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CIS 4.2 Initial offers

Application

CIS 4.2.1R

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 4.2.2G

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 4.2.3R
  1. (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. (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 4.2.4R
  1. (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. (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. (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. (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. (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. (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. (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 4.2.5R
  1. (1)

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

    1. (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

    2. (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. (2)

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

    1. (a)

      agreeing to sell units at the initial price; and

      1. (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

      2. (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. (3)

    The current price of a unit for the purpose of (1):

    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

    2. (b)

      must not include any dilution adjustment.1