• COLL 7 COLL 7 Investment and Borrowing—QFC Retail Schemes

    • COLL Part 7.1 COLL Part 7.1 Investment and borrowing introduction—QFC retail schemes

      • COLL 7.1.1 Objects of Ch 7—QFC Retail Schemes

        (1) The objects of this chapter include helping to protect investors in QFC retail schemes by providing minimum standards for the investments that may be held by a QFC retail scheme.
        (2) In particular, this chapter—
        (a) restricts the proportion of the scheme property of a QFC retail scheme that may be held in transferable securities that are not approved securities and derivatives that are not approved derivatives; and

        Note Approved security is defined in r 7.1.9 and approved derivative is defined in r 7.1.8.
        (b) requires a QFC retail scheme to comply with a number of investment rules that require the spreading of risk.
        (3) The intention of the restriction mentioned in subrule (2) (a) is, in part, to limit investment in transferable securities and derivatives that cannot be accurately valued and readily disposed of.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.2 General Duties of Operator in Relation to Investment and Borrowing—QFC Retail Schemes

        (1) The operator of a QFC retail scheme must ensure that, except to the extent permitted by subrule (3) (b), the scheme property is not invested or used in breach of this chapter.

        Note Breach is defined in the glossary.
        (2) If the operator becomes aware of a breach of this chapter in relation to the QFC retail scheme, the operator must immediately take action, at its own expense, to rectify the breach, unless the breach happened because of circumstances to which subrule (3) applies.
        (3) The operator must ensure that this chapter is complied with as soon as practicable having regard to the interests of the unitholders and, in any event, within the maximum period mentioned in subrule (6) if—
        (a) the scheme property is—
        (i) invested or used in breach of this chapter; and
        (ii) the breach is beyond the control of both the operator and the independent entity; or
        (b) all the following subparagraphs apply:
        (i) there is a transaction (the subsequent transaction) deriving from the exercise of a right (for example, the right to convert stock or subscribe to a rights issue) attributable to an investment of the scheme (the original investment);
        (ii) the subsequent transaction would, apart from this rule, be a breach of this chapter;
        (iii) at the time of the acquisition of the original investment, it was reasonable for the operator to expect that a breach would not be caused by the subsequent transaction.
        (4) In subrule (3) (b) (i), the reference to the exercise of a right includes the taking effect of a right without any action by or on behalf of the independent entity or operator.
        (5) If the independent entity becomes aware of any breach of this chapter in relation to the QFC retail scheme, it must immediately ensure that the operator complies with subrule (2).
        (6) The maximum period to ensure that this chapter is complied with under subrule (3) starts on the day the operator finds out about the relevant circumstances and ends—
        (a) if the transaction was a transaction under rule 7.4.9 (Permitted transactions in derivatives and forward transactions—QFC retail schemes)—at the close of business 5 business days after that day or, if that period is extended under subrule (7), the period as extended; or

        Note Business day is defined in the glossary.
        (b) if the transaction relates to an immovable—2 years after that day; or
        (c) in any other case—for 6 months after that day.
        (7) The period mentioned in subrule (6) (a) is extended—
        (a) if the transaction involved a delivery of a commodity—from 5 to 20 business days; or

        Note Commodity is defined in the glossary.
        (b) if the reason for the breach mentioned in subrule (3) (a) is the inability of the operator to close out a transaction because of a limit in the number or value of transactions imposed by a derivatives market that is an eligible market—until 5 business days after—
        (i) the inability resulting from the limit is removed; or
        (ii) it becomes, to the operator's knowledge, practicable and prudent for the transaction to be closed out in another way.

        Note Close out is defined in the glossary. Eligible market is defined in r 7.1.7.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.3 Treatment of Obligations Under Ch 7—QFC Retail Schemes

        (1) If a provision of this chapter allows a QFC retail scheme to enter into a transaction, or retain an investment, only if possible obligations arising out of the transaction or retention would not breach any limits under this chapter, it must be assumed that the maximum possible liability of the scheme under any other applicable provision of this chapter must also be provided for.
        (2) If a provision of this chapter allows a QFC retail scheme to enter into a transaction, or retain an investment, only if the transaction or retention is covered, or any other similar transactions or investments are covered—
        (a) it must be assumed that, in applying any of the provisions of this chapter, the scheme must also, simultaneously, satisfy any other applicable obligation relating to cover; and
        (b) no element of cover may be used more than once.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.4 Valuation for Ch 7—QFC Retail Schemes

        (1) For this chapter, the value at any time of the scheme property of a QFC retail scheme is its net asset value at that time calculated in accordance with division 8.2.B (Valuation and pricing—QFC retail schemes).

