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CIS 5A.2 General investment powers and limits for authorised funds

Application

CIS 5A.2.1 R

This section (CIS 5A.2) applies to authorised fund managers, except :

  1. (1)

    CIS 5A.2.13 R (Significant influence for ICVCs), which applies only to ICVCs;

  2. (2)

    CIS 5A.2.14 R (Significant influence for managers of AUTs), which applies only to managers of AUTs; and

  3. (3)

    CIS 5A.2.15 R (Concentration), which also applies to ICVCs.

Explanation of CIS 5A.2

CIS 5A.2.2 G

This section outlines some general investment rules, with which all authorised funds must comply, in order to ensure that they adhere to the same common standards. In line with requirements of the UCITS directive, this section also contains rules which would prevent an ICVC and a manager of an AUT from exercising influence over a body corporate.

Prudent spread of risk

CIS 5A.2.3 R

An authorised fund manager must ensure that, taking account of the investment objectives and policy of the authorised fund as stated in the most recently published prospectus of the authorised fund, the scheme property of the authorised fund aims to provide a prudent spread of risk.

Investment powers: general

CIS 5A.2.4 R
  1. (1)

    The scheme property of an authorised fund may, subject to the rules in this chapter, comprise any assets or investments to which it is dedicated. For ICVCs, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.

  2. (2)

    The scheme property of each authorised fund must be invested only in accordance with the relevant provisions in this chapter that are applicable to that authorised fund and within any upper limit in this chapter. However, the instrument constituting the scheme may further restrict:

    1. (a)

      the kind of property in which the scheme property may be invested;

    2. (b)

      the proportion of the capital property of the authorised fund to be invested in assets of any description;

    3. (c)

      the descriptions of transactions permitted; and

    4. (d)

      the borrowing powers of the authorised fund.

Valuation

CIS 5A.2.5 R
  1. (1)

    In this chapter, the value of the scheme property of an authorised fund means the net value of the scheme property determined in accordance with CIS 4.8 (Valuation) (for ICVCs and single-priced AUTs) or CIS 15.8 (Valuation) (for dual-priced AUTs), after deducting any outstanding borrowings (including, in the case of a property scheme, any capital outstanding on a mortgage of an immovable), whether immediately due to be repaid or not.

  2. (2)

    When valuing the scheme property for this chapter:

    1. (a)

      the time as at which the valuation is being carried out ("the relevant time") is treated as if it were a valuation point, but the valuation and the relevant time do not count as a valuation or a valuation point for the purposes of CIS 4 (for ICVCs and single-priced AUTs) and CIS 15 (for dual-priced AUTs);

    2. (b)

      initial outlay is regarded as remaining part of the scheme property;

    3. (c)

      if the authorised fund manager having taken reasonable care determines that the authorised fund will become entitled to any unrealised profit which has been made on account of a transaction in derivatives, that prospective entitlement is regarded as part of the scheme property; and

    4. (d)

      for a dual-priced AUT, CIS 15.8.4 R (Valuation) applies to any valuation of the scheme property for the purposes of this chapter, and in applying CIS 15.8.4 R (Valuation):

      1. (i)

        the cancellation basis only is required; and

      2. (ii)

        paragraphs 1 to 8, 11 and 23 are not applicable.

Valuation

CIS 5A.2.6 G

It should be noted that for the purpose of CIS 5A.2.5 R, CIS 4.8 or CIS 15.8 may be affected by specific provisions in this chapter such as, for example, CIS 5A.14.6 R (Stock lending: treatment of collateral) or CIS 12 (Special provisions for certain categories of scheme).

Chapter to be construed as a whole

CIS 5A.2.7 R
  1. (1)

    Where a rule in this chapter allows a transaction to be entered into or an investment to be retained only if possible obligations arising out of the investment transactions or out of the retention would not cause any breach of any limits in this chapter:

    1. (a)

      it must be assumed that the maximum possible liability of the authorised fund under any other of those rules has also to be provided for; and

    2. (b)

      the scheme property must be valued in accordance with CIS 4.8 (Valuation) (for ICVCs and single-priced AUTs) or CIS 15.8 (Valuation) (for dual-priced AUTs).

  2. (2)

    Where a rule in this chapter permits an investment transaction to be entered into or an investment to be retained only if that investment transaction, or the retention, or other similar transactions, are covered:

    1. (a)

      it must be assumed that in applying any of those rules, the authorised fund must also simultaneously satisfy any other obligation relating to cover; and

    2. (b)

      no element of cover must be used more than once.

Examples

CIS 5A.2.8 G

Examples of the "provisions" referred to in CIS 5A.2.7 R(1) are: CIS 5A.4.6 R (Investment in warrants and nil and partly paid securities) and CIS 5A.15.7 R (General power to accept or underwrite placings).

Transferable securities

CIS 5A.2.9 R
  1. (1)

    An investment is not a transferable security if the title to it cannot be transferred, or can be transferred only with the consent of a third party.

  2. (2)

    In applying (1) to an investment which is issued by a body corporate, and which is an investment falling within articles 76 (Shares, etc) or 77 (Instruments creating or acknowledging indebtedness) of the Regulated Activities Order, the need for any consent on the part of the body corporate or any members or debenture holders of it may be ignored.

  3. (3)

    An investment is not a transferable security unless the liability of the holder of it to contribute to the debts of the issuer is limited to any amount for the time being unpaid by the holder of it in respect of the investment.

