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COLL 3.3 Units

Application

COLL 3.3.1R

This section applies to an authorised fund manager, an ICVC and the depositary4 of an AUT or ACS.4

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Classes of units

COLL 3.3.2G
  1. (1)

    The instrument constituting the fund5 may provide for different classes of unit to be issued in an authorised fund and, for a scheme which is an umbrella, provide that classes of units may be issued for each sub-fund.

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  2. (2)

    In order to be satisfied that COLL 3.2.2 R (Relationship between the Instrument constituting the fund5and the rules) is complied with, the FCA will take into account the principles in (a) to (c) when considering proposals for unit classes:

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    1. (a)

      a unit class should not provide any advantage for that class if that would result in prejudice to Unitholders of any other class;

    2. (b)

      the nature, operation and effect of the new unit class should be capable of being explained clearly to prospective investors in the prospectus; and

    3. (c)

      the effect of the new unit class should not appear to be contrary to the purpose of any part of this sourcebook.

Currency class units

COLL 3.3.3G

A currency class unit differs from other units mainly in that its price, having been calculated initially in the base currency, will be quoted, and normally paid for, in the currency of the designation of the class. Income distributions will also be paid in the currency of designation of the class.

Currency class units: requirements

COLL 3.3.4R

For a currency class unit:

  1. (1)

    the currency of the class concerned must not be the base currency (or, in the case of a sub-fund which, in accordance with a statement in the prospectus, is to be valued in some other currency, the currency of the class may be in the base currency, but must not be in that other currency);

  2. (2)

    the price must be expressed in the currency of the class concerned;

  3. (3)

    any distribution must be paid in the currency of the class concerned; and

  4. (4)

    statements of amounts of money or values included in statements and in tax certificates must be given in the currency of the class concerned (whether or not also given in the base currency).

Rights of unit classes

COLL 3.3.5R
  1. (1)

    If any class of units in an authorised fund has different rights from another class of units in that fund, the instrument constituting the fund5 must provide how the proportion of the value of the scheme property and the proportion of income available for allocation attributable to each such class must be calculated.

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  2. (2)

    For an authorised fund which is not an umbrella, the instrument constituting the fund5 must not provide for any class of units in respect of which:

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    1. (a)

      the extent of the rights to participate in the capital property, income property or distribution account would be determined differently from the extent of the corresponding rights for any other class of units; or

    2. (b)

      payments or accumulation of income or capital would differ in source or form from those of any other class of units.

  3. (3)

    For a scheme which is an umbrella, the provisions in (2)(a) apply to classes of units in respect of each sub-fund as if each sub-fund were a separate scheme.

  4. (4)

    Paragraphs (2) and (3) do not prohibit a difference between the rights attached to one class of units and to another class of units that relates solely to:

    1. (a)

      the accumulation of income by way of periodical credit to capital rather than distribution; or

    2. (b)

      charges and expenses that may be taken out of the scheme property or payable by the Unitholders; or

    3. (c)

      the currency in which prices or values are expressed or payments made; or1

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    4. (d)

      the use of derivatives and forward transactions entered into for the purpose of reducing the effect of fluctuations in the rate of exchange between the currency of a class of units 2

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      and either the base currency of the scheme or any currency in which all or part of the scheme property is denominated or valued (in this section referred to as a "

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      class hedging transaction").1

Hedging of unit classes2

COLL 3.3.5AR

1A class hedging transaction must:

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  1. (1)

    be undertaken in accordance with the requirements of COLL 5 (Investment and borrowing powers); and

  2. (2)

    (for the purposes of valuing scheme property and calculating the price of units in accordance with COLL 6.3 (Valuation and pricing)) be attributed only to the class of units 2for which it is undertaken.

Guidance on hedging of unit2 classes

COLL 3.3.5BG
  1. (1)

    1Before undertaking a class hedging transaction for a class of units, the authorised fund manager should:

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    1. (a)

      ensure that the relevant prospectus clearly:

      1. (i)

        states that such a transaction may be undertaken for the relevant class of units2; and

      2. (ii)

        explains the nature of the risks that such a transaction may pose to investors in all classes;

    2. (b)

      consult the depositary about the adequacy of the systems and controls it uses to ensure compliance with COLL 3.3.5A R (Hedging of unit classes2); and

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    3. (c)

      consult the scheme auditor and, where appropriate, depositary to determine how:

      1. (i)

        the transaction will be treated in the scheme's accounts; and

      2. (ii)

        any consequential tax liability will be met;

      (in each case) without prejudice to Unitholders of classes other than the relevant hedged 2class.

