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CIS 15.2 Initial offers and unitisations

Application

CIS 15.2.1R

This section applies to managers, except CIS 15.2.7 R (Creation of units: unitisation) which applies to trustees.

Purpose

CIS 15.2.2G

This section helps to protect investors by rules intended to ensure the authorised fund receives the appropriate amounts for units issued as a result of an initial offer 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 15.2.3R
  1. (1)

    The period of the initial offer must not exceed 21 days and an initial offer must, subject to CIS 15.2.6 R (Compulsory termination of initial offer), be kept open for the period of the initial offer.

  2. (2)

    Where an initial offer is of units of a sub-fund, CIS 15.2.4 R, CIS 15.2.5 R and CIS 15.2.6 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 15.2.4R
  1. (1)

    If units are issued by the trustee during the period of the initial offer, the units must be issued by the trustee under (2) or (4).

  2. (2)

    If units are to be issued under this paragraph, the manager must instruct the trustee to issueunits at the beginning of the first business day in the period.

  3. (3)

    If units are to be issued under (4), at or before the beginning of the first business day in the period the manager must irrevocably choose, in respect of that initial offer, to proceed either under (4)(a) ("up and running") or under (4)(b) ("pay over and wait") and must notify its choice to the trustee.

  4. (4)

    Where on any business day during the period the manager assumes any obligation to sellunits, it must, depending on its choice under (3), either:

    1. (a)

      instruct the trustee, at the beginning of the next business day, to issue units in such number at least as will enable the manager immediately to fulfil that obligation, whether from the units so issued or from other units; or

    2. (b)

      proceed as follows:

      1. (i)

        pay to the trustee (in any case where the purchaser has sent a remittance) on the day of receipt of the remittance or on the next business day, the total amount (or the total amount less the total of the manager's preliminary charge, if any, in respect of those units); and

      2. (ii)

        as soon as the period of the initial offer has come to an end, instruct the trustee to issue units in the AUT in such number at least as will enable the manager to fulfil its obligations to sellunits whether from the units so issued or from other units.

  5. (5)

    The instructions given by the manager must state, in relation to each class of unit to be issued, the number to be issued, expressed either as a number of units or as an amount in value (or as a combination of the two).

  6. (6)

    The trustee must, subject to CIS 15.3.9 R (Trustee's refusal to issue or cancel units), issue units on receipt of instructions by the manager given under this rule, and must not, during an initial offer, issueunits otherwise.

Initial price

CIS 15.2.5R
  1. (1)

    The initial price of a unit must be such amount as is agreed between the manager and the trustee to be the maximum amount (inclusive of any preliminary charge) which may be paid by a potential Unitholder to the manager for units on an initial offer.

  2. (2)

    The price for each unit issued during the period of the initial offer payable by the manager to the trustee must be the initial price of that unit less the amount of any preliminary charge made in respect of that unit.

  3. (3)

    The amount which may be retained by the manager by way of preliminary charge must not exceed the amount stated in the original prospectus as the current charge.

  4. (4)

    For the purpose of (2), a unit is treated as issued during the period of the initial offer if the manager had agreed to the sale of it or received an order for it to be sold before the close of the offer, and it was issued only afterwards.

  5. (5)

    During the period of the initial offer, the manager must not cause units to be issued under CIS 15.5.3 R (Issues and cancellations through the manager) at a price which is greater than the initial price.

  6. (6)

    The initial price of units must, subject to CIS 12.5.2 R (Base currency), be expressed in the base currency of the AUT: but, during the period of the initial offer, the manager may agree to sell units or cause units to be issued under CIS 15.5.3 R in any other currency.

  7. (7)

    Nothing in this rule affects the power of the manager to require a payment of SDRT provision under CIS 15.6.3 R (SDRT provision).

  8. (8)

    Where the initial offer is made in a country outside the United Kingdom, there may be added to the initial price of units offered in that country an amount sufficient to cover additional duty or taxation leviable in that country and the cost of the remittance of money to the United Kingdom.

Compulsory termination of initial offer

CIS 15.2.6R
  1. (1)

    The period of the initial offer comes to an end immediately if:

    1. (a)

      the manager does not carry out a valuation immediately if after having exercised reasonable care it determines that, if the current issue price of a unit were to be calculated by reference to an immediate valuation under CIS 15.8.4 R (Valuation), it would be likely to vary from the unit's initial price (excluding any preliminary charge by 2% or more of the initial price (excluding any preliminary charge); or

    2. (b)

      the manager carries out a valuation immediately after it determines as mentioned in (a) that the valuation shows a variation of 2% or more.

  2. (2)

    If the period of the initial offer comes to an end under (1), the manager must immediately refrain from:

    1. (a)

      agreeing to sell units at the initial price; and

    2. (b)

      instructing the trustee to issue units at the initial price, unless either 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. (3)

    The current issue price of a unit for the purpose of (1) must be calculated on the basis that the number of units of each 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 trustee in exchange (or treated for the purpose of the valuation as having been paid or exchanged), to the trustee before the valuation.

Creation of units: unitisation

CIS 15.2.7R
  1. (1)

    The trustee has the power, not dependent on an instruction by the manager, to issue units, having regard to the terms of any unitisation to which it is a party. For this purpose, the trustee may issue any number of units in exchange for assets other than money but only if it has taken reasonable care to determine that to do so is not likely to result in any material prejudice to the interests of Unitholders or potential Unitholders.

  2. (2)

    In exercise of the power, the trustee must only create units in favour of the persons entitled under the unitisation.