Content Options

COLL 6.2 Dealing

Application

COLL 6.2.1R
  1. (R

    This section applies to an authorised fund manager, a depositary, an ICVC and any other director of an ICVC.

Purpose

COLL 6.2.2G
  1. (1)

    This section helps in achieving the statutory objective of securing an appropriate degree of protection for consumers. In accordance with Principle 6, this section is also concerned with ensuring the authorised fund manager pays due regard to its clients' interests and treats them fairly.

  2. (2)

    An authorised fund manager of an AUT, ACS or ICVC7 is responsible for arranging for the issue and the cancellation of units for the authorised fund. An authorised fund manager of an AUT, ICVC or co-ownership scheme7 is permitted to sell and redeem units for its own account. An authorised fund manager of a limited partnership scheme is only permitted to sell and redeem units as agent for the scheme.7 The rules in this section are intended to ensure that the authorised fund manager treats the authorised fund fairly when arranging for the issue or cancellation of units, and treats clients fairly when they purchase or sell units.

    7
  3. (3)

    This section also sets out common standards for how the amounts in relation to unit transactions are to be paid. These arrangements include the initial offer of units, the exchange of units for scheme property and issues and cancellations of units by an ICVC, or by the depositary of an AUT or ACS7, carried out directly with the Unitholder.

    7
  4. (4)

    This section also sets out rules and guidance relating to the authorised fund manager's controls over the issue and cancellation of units including any box holdings.

  5. (5)

    The requirements in this section are to be applied separately to each sub-fund of a scheme which is an umbrella, and, if appropriate, the currency of a sub-fund may be used instead of the base currency of the umbrella.

Initial offers

COLL 6.2.3R
  1. (1)

    During the initial offer period, units may only be issued at the initial price.

  2. (2)

    The length of any initial offer should not be unreasonable when considered alongside the characteristics of the authorised fund.

  3. (3)

    The authorised fund manager must, as soon as practicable after receiving the initial price from the purchaser and no later than the fourth business day following the end of the initial offer, pay the depositary in respect2 of any unit it has agreed to sell during the period of the initial offer:

    2
    1. (a)

      2in the case of a single-priced authorised fund, the initial price of that unit; or

    2. (b)

      2in the case of a dual-priced authorised fund, the initial price of that unit less, where relevant, an amount not exceeding the amount of any preliminary charge stated in the prospectus.

  4. (4)

    The period of the initial offer comes to an end if the authorised fund manager reasonably believes the price that would reflect the current value of the scheme property would vary by more than 2% from the initial price.

Initial offer: guidance

COLL 6.2.4G
  1. (1)

    Details of any initial offer period must be provided in the relevant prospectus as described in COLL 4.2.5R (17)(h) (Table: contents of the prospectus).

  2. (2)

    It may be appropriate that the initial offer for a scheme operating limited issue or limited redemption arrangements, or intending to invest in illiquid assets, is longer than one for a scheme which does not have these features.

Issue and cancellation of units by an ICVC

COLL 6.2.5R
  1. (1)

    Units in an ICVC are issued or cancelled by the ACD making a record of the issue or cancellation and of the number of the units of each class concerned, and cannot be issued or cancelled in any other manner, unless COLL 3.2.6R (11) (Table: contents of the instrument constituting the fund8) applies.

    8
  2. (2)

    The time of the issue or cancellation under (1) is the time when the record is made.

Issue and cancellation of units in an AUT or ACS

COLL 6.2.6R
  1. (1)

    The depositary7 must issue or cancel units in an AUT or ACS7 when instructed by the authorised fund manager.7

    77
  2. (2)

    Any instructions given by the authorised fund manager7must 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).

    7
  3. (3)

    If the depositary7 is of the opinion that it is not in the interests of Unitholders that any units should be issued or cancelled7 or that to do so would not be in accordance with the trust deed, contractual scheme deed7 or prospectus, it must notify the authorised fund manager7 of that fact and it is then relieved of the obligation to issue or cancel those units.