        Note Net asset value is defined in the glossary.
        (2) In valuing the scheme property for this chapter, the following provisions apply:
        (a) the time at which the valuation is conducted (the relevant time) must be 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 division 8.2.B;
        (b) initial outlay must be regarded as remaining part of the scheme property;

        Note Initial outlay is defined in the glossary.
        (c) if the operator, having taken reasonable care, decides that the scheme will become entitled to any unrealised profit that has been made for a transaction in derivatives—the prospective entitlement must be regarded as part of the scheme property.

        Note Derivative is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.5 What is an Approved Money-Market Instrument

        (1) For these rules, an approved money-market instrument is a money-market instrument that is normally dealt in on the money market, is liquid and has a value that can be accurately decided at any time.
        (2) For this rule, a money-market instrument is normally dealt in on the money market if any of the following apply to it:
        (a) it has a maturity at issue of no more than 397 days;
        (b) it has a residual maturity of no more than 397 days;
        (c) it undergoes regular yield adjustments in line with money market conditions at intervals of no longer than 397 days;
        (d) it has a risk profile, including credit and interest rate risks, corresponding to the risk profile of an instrument—
        (i) that has a maturity mentioned in paragraph (a) or (b); or
        (ii) that is subject to yield adjustments mentioned in paragraph (c).
        (3) For this rule, a money-market instrument is liquid if it can be sold at limited cost in an adequately short time, taking into account the obligation of the operator to redeem units on the instructions of any unitholder.

        Note See r 8.1.17 (3) (Issue and redemption generally—QFC retail schemes).
        (4) For this rule, a money-market instrument has a value that can be accurately decided at any time if accurate and reliable valuation systems are available for it.
        (5) The valuation systems must meet both of the following requirements:
        (a) they must enable the operator to calculate a net value of a money-market instrument in accordance with the value at which the instrument could be exchanged between knowledgeable, willing parties in an arm's length transaction;
        (b) they must be based either on market data or on valuation models, including systems based on amortised costs.
        (6) A money-market instrument that is normally dealt in on the money market and is admitted to or dealt in on an eligible market must be presumed to be liquid and to have a value that can be accurately decided at any time unless there is information available to the operator that would lead to a different decision.

        Note Eligible market is defined in r 7.1.7.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.6 What is a Transferable Security

        (1) For these rules, a transferable security is an investment that is any of the following:
        (a) a share;
        (b) a government or public security;
        (c) another debt instrument;
        (d) a warrant;
        (e) a securities receipt.

        Note 1 Investment and each of the types of investment mentioned in r (1) are defined in the glossary.

        Note 2 For other kinds of investments that are taken to be transferable securities, see the following provisions:
        •   r 7.4.2 (Investments in closed-ended schemes as transferable securities—QFC retail schemes)
        •   r 7.4.3 (Investments linked etc to other assets as transferable securities—QFC retail schemes).
        (2) However, an investment is not a transferable security if the title to the investment cannot be transferred, or can be transferred only with the consent of a third party.
        (3) In applying subrule (2) to a share or debt instrument issued by a corporation, the need for any consent on the part of the corporation or any of its members, or the debt instrument holders of it, may be disregarded.

        Note Corporation is defined in the glossary.
        (4) Also, an investment is not a transferable security unless the liability of the holder of the investment to contribute to the debts of the issuer is limited to any amount for the time being unpaid by the holder in relation to the investment.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.7 What is an eligible market?

        (1) For these rules, a derivatives or securities market is an eligible market in relation to a QFC scheme if it meets all the following requirements:
        (a) the operator, after consultation with and notification to the independent entity, decides that the market is appropriate for investment of scheme property or dealing in investments for the scheme property;
        (b) the market is included in a list in the latest filed prospectus;

        Note Latest filed prospectus is defined in the glossary.
        (c) the independent entity has taken reasonable care to decide that—
        (i) adequate custody arrangements can be provided for dealing in investments on the market; and
        (ii) all reasonable steps have been taken by the operator in deciding whether the market meets the requirement of this rule.
        (2) For subrule (1) (a), a market may be considered appropriate only if it meets all the following requirements:
        (a) it is regulated;
        (b) it operates regularly;
        (c) it is recognised as a market or exchange, or as a self-regulating organisation, by an appropriate regulatory or governmental entity;
        (d) it is open to the public;
        (e) it is adequately liquid;
        (f) it has adequate arrangements for unimpeded transmission of income and capital to or to the order of investors.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.8 What is an Approved Derivative?