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  2. (2)

    Class2 hedging transactions should be entered into for the purpose of reducing risk by limiting the effect of movements in exchange rates on the value of a unit. Such transactions are not limited to currency class units.2 The authorised fund manager should ensure that the total value of the hedged position does not exceed the value of the relevant class of units 2unless there is adequate cover and it is reasonable for it to do so on a temporary basis for reasons of efficiency (for example, to avoid the need to make small and frequent adjusting transactions). In such cases, the difference between the value of the hedged position and the value of the class of units 2should not be so large as to be speculative or to constitute an investment strategy.

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Requirement: larger and smaller denomination shares in an ICVC

COLL 3.3.6R
  1. (1)

    This rule applies whenever the instrument of incorporation of an ICVC provides, in relation to any class, for smaller denomination shares and larger denomination shares.

  2. (2)

    Whenever a registered holding includes a number of smaller denomination shares that can be consolidated into a larger denomination share of the same class, the ACD must consolidate the relevant number of those smaller denomination shares into a larger denomination share.

  3. (3)

    The ACD may, to effect a transaction in shares, substitute for a larger denomination share the relevant number of smaller denomination shares, in which case (2) does not apply to the resulting smaller denomination shareholding or holdings until immediately after the completion of the transaction.

Characteristics of larger and smaller denomination shares in an ICVC

COLL 3.3.7G

Regulation 45 of the OEIC Regulations (Shares) allows the rights attached to a share in an ICVC of any class to be expressed in two denominations, in which case the 'smaller' denomination must be such proportion of the 'larger' denomination (a standard share) as is fixed by the ICVC's instrument of incorporation as described in COLL 3.2.6R (19). This will enable holdings to consist of more or less than a complete number of larger denomination shares.

Sub-division and consolidation of units

COLL 3.3.8R

  1. (1)

    The directors of an ICVC or the authorised fund manager4 of an AUT or ACS4 may, unless expressly forbidden to do so by the instrument constituting the fund,5 determine that:

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    1. (a)

      each unit of any class is to be subdivided into two or more units; or

    2. (b)

      units of any class are to be consolidated.

  2. (2)

    The ICVC or theauthorised fund manager of an AUT or ACS4 must (unless it has done so before the sub-division or consolidation became effective) immediately give notice to each Unitholder (or the first named of joint Unitholders) of any sub-division or consolidation under (1).

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Guarantees and capital protection

COLL 3.3.9R

If there is any arrangement intended to result in a particular capital or income return from a holding of units in an authorised fund, or any investment objective of giving protection to the capital value of, or income return from, such a holding:

  1. (1)

    that arrangement or protection must not be such as to cause the possibility of a conflict of interest as between:

    1. (a)

      Unitholders and the authorised fund manager or depositary; or

    2. (b)

      Unitholders intended and not intended to benefit from the arrangement; and

  2. (2)

    where, in accordance with any statement required by COLL 4.2.5R (27)(c)(iv) (Table: contents of the prospectus), action is required by the Unitholders to obtain the benefit of any guarantee, the authorised fund manager must provide reasonable notice in writing to Unitholders before such action is required.

Switching rights: umbrella schemes

COLL 3.3.10G
  1. (1)

    In accordance with section 235(4) of the Act (Collective investment schemes), the participants in a scheme which is an umbrella are entitled to exchange rights in one sub-fund for rights in another sub-fund of the umbrella.

  2. (2)

    To satisfy (1), where any sub-fund in a scheme which is an umbrella has provisions in its prospectus limiting the issue of units in that sub-fund, the authorised fund manager should ensure that at least two sub-funds are able to issue units at any time. In the case of an umbrella consisting of a single sub-fund that limits the issue of units, where the ICVC or the authorised fund manager of an AUT or co-ownership scheme4 of such an umbrella intends to offer additional sub-funds, it should ensure that Unitholders will have the right to switch at all times between two or more sub-funds in that umbrella.3

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