    777

3Issue and cancellation of units in multiple classes

COLL 6.2.6AR

3If an authorised fund has two or more classes of unit in issue, the authorised fund manager may treat any or all of those classes as one for the purpose of determining the number of units to be issued or cancelled by reference to a particular valuation point, if:

  1. (1)

    the depositary gives its prior agreement; and

  2. (2)

    the relevant classes:

    1. (a)

      have the same entitlement to participate in, and the same liability for charges, expenses and other payments that may be recovered from, the scheme property; or

    2. (b)

      differ only as to whether income is distributed or accumulated by periodic credit to capital, provided the price of the units in each class is calculated by reference to undivided shares in the scheme property.

Issue and cancellation of units through an authorised fund manager

COLL 6.2.7R
  1. (1)

    The authorised fund manager may require, on agreement with the depositary, or may permit, on the request of the investor, direct issues and cancellations of units by an ICVC or by the depositary of an AUT or ACS7.

    7
  2. (2)

    If (1) applies:

    (a) the instrument constituting the fund8 must provide for this; and

    (b) the prospectus must provide details of the procedure to be followed which must be consistent with the rules in this section.

    8

Controls over the issue and cancellation of units

COLL 6.2.8R
  1. (1)

    An authorised fund manager must ensure that at each valuation point there are at least as many units in issue of any class as there are units registered to Unitholders for that class.

  2. (2)

    An authorised fund manager must not:

    1. (a)

      for an AUT or ACS7, when giving instructions to the depositary72 for the issue or cancellation of units; or

      27
    2. (b)

      for an ICVC, when arranging for the issue or cancellation of units;

    do, or omit to do, anything that2 would, or might, confer on itself2 or an associate a benefit or advantage at the expense of a Unitholder or a potential Unitholder.

  3. (3)

    For the purpose of (1), the authorised fund manager may take into account instructions to redeem units at the following valuation point received before any time agreed with the depositary for such purpose.

Controls over the issue and cancellation of units - guidance

COLL 6.2.9G
  1. (1)

    As the authorised fund manager normally controls the issue, cancellation, sale and redemption of an authorised fund's units, it occupies a position that could, without appropriate systems and controls, involve a conflict of interest between itself and its clients.

  2. (2)

    SYSC 3.1.1 R (Systems and controls) requires that a firm take reasonable care to establish and maintain such systems and controls as are appropriate to its business and Principle 8 requires a firm to manage conflicts of interest between itself and a customer fairly.

  3. (3)

    To manage the conflict of interest that arises, when an authorised fund manager gives an instruction to issue or cancel units, the price of the units should be calculated at the valuation point2before or after the instruction has been given, in accordance with (4).

  4. (4)

    An authorised fund manager should agree a period of time with the depositary during which it will give instructions to issue or cancel units. Where the authorised fund manager operates a box with the principal aim of making a profit, this period will be short (for example, two hours); otherwise a longer period (for example, up to the next valuation point but in all cases within 24 hours) may be acceptable, provided the principles in (2) are followed.

  5. (5)

    The last valuation point should be used for the pricing of units where instructions are given before the expiry of the period of time agreed in (4); otherwise the next valuation point should be used.

  6. (6)

    Where an in specie issue or cancellation occurs it should be undertaken using the next valuation point's price.

Modification to number of units issued or cancelled

COLL 6.2.10R
  1. (1)

    Any instruction for the issue or cancellation of units under COLL 6.2.5 R (Issue and cancellation of units by an ICVC) or COLL 6.2.6 R (Issue and cancellation of units in an AUT or ACS7) may be modified but only if the depositary agrees and has taken reasonable care to determine that:

    1. (a)

      the modification corrects an error in the instruction; and

    2. (b)

      the error is an isolated one.

  2. (2)

    Any error in (1) must be corrected within the payment period applicable under COLL 6.2.13 R (Payment for units issued) or COLL 6.2.14 R (Payment for cancelled units).

Compensation for box management errors

COLL 6.2.11R
  1. (1)

    Where the authorised fund manager has not complied with COLL 6.2.8 R (1) (Controls over the issue and cancellation of units), it must correct the error as soon as possible and must reimburse the authorised fund any costs it may have incurred in correcting the position.

  2. (2)

    The authorised fund manager need not reimburse the authorised fund when:

    1. (a)

      the amount under (1) is not, in the depositary's opinion, material to the authorised fund;

    2. (b)

      the authorised fund manager can demonstrate that it has effective controls in place over box management, including all of the areas that affect the figures which are included in the box management calculations; and

    3. (c)

      the requirements of COLL 6.2.10 R (Modification to number of units issued or cancelled) are complied with.