        An approved derivative is a derivative that is traded or dealt in on, or under the rules of, a derivatives market that is an eligible market.

        Note Derivative and deal are defined in the glossary. Eligible market is defined in r 7.1.7.

        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.9 What is an Approved Security?

        An approved security is a transferable security that is traded on, or under the rules of, a securities market that is an eligible market (otherwise than by the specific permission of the market authority).

        Note Transferable security is defined in r 7.1.6. Eligible market is defined in r 7.1.7.

        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.1.10 Application of Ch 7 to Umbrella Schemes—QFC Retail Schemes

        (1) This chapter applies to each subscheme of a QFC retail scheme that is an umbrella scheme as it were a separate QFC retail scheme.

        Note Subscheme and umbrella scheme are defined in r 1.2.11.
        (2) However, the following rules apply to the umbrella scheme itself and not separately to each subscheme:
        •   rule 7.2.3 (Significant influence through transferable securities-UCITS type schemes)
        •   rule 7.3.10 (Concentration-QFC retail schemes).
        (3) Also, a subscheme of an umbrella scheme must not invest in another subscheme of the same umbrella scheme.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL Part 7.2 COLL Part 7.2 Investments Generally—QFC retail schemes

      • COLL 7.2.1 Investment Powers Generally—QFC Retail Schemes

        (1) The scheme property of a QFC retail scheme must be invested only in investments mentioned in rule 7.2.2 (Permissible investments generally—QFC retail schemes) to which the scheme is dedicated.

        Note Investment and dedicated are defined in the glossary.
        (2) The scheme property of a QFC retail scheme must be invested and used only in accordance with the relevant provisions of this chapter, including within any limit or other restriction (however described) of this chapter.
        (3) The constitutional document and the latest filed prospectus of a QFC retail scheme may further restrict—
        (a) the kinds of property in which the scheme property may be invested; and
        (b) the proportion of the capital property of the scheme that may be invested in investments of any kind; and
        (c) the kinds of transactions permitted by the scheme and any relevant limits; and
        (d) the borrowing powers of the scheme.

        Note Constitutional document is defined in r 3.1.1. Capital property is defined in the glossary.
        (4) Subrule (3) does not limit the further restrictions that the constitutional document and latest filed prospectus may impose on investment and borrowing by the scheme or on the use of the scheme property.
        (5) The operator must ensure that any further restrictions are complied with.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.2.2 Permissible Investments Generally— QFC Retail Schemes

        The scheme property of a QFC retail scheme (other than a QFC retail property fund) must be invested only in any 1 or more of the following:

        (a) transferable securities;
        (b) money-market instruments;
        (c) units in schemes;
        (d) derivatives and forward transactions;
        (e) deposits.

        Note 1 A QFC retail scheme cannot invest in precious metals or commodity contracts. A QFC retail scheme that is a QFC retail property fund can invest in immovables, property-related assets and other investments (see rule 12.1.4).

        Note 2 Transferable security is defined in rule 7.1.6. For investments that are treated as transferable securities, see the following provisions:
        •   r 7.4.2 (Investments in closed—ended schemes as transferable securities—QFC retail schemes)
        •   r 7.4.3 (Investments linked etc to other assets as transferable securities—QFC retail schemes).
        Amended by QFCRA RM/2016-1 (as from 19th September 2016)

      • COLL 7.2.3 Significant Influence Through Transferable Securities— UCITS Type Schemes

        (1) The operator of a QFC retail scheme must ensure that the scheme does not acquire transferable securities (the relevant securities) issued by a corporation if—
        (a) the relevant securities give the right to vote (whether or not on substantially all matters) at general meetings of the corporation; and
        (b) either—
        (i) the scheme al holds transferable securities issued by the corporation that give the scheme power to influence significantly the conduct of business by the corporation; or
        (ii) acquisition of the relevant securities would give the scheme that power.

        Note Corporation is defined in the glossary.
        (2) For subrule (1), the QFC retail scheme is taken to have power to influence significantly the conduct of business by the corporation if the scheme, or the operator or independent entity (or both acting together), can exercise or control the exercise of at least 1/3 of the voting rights in the corporation because of the transferable securities issued by the corporation that are held by the scheme.
        (3) For subrule (2), any temporary suspension of voting rights must be disregarded.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.2.4 Investments by Money-Market Funds—QFC Retail Schemes

        (1) A QFC retail scheme that is a money-market fund must comply with its primary investment objective, and the investment restrictions, mentioned in schedule 2 (Constitutional document content—QFC schemes), rule S2.33 (Primary investment objective etc—QFC money-market funds).

