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CIS 15.3 Issues and cancellations

Application

CIS 15.3.1R

This section applies in relation to the issue and cancellation of units after the close of any initial offer of units at a fixed price. However, the following rules in this section also apply in relation to initial offers:

  1. (1)

    CIS 15.3.5 R (3) , (4) and (5) (Issue by trustee), except to the extent that CIS 15.2.4 R (4)(b) applies;

  2. (2)

    CIS 15.3.9 R (Trustee's refusal to issue or cancel units);

  3. (3)

    CIS 15.3.10 R (Instructions or notifications between manager and trustee); and

  4. (4)

    CIS 15.3.12 R (Modification to number of units issued or cancelled)

Purpose

CIS 15.3.2G

This section protects investors by means of rules intended to ensure the trustee receives or pays out the right amount when units are issued or cancelled. Accordingly, it lays down certain 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.

Box management errors

CIS 15.3.3G
  1. (1)

    This guidance (CIS 15.3.3 G) applies to managers.

  2. (2)

    A manager is not permitted to sell or cancel units that it does not own. To do so would be in breach of CIS 15.3.4 R(3) (Issue of units: manager's instructions) or CIS 15.3.7 R(3) (Cancellation of units). Errors relating to the number of units issued or cancelled can be corrected to the extent permitted by CIS 15.3.12 R (Modification to number of units issued or cancelled).

  3. (3)

    A 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:

    1. (a)

      controls relating to the management of the authorised fund manager's box of units.

    2. (b)

      recording and reporting errors in calculating the number of units of each class in the box;

    3. (c)

      correcting such errors; and

    4. (d)

      the payment of compensation in relation to particular categories of error.

Issue of units: manager's instructions

CIS 15.3.4R
  1. (1)

    This rule (CIS 15.3.4 R) applies to managers.

  2. (2)

    Where the manager wishes new units to be issued, and complies with CIS 15.3.11 R (Timing of instructions to issue or cancel units), it may instruct the trustee to issue them. Any 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).

  3. (3)

    If, at any valuation point, the manager has any outstanding obligation to sell units of any class, then it must instruct the trustee, before the earlier of:

    1. (a)

      the expiry of two hours since the valuation point; or

    2. (b)

      the next valuation point;

    to issue units of the class in such number as will at least enable the manager to fulfil that 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)).

  4. (4)

    If the manager wishes regularly to have a notified point, it may notify the trustee 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; and any change in the period is ineffective unless agreed by the manager and the trustee.

Issue by trustee

CIS 15.3.5R
  1. (1)

    This rule (CIS 15.3.5 R) applies to managers and trustees.

  2. (2)

    The trustee must issue units on receipt of and in accordance with instructions given by the manager under CIS 15.3.4 R (Issue of units: managers instructions), and must not, after an initial offer, issueunits otherwise, but this is subject to (3) and to CIS 15.3.9 R (Trustee's refusal to create or cancel units).

  3. (3)

    The trustee may issue units in exchange for assets other than money, but its obligation to comply with an instruction to issueunits in such a case arises only:

    1. (a)

      if it has taken reasonable care to determine that (taking account of any payment that would have been required under CIS 15.6.3 R (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;

    2. (b)

      in a case governed by CIS 11.5.2 R (5) (Schemes of arrangement: requirements) that the resolution concerned in relation to the AUT of which it is the trustee has been duly carried or is not required.

  4. (4)

    On the issue of units, the manager must, by the close of business on the fourth business day, following the relevant instructions that were given by the manager:

    1. (a)

      pay to the trustee in cash or in cleared funds the issue price of the units and any payment required under CIS 15.6.3 R (SDRT provision) to the extent that either remains unpaid; or

    2. (b)

      for an exchange under (3), ensure transfer to the trustee of the assets to be taken in exchange.

  5. (5)

    For an exchange under (3), the manager must ensure that the beneficial interest in the assets is transferred to the trustee with effect from the issue of the units, even if the legal ownership is not then transferred.

Issue price

CIS 15.3.6R
  1. (1)

    This rule (CIS 15.3.6 R) applies to managers.

  2. (2)

    The issue price of a unit is, subject to (3), calculated as follows:

    1. (a)

      take the proportion, attributable to the units of the class in question, of the value on the issue basis of the scheme property by reference to the most recent valuation of the scheme property;

    2. (b)

      compute the number of units of the relevant class in issue immediately before the valuation in (a);

    3. (c)

      divide the total at (a) by the number of units at (b); and

    4. (d)

      express the price in a form that is accurate to at least four significant figures.

  3. (3)

    If a method of calculation other than that at (2) is used the manager must be sure that it is bound to produce the same result.

Cancellation of units

CIS 15.3.7R
  1. (1)

    This rule (CIS 15.3.7 R) applies to managers and trustees.