Box management errors guidance

COLL 6.2.12G

Explanatory table: This table belongs to COLL 6.2.2 G (4) (Purpose).

Correction of box management errors

1

Controls by authorised fund managers

An authorised fund manager needs to be able to demonstrate that it has effective controls over:

(1)

its calculations of what units are owned by it (its 'box'); and

(2)

compliance with COLL 6.2.8 R which is intended to prevent a negative box.

2

Controls by depositaries

(1)

Under COLL 6.6.4 (General duties of the depositary), a depositary should take reasonable care to ensure that a scheme2 is managed in accordance with COLL 6.2 (Dealing) and COLL 6.3 (Pricing and valuation).

(2)

A depositary should therefore make a regular assessment of the authorised fund manager's box management procedures (including supporting systems) and controls. This should include reviewing the authorised fund manager's controls and procedures when the depositary assumes office, on any significant change and on a regular basis, to ensure that a series of otherwise minor changes do not have a cumulative and a significant effect on the accuracy of the controls and procedures.

3

Recording and reporting of box management errors

(1)

An authorised fund manager should record all errors which result in a breach of COLL 6.2.8 R (Controls over the issue and cancellation of units) and as soon as an error is discovered, the authorised fund manager should report the fact to the depositary, together with details of the action taken, or to be taken, to avoid repetition of the error.

(2)

A depositary should report material box management errors to the FCA immediately. Materiality should be determined by taking into account a number of factors including:

  • the implications of the error for the sufficiency of controls put into place by the authorised fund manager;
  • the significance of any breakdown in the authorised fund manager's management controls or other checking procedures;
  • the significance of any failure of systems or back-up arrangements;
  • the duration of an error; and
  • the level of compensation due to the scheme, and an authorised fund manager's ability (or otherwise) to meet claims for compensation in full.

(3)

A depositary should also make a return to the FCA (in the manner prescribed by SUP 16.6.8 R) on a quarterly basis.

Payment for units issued

COLL 6.2.13R
  1. (1)

    The authorised fund manager must, by the close of business on the fourth business day following the issue of any units, arrange for payment to the depositary of an AUT or ACS7 or the ICVC of:2

    27
    1. (a)

      2in the case of a single-priced authorised fund, the price of the units and any payments required under 9COLL 6.3.8 R (Dilution); or

    2. (b)

      2in the case of a dual-priced authorised fund, the issue price of the units9.

  2. (2)

    The authorised fund manager must make the payment referred to in (1) in cash or cleared funds unless COLL 6.2.15 R (In specie issue and cancellation) applies.

  3. (3)

    Where the authorised fund manager has not complied with (1), it must reimburse the authorised fund for any lost interest unless the amount involved is not, in the depositary's opinion, material to the authorised fund.

Payment for cancelled units

COLL 6.2.14R
  1. (1)

    On cancelling units the authorised fund manager must, before the expiry of the fourth business day following the cancellation of the units or, if later, as soon as practicable after delivery to the depositary of the AUT or ACS7 or the ICVC of such evidence of title to the units as it may reasonably require, require the depositary to pay:2

    7
    1. (a)

      2in the case of a single-priced authorised fund, the price of the units (less any deduction required under 9COLL 6.3.8 R); or

    2. (b)

      2in the case of a dual-priced authorised fund, the cancellation price of the units9;

    to the authorised fund manager or, where relevant, the Unitholder or, for a relevant pension scheme, in accordance with the relevant provisions of the trust deed or contractual scheme deed7.

  2. (2)

    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 restriction in COLL 5 (Investment and borrowing powers)) within the period in (1), that period is extended, for any relevant currency, until the shortage is rectified.

  3. (3)

    If (2) applies, the authorised fund manager must take reasonable steps to rectify the currency shortage as quickly as possible.

  4. (4)

    This rule does not apply where COLL 6.2.15 R is in operation.

  5. (5)

    Nothing in this section requires an ICVC, a depositary or an authorised fund manager to part with money or to transfer scheme property for a cancellation or redemption of units where any money due on the earlier issue or sale of those units has not been received.

