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CIS 4.3 Issue and cancellation

Application

CIS 4.3.1R

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 4.3.2G

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 4.3.3R
  1. (1)

    This rule (CIS 4.3.3 R) applies to ICVCs and to ACDs and depositaries of ICVCs.

  2. (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. (3)

    The time of the issue or cancellation under (2) is the time when the record is made.

  4. (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. (5)

    The ACD may arrange for the ICVC to issueshares 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. (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 4.3.4R
  1. (1)

    This rule (CIS 4.3.4 R) applies to managers and trustees.

  2. (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. (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. (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:

    1. (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;

    2. (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. (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 4.3.5R
  1. (1)

    This rule (CIS 4.3.5 R) applies to managers and trustees of AUTs.

  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 shares or limited issue units or that it is not in the interests of Unitholders that:2

    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 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 4.3.6R
  1. (1)

    This rule (CIS 4.3.6 R) applies to managers and trustees of AUTs.

  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; and

    2. (b)

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

  3. (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. (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 4.3.7R
  1. (1)

    This rule (CIS 4.3.7 R) applies to authorised fund managers.

  2. (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. (3)

    The authorised fund manager must, by the close of business on the fourth business day following the issue of any units:

    1. (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

    2. (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. (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 4.3.8G
  1. (1)

    This guidance (CIS 4.3.8 G) applies to authorised fund managers.

  2. (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. (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:

    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 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 to meet authorised fund manager's obligation to sell

CIS 4.3.9R
  1. (1)

    This rule (CIS 4.3.9 R) applies to authorised fund managers.

  2. (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:

    1. (a)

      the expiry of two hours since the valuation point; or

    2. (b)

      the next valuation point;

    to issueunits 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. (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 4.3.10R
  1. (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. (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. (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. (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. (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. (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):

    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 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. (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.2

  9. (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 4.3.11R
  1. (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. (2)

    The price of a unit of any class must, subject to (3), be calculated as follows:

    1. (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;

    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);

    4. (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

    5. (e)

      Except for smaller denomination shares, express the price in a form that is accurate to at least four significant figures.1

  3. (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. (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. (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. (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. (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:

    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 not issue or cancel the units before the next valuation point has been reached.

Modification to number of units issued or cancelled

CIS 4.3.12R
  1. (1)

    This rule applies to authorised fund managers and depositaries.

  2. (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:

    1. (a)

      the authorised fund manager ensures that any appropriate consequential payment between the authorised fund manager and the depositary is made; and

    2. (b)

      the requirements of (3) are satisfied.

  3. (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:

    1. (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

    2. (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. (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).