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CIS 4.7 Forward and historic pricing

Application

CIS 4.7.1R

This section (CIS 4.7) applies to authorised fund managers.

Purpose

CIS 4.7.2G

This section (CIS 4.7) 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.

Explanation

CIS 4.7.3G
  1. (1)

    There are two ways in which an authorised fund manager may sell or redeem units; these are at forward and historic prices. A forward price is one which will 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 The investor knows, by contrast, that an historic deal may well represent a price which is outdated (though not by more than 2%), but is able to know, at the time of the deal, how much he must pay (or will receive) or the time of the valuation which will be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 authorised fund manager chooses to deal in that way. Issues or cancellations by the authorised fund manager under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager) are always at a forward price.

  4. (4)

    The diagram in CIS 4.7.6 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 4.7.5, and also of earlier provisions in this chapter, including CIS 4.3.11 R(4) to (7) (Price of a unit).

Forward and historic pricing

CIS 4.7.4R
  1. (1)

    For the sale and redemption of units, the authorised fund manager must, subject to this rule (CIS 4.7.4 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 4.7.5.

  2. (2)

    If the prices for the sale and redemption of units in any sub-fund of an umbrella scheme are on a forward basis, the prices for the sale and redemption of units related to all sub-funds of that umbrella scheme must be on a forward basis; but this paragraph (2) does not apply merely because of a requirement to price on a forward basis temporarily under Part 2 or Part 3 of CIS 4.7.5.

  3. (3)

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

  4. (4)

    CIS 4.7.5 does not apply during the period of initial offer at a fixed price. In CIS 4.7.5:

    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 authorised fund 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 CIS 4.7.5.

CIS 4.7.5
1

Forward or historic pricing

This table belongs to CIS 4.7.4 R

Forward or historic pricing

Part 1: General Dealing

1.

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

2.

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

3.

An authorised fund 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 an authorised fund 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 authorised fund 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 authorised fund manager knows or has reason to believe 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 4.8.6 R (Additional valuation points).

10.

Valuation taking over 2 hours. F Only applies if a new price for units of each class has not been notified to the depositary after 2 hours (or such longer period as the depositary may agree with the authorised fund manager generally or in any specific case) from the valuation point.

11.

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

12.

Paragraphs 13 to 16 apply to an individual transaction without affecting the general position arrived at under Parts 1 and 2.

13.

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

14.

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

15.

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

16.

Issue or cancellation through the authorised fund manager F Only applies in the case of an issue or cancellation under CIS 4.5.3 R (Issues and cancellations through the authorised fund manager).

Part 4: Notification to Depositary

17.

The authorised fund manager must notify the depositary of the fact and time of any adoption of F only under 5 or Part 2.