In specie issue and cancellation

COLL 6.2.15R

The depositary may take into or pay out of scheme property assets other than cash2 as payment for the issue or cancellation of units2 but only if:

  1. (1)

    it has taken reasonable care to ensure that the property concerned would not be likely to result in any material prejudice to the interests of Unitholders; and

  2. (2)

    the instrument constituting the fund8 so provides.

    8

Sale and redemption

COLL 6.2.16R
  1. (1)

    In accordance with COLL 4.2.5R (17) (Table: contents of the prospectus), the authorised fund manager must describe the arrangements for the sale and redemption of units in the prospectus.

  2. (2)

    The authorised fund manager must, at all times during the dealing day, be willing to effect the sale of units in the authorised fund, in accordance with the conditions in the instrument constituting the fund8 and the prospectus unless:

    8
    1. (a)

      it has reasonable grounds to refuse such sale; or

    2. (b)

      the issue2 of units2 is prevented under COLL 6.2.18 R (Limited issue).

  3. (3)

    Subject to COLL 6.2.19 R (Limited redemption) and COLL 6.2.21 R (Deferred redemption), the authorised fund manager must, at all times during the dealing day, on request of any qualifying Unitholder, effect the redemption of units in accordance with the conditions in the instrument constituting the fund8 and the prospectus unless it has reasonable grounds to refuse such redemption.

    8
  4. (4)

    On agreeing to a redemption of units in (3), the authorised fund manager must pay the Unitholder the appropriate proceeds of redemption within the period specified in (5) unless the authorised fund manager has reasonable grounds for withholding all or any part of the proceeds.

  5. (5)

    Except where (5A) applies the5 period in (4) expires at the close of business on the fourth business day following the later of:

    5
    1. (a)

      the valuation point at which the price for the redemption was determined; or

    2. (b)

      the time when the authorised fund manager has all the duly executed instruments and authorisations to effect (or enable the authorised fund manager to effect) the transfer of title to the units.

  6. (5A)

    5Where a non-UCITS retail scheme operating as a FAIF operates limited redemption arrangements, the period in (4) expires no later than the expiry of a period of 185 days from the date of receipt and acceptance of the instruction to redeem.

  7. (6)

    Except where (7) applies, and subject to COLL 6.2.21 R (Deferred redemption), the authorised fund manager must sell or redeem units at a price determined no later than the end of the business day immediately following the receipt and acceptance of an instruction to do so, or at the next valuation point for the purposes of dealing in 2units if later9.

    2
  8. (7)

    Where the authorised fund operates limited redemption arrangements, the authorised fund manager must sell or redeem units at a price2 determined no later than the expiry of a period of 185 days from the date of the receipt and acceptance of the instruction to sell or redeem.

  9. (8)

    [deleted]2

    2
  10. (9)

    [deleted]2

    2
  11. (10)

    Paragraphs (4), (5) and COLL 6.3.5AR (2) (Sale and redemption prices for single-priced authorised funds)2 do not apply where the authorised fund manager of an AUT or ICVC7 is buying units2 as principal on an investment exchange (for an AUT in accordance with a power in the trust deed) and settlement will be made in accordance with the rules of that exchange.

    2

Sale and redemption: guidance

COLL 6.2.17G
  1. (1)

    The prospectus of an authorised fund9 may allow the authorised fund manager to identify a point in time in advance of a valuation point (a cut-off point) after which it will not accept instructions to sell or redeem units2 at that valuation point. In order to protect customers' interests, the cut-off point should be no earlier than the close of business on the business day before the valuation point it relates to. If there is more than one valuation point in a day the cut-off should not be before any previous valuation point.

  2. (2)

    Where the authorised fund operates limited redemption arrangements, the cut-off point may reflect the expected length of time required to undertake transactions in the underlying investments provided the 185 day limit in COLL 6.2.16 R (7) (Sale and redemption) is complied with.

  3. (3)

    Where (1) applies, different cut-off points may be used to differentiate between the methods of submitting instructions to sell or redeem to the authorised fund manager but not to differentiate between Unitholders or potential Unitholders.

  4. (4)

    6CESR's guidelines on a common definition of European money market funds recommend that, for a UCITS scheme which is a short-term money market fund or a money market fund, the settlement period in COLL 6.2.16 R (5) should expire at the close of business on the third business day.

