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COB 7.11 Non-exchange traded securities

Application

COB 7.11.1R

This section applies to a firm that conducts designated investment business with or for a privatecustomer and:

  1. (1)

    sells to the customer any security that is not traded on a recognised investment exchange, a designated investment exchange or any regulated market; and

  2. (2)

    holds itself out as a market maker in that security.

Purpose

COB 7.11.2G

This section aims to ensure that a firmdeals fairly with a private customer in relation to the sale and subsequent purchase of a non-exchange traded security.

Requirement for selling non-exchange traded securities to private customers

COB 7.11.3R

A firm must:

  1. (1)

    give written notice to a private customer, no later than the time of sale, that:

    1. (a)

      a reasonable price for repurchase of the security will be available to the private customer for a period, specified in that notice, that must not be less than three months from the date the notice is given; and

    2. (b)

      sale by the private customer of the security after the end of that period may be difficult due to the nature and possible illiquidity of the security; and

  2. (2)

    ensure that a reasonable price is available to the private customer for the duration of the period specified in the notice.

COB 7.11.4G

In establishing a reasonable price a firm should consider factors that are of direct relevance to the particular security, for example that a company has announced (unanticipated) substantially increased profits.

COB 7.11.5G

Factors that the firm took into account when the original sale was done should, if these remain unchanged, be taken into account in the same way when the price is established for the purchase of the security back from the private customer. Firms should take care to ensure that fluctuations in price are not solely or mainly justified by reference to an absence of liquidity, unless this reflects factors that are directly relevant to the particular security.