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CIS 15.7 Forward and historic pricing

Application

CIS 15.7.1R

This section applies to managers.

Purpose

CIS 15.7.2G

This section 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.

CIS 15.7.3G
  1. (1)

    There are two ways in which a manager may sell or redeem units; these are at forward and historic prices. A forward price is one to be fixed at the next valuation point, while a historic price is one fixed on the basis of the last valuation.

  2. (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 The investor knows, by contrast, that a historic deal may well represent a price which is outdated (though not by more than 2%), but is able to know, at the time of the deal, how much he must pay (or will receive) or the time of the valuation which will be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. (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 manager chooses to deal in that way. Issues or cancellations through the manager under CIS 15.5.3 R (Issues and cancellations through the manager) are always at a forward price.

  4. (4)

    The diagram in CIS 15.7.6 G 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 15.7.5 R and of earlier rules in this chapter, including CIS 15.3.11 R (Timing of instructions to issue or cancel units).

Forward and historic pricing

CIS 15.7.4R
  1. (1)

    For the sale and redemption of units, the manager may, subject to this rule (CIS 15.7.4 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 15.7.5 R.

  2. (2)

    If the prices for the sale and redemption of units related to any sub-fund of an umbrella scheme are on a forward basis, the prices for the sale and redemption of units related to each other sub-fund of that umbrella fund must also be on a forward basis; but this paragraph does not apply merely because of a requirement to price on a forward basis temporarily under Part 2 or Part 3 of CIS 15.7.5 R.

  3. (3)

    Prices are to be on a forward basis only for the sale and redemption of units in an AUT 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 AUT of one of those categories.

  4. (4)

    CIS 15.7.5 R does not apply during the period of initial offer at a fixed price. In CIS 15.7.5 R:

    1. (a)

      "F Only" means that any price agreed on must be a forward price;

    2. (b)

      "H" means that any price agreed on must be an historic price unless the manager is required by the table to deal at a forward price; and

    3. (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 the Table.

CIS 15.7.5R

Explanatory table: Forward or historic pricing. This table belongs to CIS 15.7.4 R.

FORWARD OR HISTORIC PRICING

Part 1: General Dealing

1.

Manager's choice. The prospectus must state the manager's choice for H or else for F Only.

2.

If the manager's current choice under 1 is F Only, all its deals must be at a forward price.

3.

A manager must not choose H if its normal arrangements for valuation envisage valuations more than one business day apart.

4.

The remainder of this table applies to a manager with a current choice of H.

5.

It may at any time elect for F Only in respect of the rest of the then current dealing period.

6.

If the manager binds itself to switch from H to F Only at a certain point in each dealing period, this must be stated in the prospectus.

7.

An election for (or switch to) F Only will last until the end of the dealing period and will then lapse.

8.

For general dealing purposes, redemptions must be on the same basis as sales.

Part 2: General Dealing - Duty To Adopt Forward Pricing

9.

Market movement: F Only applies once the manager having taken reasonable care decides that there would be a difference of 2% or more between the current value of the scheme property, if immediately valued, and its last calculated value (taking that as 100% for this purpose), but decides not to carry out an additional valuation under CIS 15.8.3 R (Valuation of scheme property).

10.

Valuation taking over 2 hours: F Only applies if a new price for units of each class has not been notified to the trustee after 2 hours.

11.

Paragraph (10) does not apply, if within two hours of the valuation point, the manager has notified the trustee of the basis (issue or cancellation) on which the next prices will be fixed, and of the spread (reckoned in percentage or money terms) between the maximum sale price and the minimum redemption price.

12.

F Only under (9) and (10) will start when the relevant moment arrives, will last until the end of the dealing period and will then lapse.

Part 3: Individual Deviations

13.

Paragraphs (14) to (17) apply to an individual transaction without affecting the general position arrived at under Parts 1 and 2.

14.

Request: F Only applies if the applicant for sale or redemption so requests.

15.

Large deals: F Only applies, if the manager so decides, for a large deal.

16.

Postal deals: F Only applies if the order or offer reaches the manager through the post or by any similar form of one-way communication.

17.

Issue or cancellation through the manager: F Only applies in the case of an issue or cancellation under CIS 15.5.3 R (Issues and cancellations through the manager).

Part 4: Notification to Trustee

18.

The manager must notify the trustee of the fact and time of any adoption of F only under (5) or Part 2.

CIS 15.7.6G

Explanatory diagram: Price at and after valuation point (This a diagram referred to in (CIS 15.7.3 G (4)))

CIS15_7_6