Limited issue

COLL 6.2.18R
  1. (1)

    If an authorised fund limits the issue of any class of unit, the prospectus of an authorised fund must provide for the circumstances and conditions when units will be issued.

  2. (2)

    Where (1) applies, the authorised fund manager may not provide for the further issue of units unless, at the time of the issue2, it2is satisfied on reasonable grounds that the proceeds of that subsequent issue can be invested without compromising the scheme's investment objective or materially prejudicing existing Unitholders.

  3. (3)

    Within a scheme, unit classes may operate different arrangements for the issue of units provided there is no prejudice to the interests of any Unitholder.

Limited redemption

COLL 6.2.19R
  1. (1)

    The instrument constituting the fund8 and the prospectus of a non-UCITS retail scheme2 operating as a FAIF, or5 that invests substantially in immovables2 or whose investment objective is to provide a specified level of return, may provide for limited redemption arrangements appropriate to its aims and objectives.

    8
  2. (2)

    Where (1) applies, the scheme must provide for sales and5 redemptions at least once in every six months.

  3. (3)

    Within a scheme, unit classes may operate different arrangements for sales and redemptions5 of units provided there is no prejudice to the interests of any Unitholder.

    5
  4. (4)

    5The scheme may provide for sales of units of any class to be executed at a greater frequency than redemptions of units of the same class.

Limited redemption: guidance

COLL 6.2.20G

The conditions for limited redemption arrangements in COLL 6.2.19 R should be considered, for AUTs and ACSs7 as well as for ICVCs, in conjunction with PERG 91 (Meaning of an open-ended investment company) and PERG 9.81 (The investment condition: the 'expectation test' (section 236(3)(a) of the Act)).

Deferred redemption

COLL 6.2.21R
  1. (1)

    Subject to (1A) and (3) the5 instrument constituting the fund8 and the prospectus of an authorised fund which has at least one valuation point on each business day, may permit deferral of redemptions at a valuation point to the next valuation point where the requested redemptions exceed 10%, or some other reasonable proportion disclosed in the prospectus, of the authorised fund's value.

    58
  2. (1A)

    5Subject to (3) the instrument constituting the fund8 and the prospectus of a non-UCITS retail scheme operating as a FAIF may permit deferral of redemptions at a valuation point to a following valuation point where the requested redemptions exceed 10%, or some other reasonable proportion disclosed in the prospectus, of the authorised fund's value.

    8
  3. (2)

    Any deferral of redemptions under (1) or (1A)5 must be undertaken in accordance with the procedures explained in the prospectus which must ensure:

    1. (a)

      the consistent treatment of all Unitholders who have sought to redeem units2 at any valuation point at which redemptions2are deferred; and

    2. (b)

      that all deals relating to an earlier valuation point are completed before those relating to a later valuation point are considered.

  4. (3)

    5Any deferral under (1A) is subject to the limitations on payments to Unitholders in COLL 6.2.16 R (5A).

Deferred redemption: guidance

COLL 6.2.22G

In times of high levels of redemption, deferred redemption will enable the authorised fund manager to protect the interests of continuing Unitholders by allowing it to match the sale of scheme property to the level of redemptions. This should reduce the impact of dilution on the scheme.

Property Authorised Investment Funds

COLL 6.2.23R
  1. (1)

    4The authorised fund manager of a property authorised investment fund must take reasonable steps to ensure that no body corporate holds more than 10% of the net asset value of that fund (the "maximum allowable").

  2. (2)

    Where the authorised fund manager of a property authorised investment fund becomes aware that a body corporate holds more than the maximum allowable, he must:

    1. (a)

      notify the body corporate of that event;

    2. (b)

      not pay any income distribution to the body corporate; and

    3. (c)

      redeem or cancel the body corporate's holding down to the maximum allowable within a reasonable time-frame.

  3. (3)

    For the purpose of (2)(c), a reasonable time-frame means the time-frame which the authorised fund manager reasonably considers to be appropriate having regard to the interests of the Unitholders as a whole.

COLL 6.2.24G

4Reasonable steps to monitor the maximum allowable include:

  1. (1)

    regularly reviewing the register; and

  2. (2)

    taking reasonable steps to ensure that Unitholders are kept informed of the requirement that no body corporate may hold more than 10% of the net asset value of a property authorised investment fund.