIS 5.2.15 R) and CIS 5.2.13 R (Spread: general) each sub-fund of an umbrella scheme is to be treated as if it were a separate scheme but no sub-fund of an umbrella scheme may invest in another sub-fund of that umbrella scheme.

Qualifying non-UCITS collective investment schemes

CIS 5.2.16

See Notes

handbook-guidance
(1) CIS 17.3 gives further detail as to the recognition of a scheme under section 270 of the Act.
(2) Article 19 of the UCITS Directive sets out the general investment limits. So, a non-UCITS retail scheme, or its equivalent EEA scheme which has the power to invest in gold or immovables would not meet the criteria set in CIS 5.2.15 R(1) (c) and (d).

Investment in associated collective investment schemes

CIS 5.2.17

See Notes

handbook-rule
Units in a collective investment scheme do not fall within CIS 5.2.15 R (Investment in collective investment schemes) if that collective investment scheme is managed or operated by (or, if it is an ICVC, has as its ACD) the authorised fund manager of the investing authorised fund or an associate of that authorised fund manager, unless:
(1) the prospectus of the investing authorised fund clearly states that the property of that investing fund may include such units; and
(2) CIS 5.2.18 R (Investment in other group schemes) is complied with.

Investment in other group schemes

CIS 5.2.18

See Notes

handbook-rule
An authorised fund must not invest in or dispose of units in another collective investment scheme (the second scheme), which is managed or operated by (or in the case of an ICVC, whose ACD is), the authorised fund manager of such authorised fund, or an associate of that authorised fund manager, unless;
(1) the authorised fund manager of the authorised fund is under a duty to pay to the authorised fund by the close of business on the fourth business day next after the agreement to buy or to sell the amount referred to in (3) and (4);
(2) there is no charge in respect of the investment in or the disposal of units in the second scheme;
(3) on investment, either:
(a) any amount by which the consideration paid by the authorised fund for the units in the second scheme exceeds the price that would have been paid for the benefit of the second scheme had the units been newly issued or sold by it; or
(b) if such price cannot be ascertained by the authorised fund manager of the authorised fund, the maximum amount of any charge permitted to be made by the seller of units in the second scheme;
(4) on disposal, the amount of any charge made for the account of the authorised fund manager or operator of the second scheme or an associate of any of them in respect of the disposal; and
(5) In (1), (2), (3) and (4):
(a) any addition to or deduction from the consideration paid on the acquisition or disposal of units in the second scheme, which is applied for the benefit of the second scheme and is, or is like, a dilution levy made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or SDRT provision made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or CIS 15.6.3 R (for dual-priced AUTs) is to be treated as part of the price of the units and not as part of any charge; and
(b) any charge made in respect of an exchange of units in one sub-fund or separate part of the second scheme for units in another sub-fund or separate part of that scheme is to be included as part of the consideration paid for the units.

Investment in warrants and nil and partly paid securities

CIS 5.2.19

See Notes

handbook-rule
(1) Where a UCITS scheme invests in a warrant, the exposure created by the exercise of the right conferred by the warrant must not exceed the limits in CIS 5.2.13 R (Spread: general) and CIS 5.2.14 R (Spread: government and public securities).