        Note Money-market fund is defined in r 1.3.12.
        (2) For the investment restrictions, an approved money-market instrument is a high-quality approved money-market instrument if—
        (a) it has been rated by at least 1 rating agency; and
        (b) it has been awarded the highest available credit rating by each rating agency that has rated it.

        Note Approved money-market instrument is defined in r 7.1.5. Rating agency is defined in INAP.
        (3) If an approved money-market instrument forms part of the scheme property of a QFC retail scheme that is a money-market fund, the operator must monitor the instrument to ensure that it continues to be of high quality, taking into account both its credit risk and its final maturity.
        (4) A QFC retail scheme that is a money-market fund must provide liquidity through same day or next day settlement.
        (5) The weighted average maturity of its investments must not exceed 60 days.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL Part 7.3 COLL Part 7.3 Investment Diversification—QFC Retail Schemes

      • COLL 7.3.1 Prudent Spread of Risk—QFC Retail Schemes

        The operator of a QFC retail scheme must ensure that the scheme property provides a prudent spread of risk, taking into account the scheme's investment objectives, strategies and policy as stated in the constitutional document and latest filed prospectus.

        Note Constitutional document is defined in r 3.1.1 and latest filed prospectus is defined in the glossary.

        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.3.2 Spread for Certain Transferable Securities and Money-Market Instruments—QFC Retail Schemes

        (1) This rule applies to a transferable security if—
        (a) the transferable security is not an approved security; and
        (b) either—
        (i) the transferable security has been issued for 1 year or longer; or
        (ii) the transferable security has been issued for less than 1 year and the terms of issue did not include an undertaking that application would be made for it to be admitted to an eligible market.

        Note 1 Transferable security is defined in r 7.1.6. Approved security is defined in r 7.1.9. Eligible market is defined in r 7.1.7.

        Note 2 For investments that are treated as transferable securities, see the following provisions:
        •   r 7.4.2 (Investments in closed-ended schemes as transferable securities—QFC retail schemes)
        •   r 7.4.3 (Investments linked etc to other assets as transferable securities—QFC retail schemes).
        (2) This rule applies to a money-market instrument if—
        (a) the instrument is not an approved money-market instrument; or
        (b) the instrument is an approved money-market instrument but the scheme could not invest in it under rule 7.4.4 (Investments in approved money-market instruments not admitted to eligible markets etc—QFC retail schemes).

        Note Approved money-market instrument is defined in r 7.1.5.
        (3) The operator of a QFC retail scheme must ensure that not more than 10% in value of the scheme property consists of transferable securities and money-market instruments to which this rule applies.
        Amended by QFCRA RM/2016-1 (as from 19th September 2016)

      • COLL 7.3.3 Spread for Transferable Securities and Money-Market Instruments Issued by Single Issuer or Group—QFC Retail Schemes

        (1) This rule does not apply to government or public securities.

        Note 1 Government or public security is defined in the glossary.

        Note 2 See r 7.3.5 (Spread for government or public securities issued by single issuer—QFC retail schemes).
        (2) The operator of a QFC retail scheme must ensure that not more than 5% in value of the scheme property consists of transferable securities or money-market instruments (or both) issued by a single person.

        Note 1 Transferable security is defined in r 7.1.6.

        Note 2 For investments that are treated as transferable securities, see the following provisions:
        •   r 7.4.2 (Investments in closed-ended schemes as transferable securities—QFC retail schemes)
        •   r 7.4.3 (Investments linked etc to other assets as transferable securities—QFC retail schemes).
        (3) However, the 5% limit under subrule (2) is raised to 10% in relation to not more than 40% in value of the scheme property.
        (4) Covered bonds need not be taken into account for the purpose of applying the raised limit of 10% in relation to 40% in value of the scheme property.

        Note Covered bond is defined in the glossary.
        (5) Also, the 5% limit under subrule (2) is raised to 25% in relation to covered bonds if the total value of the covered bonds held does not exceed 80% in value of the scheme property.
        (6) In addition, the 5% limit under subrule (2) may be increased to no more than 20% (or 35%) under rule 7.3.4 (Spread exception for schemes replicating indices—QFC retail schemes).
        (7) In applying subrules (2) to (6), securities receipts must be treated as equivalent to the underlying security.

        Note Securities receipt is defined in the glossary.
        (8) The operator of a QFC retail scheme must also ensure that not more than 20% in value of the scheme property consists of transferable securities or money-market instruments (or both) issued by members of a single group.