Investment in associated collective investment schemes

CIS 5A.2.10 R

Units in a collective investment scheme do not fall within CIS 5A.4.5 R (Securities Schemes : Investment in collective investment schemes), CIS 5A.5.3 R (2)(e) (Money market schemes: general), CIS 5A.6.7 R (Investment in collective investment schemes) (for futures and options schemes), CIS 5A.7.8 R (for geared futures and options schemes) or CIS 5A.8.7 R (for property schemes) if that collective investment scheme is managed or operated by (or, if it is an ICVC, has as its ACD) the authorised fund manager of the investing authorised fund or an associate of that authorised fund manager, unless:

  1. (1)

    the instrument constituting the scheme in which the authorised fund is investing states that investment by that scheme will be restricted or specialised in terms of a particular geographic area or economic sector;

  2. (2)

    the instrument constituting the scheme of the investing authorised fund and its prospectus clearly state that the property of the investing authorised fund may include such units; and

  3. (3)

    CIS 5A.2.11 R (Investment in other group schemes) is complied with.

Investment in other group schemes

CIS 5A.2.11 R
  1. (1)

    An authorised fund must not invest in or dispose of units in another collective investment scheme (the second scheme), which is managed or operated by (or in the case of an ICVC, whose ACD is):

    1. (a)

      the authorised fund manager of such authorised fund; or

    2. (b)

      an associate of that authorised fund manager;

    unless the authorised fund manager of the authorised fund is under a duty to pay to the authorised fund by the close of business on the fourth business day next after the agreement to buy or to sell the amount referred to in (2) and (3).

  2. (2)

    On investment, either:

    1. (a)

      any amount by which the consideration paid by the authorised fund for the units in the second scheme exceeds the price that would have been paid for the benefit of the second scheme had the units been newly issued or sold by it; or

    2. (b)

      if such price cannot be ascertained by the authorised fund manager of the authorised fund, the maximum amount of any charge permitted to be made by the seller of units in the second scheme.

  3. (3)

    On disposal, the amount of any charge made for the account of the authorised fund manager or operator of the second scheme or an associate of any of them in respect of the disposal.

  4. (4)

    In (1), (2) and (3):

    1. (a)

      any addition to or deduction from the consideration paid on the acquisition or disposal of units in the second scheme, which is applied for the benefit of the second scheme and is, or is like, a dilution levy made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or SDRT provision made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or CIS 15.6.3 R (for dual-priced AUTs) is to be treated as part of the price of the units and not as part of any charge; and

    2. (b)

      any charge made in respect of an exchange of units in one sub-fund or separate part of the second scheme for units in another sub-fund or separate part of that scheme is to be included as part of the consideration paid for the units.

Investment in other collective investment schemes: interpretation

CIS 5A.2.12 R

Where a reference to an authorised fund of a particular type is made in CIS 5A.5.3 R (2)(e) (Money market schemes: general), CIS 5A.6.7 R (Investment in collective investment schemes) (for futures and options schemes), CIS 5A.7.8 R (for geared futures and options schemes) or CIS 5A.8.7 R (for property schemes), that reference is to be treated as a reference also to: 1

  1. (1)

    a sub-fund which would, if it were the subject of a separate authorisation order be an authorised fund of that particular type; and1

  2. (2)

    a separate part of a recognised scheme that is equivalent to a sub-fund within (1).

Significant influence for ICVCs

CIS 5A.2.13 R
  1. (1)

    An ICVC must not acquire transferable securities issued by a body corporate and carrying rights to vote (whether or not on substantially all matters) at a general meeting of that body corporate if:

    1. (a)

      immediately before the acquisition, the aggregate of any such securities held by the ICVC gives the ICVC power significantly to influence the conduct of business of that body corporate; or

    2. (b)

      the acquisition gives the ICVC that power.

  2. (2)

    For the purpose of (1), an ICVC is to be taken to have power significantly to influence the conduct of business of a body corporate if it can, because of the transferable securities held by it, exercise or control the exercise of 20% or more of the voting rights in that body corporate (disregarding for this purpose any temporary suspension of voting rights in respect of the transferable securities of that body corporate).

  3. (3)

    This rule (CIS 5A.2.13 R) does not apply to investment by a property scheme in property related assets.

Significant influence for managers of AUTs

CIS 5A.2.14 R
  1. (1)

    A manager must not acquire, or cause to be acquired for an AUT of which it is the manager, transferable securities issued by a body corporate and carrying rights to vote (whether or not on substantially all matters) at a general meeting of the body corporate if:

    1. (a)

      immediately before the acquisition, the aggregate of any such securities held for that AUT, taken together with any such securities already held for other AUTs of which it is also the manager, gives the manager power significantly to influence the conduct of business of that body corporate; or

    2. (b)

      the acquisition gives the manager that power.

  2. (2)

    In (1), a manager is to be taken to have power significantly to influence the conduct of business of a body corporate if it can, because of the transferable securities held for all the AUTs of which it is the manager, exercise or control the exercise of 20% or more of the voting rights in that body corporate (disregarding for this purpose any temporary suspension of voting rights in respect of the transferable securities of that body corporate).

  3. (3)

    This rule (CIS 5A.2.14 R) does not apply to investment by a property scheme in property related assets.

Concentration

CIS 5A.2.15 R

An authorised fund must not hold:

  1. (1)

    transferable securities (other than debt securities) which:

    1. (a)

      do not carry a right to vote on any matter at a general meeting of the body corporate that issued them; and

    2. (b)

      represent more than 10% of those securities issued by that body corporate;

  2. (2)

    more than 10% of the debt securities issued by any single issuing body; and

  3. (3)

    except in the case of a fund of funds scheme and a feeder fund, more than 10% of the units in a collective investment scheme.

CIS 5A.2.16 G

In accordance with CIS 12.5.7 R (Investment and borrowing powers), CIS 5A.2.13 R, CIS 5A.2.14 R and CIS 5A.2.15 R will apply only at the level of the umbrella scheme.