  2. (2)

    Where the manager wishes units to be cancelled, and complies with CIS 15.3.11 R (Timing of instructions to issue or cancel units), it may instruct the trustee to cancel them. Any instructions given by the manager must state, for each class of unit to be cancelled, the number to be cancelled, expressed either as a number of units or as an amount in value (or as a combination of the two).

  3. (3)

    Where, at any moment of instruction, the manager has any outstanding obligation to sell units of a class, it may not instruct the trustee to cancel units of that class if or to the extent that its so doing would prevent it immediately from fulfilling any such obligation which had been assumed before the valuation point (or notified point if there is one).

  4. (4)

    The trustee must (subject to CIS 15.3.9 R (Trustee's refusal to issue or cancel units)) cancel units on receipt of instructions given by the manager, and the trustee may not cancel units otherwise.

  5. (5)

    Where instructions are given 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 under (4), the later instructions must enable the trustee to execute both or all sets of instructions simultaneously.

  6. (6)

    On the cancellation of units and on delivery to the trustee of such evidence of the title to those units as it may reasonably require, the trustee must, within the period specified in (7), pay the cancellation price of the units less any deduction required under CIS 15.6.3 R (SDRT provision):

    1. (a)

      (except where (b) applies), to, or to the order of, the Unitholder or the manager as the case may be; or

    2. (b)

      In the case of a relevant pension scheme, in accordance with the relevant provisions of the trust deed.

  7. (7)

    The period expires at the close of business on the fourth business day following the cancellation of the units; but, where the 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 restriction in CIS 5.15.3R (General power to borrow) or CIS 5.15.4R (Borrowing limits) within that period, the period is extended, for any relevant currency, until the shortage is rectified by the manager.

  8. (8)

    Paragraph (6) does not apply where units are cancelled following a cancellation for property transferred or sold under CIS 15.5.4 R (In specie cancellation).

Cancellation price

CIS 15.3.8R
  1. (1)

    This rule (CIS 15.3.8 R) applies to managers and trustees.

  2. (2)

    The cancellation price payable for each unit by the trustee under CIS 15.3.7 R (Cancellation of units) is calculated by:

    1. (a)

      Following steps (a) to (d) set out in CIS 15.3.6 R (2)(Issue price) or else following CIS 15.3.6 R (3); but

    2. (b)

      for the purposes of CIS 15.3.6 R (2)(a), taking the value of the scheme property on the cancellation basis, not the issue basis.

Trustee's refusal to issue or cancel units

CIS 15.3.9R
  1. (1)

    This rule (CIS 15.3.9 R) applies to trustees.

  2. (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 units or that it is not in the interests of Unitholders that:

    1. (a)

      units should be issued; or

    2. (b)

      units should be cancelled; or

    3. (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. (3)

    On the giving of 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 manager and trustee

CIS 15.3.10R
  1. (1)

    This rule (CIS 15.3.10 R) applies to managers and trustees.

  2. (2)

    Any instruction or notification given (or report supplied) under this chapter by the manager to the trustee:

    1. (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;

    2. (b)

      must be recorded by the manager, at the time when it is given or supplied.

  3. (3)

    Instructions are given within any period under this chapter if they are received by the trustee within that period, and instructions received by the trustee after the expiry of any period are treated as given after that expiry.

  4. (4)

    This rule also applies, with the necessary modifications, to any instruction or notification given by the trustee to the manager.

Timing of instructions to issue or cancel units

CIS 15.3.11R
  1. (1)

    This rule (CIS 15.3.11 R) applies to managers and trustees.

  2. (2)

    A manager may at any time give instructions to the trustee to issue or to cancel units.

  3. (3)

    Where instructions are given at a time which is 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.

  4. (4)

    Where instructions are given at a time which is more than two hours after the last valuation point:

    1. (a)

      the instructions must be given by reference to the price of the relevant class of units next to be calculated; and

    2. (b)

      the trustee must issue or cancel the units only after the next valuation point has been reached.

Modification to number of units issued or cancelled

CIS 15.3.12R
  1. (1)

    This rule (CIS 15.3.12 R) applies to managers and trustees.

  2. (2)

    The number of units issued or cancelled may be modified by the manager changing an instruction to issue or cancel units which has been complied with provided that:

    1. (a)

      the manager ensures that any appropriate consequential payment between the manager and the trustee is made; and

    2. (b)

      the trustee agreed to the modification.

  3. (3)

    The trustee must not agree to a modification under (2) unless it has taken reasonable care to determine:

    1. (a)

      that the purpose of the modification is to rectify the consequences of an error in the instruction relating to the number of units held by the manager, or issued or cancelled in connection with the sale or redemption of units to or by, the manager; and

    2. (b)

      that in view of the quality of the manager's control systems the circumstance that resulted in the error in question is an isolated one which is unlikely to recur.

  4. (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 trustee agrees, within the payment period applicable to that issue or cancellation under CIS 15.3.5 R (Issue by trustee) or CIS 15.3.7 R (Cancellation of units).