        Note Group is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.3.4 COLL 7.3.4 Spread Exception for Schemes Replicating Indices—QFC Retail Schemes

        (1) Despite rule 7.3.3 (2) (Spread for transferable securities and money-market instruments issued by single issuer or group—QFC retail schemes), a QFC retail scheme may invest up to 20% in value of the scheme property in shares and debt instruments that are issued by a single person if the aim of the scheme's investment objectives, strategies and policy as stated in its constitutional document and latest filed prospectus is to replicate the performance or composition of an index that is a permitted index under subrule (3).

        Note Share, debt instrument and entity are defined in the glossary.
        (2) However, the limit in subrule (1) may be increased to no more than 35%, but only in relation to a single person and if—
        (a) justified by exceptional market conditions; and
        (b) the latest filed prospectus includes a prominent statement of the increased limit.
        (3) For subrule (1), a permitted index is an index that meets all the following requirements:
        (a) the index is sufficiently diversified (see subrule (5));
        (b) the index is a representative benchmark for the market to which it refers (see subrule (6));
        (c) the index is published in an appropriate way (see subrule (7)).
        (4) For subrule (1), replication of the composition of an index is replication of the composition of the underlying assets, including by way of efficient portfolio management.

        Note Efficient portfolio management is defined in the glossary.
        (5) For subrule (3) (a), an index is sufficiently diversified if its components comply with this part.
        (6) For subrule (3) (b), an index is a representative benchmark for the market to which it refers if its provider uses a recognised methodology that generally does not result in the exclusion of a major issuer of the market to which it refers.
        (7) For subrule (3) (c), an index is published in an appropriate way if—
        (a) it is accessible to the public; and
        (b) the index provider is independent of the QFC retail scheme.
        (8) Subrule (7) (b) does not prevent the index provider and the scheme or its operator from being part of the same group, if effective arrangements to manage conflicts of interest are in place.

        Note Group is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.3.4 Guidance

          The scheme property of a scheme replicating an index under this rule need not consist of the exact composition and weighting of the underlying assets if the scheme's investment objectives, strategies and policy are to achieve a result consistent with the replication of the index rather than an exact replication.

          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.3.5 Spread for Government or Public Securities Issued by Single Issuer—QFC Retail Schemes

        (1) This rule applies to government or public securities.

        Note Government or public security is defined in the glossary.
        (2) If no more than 35% in value of the scheme property of a QFC retail scheme is invested in government or public securities issued by a single issuer, there is no limit on the amount that may be invested in government or public securities or in any single issue.
        (3) A QFC retail scheme may invest more than 35% in value of the scheme property in government or public securities issued by a single issuer only if all the following requirements are met:
        (a) the operator, after consultation with the independent entity before making the investment, is satisfied that the investment is in accordance with the investment objectives, strategies and policy of the scheme as stated in the constitutional document and latest filed prospectus;
        (b) no more than 30% in value of the scheme property consists of government or public securities of a single issue;
        (c) the scheme property includes government or public securities of at least 6 different issues, whether they are issued by that issuer or another issuer;
        (d) the constitutional document expressly authorises the scheme to invest more than 35% in value of the scheme property in government or public securities issued by a single issuer;
        (e) the disclosure required by subrule (4) has been made.
        (4) For subrule (3) (e), the latest filed prospectus must prominently state—
        (a) that more than 35% of the scheme property is or may be invested in government or public securities issued by a single issuer; and
        (b) the names of the jurisdictions, or the public or local authorities, issuing government or public securities in which the scheme may invest more than 35% of the scheme property.

        Note Jurisdiction is defined in the glossary.
        (5) For this rule, an issue of government or public securities differs from another issue if there is a difference in relation to repayment date, rate of interest, guarantor or other material terms of the issue.
        (6) In this rule:

        issue includes guarantee.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.3.6 Spread for Units in Schemes etc—QFC Retail Schemes

        (1) The operator of a QFC retail scheme must ensure that not more than 20% in value of the scheme property consists of units in any single collective investment scheme.

        Note See r 7.4.2 (Investments in closed-ended schemes as transferable securities—QFC retail schemes) for units in schemes that are treated as transferable securities and not as units in a scheme.
        (2) However, subrule (1) does not apply to units in a feeder fund.

        Note Feeder fund is defined in the glossary.
        (3) The operator of a QFC retail scheme must ensure that no more than 30% in value of the scheme property is invested under rule 7.4.6 (Investments in collective investment schemes generally—QFC retail schemes) in units in non-QFC retail customer schemes.

        Note Non-QFC retail customer scheme is defined in r 1.4.1.
        (4) However, subrule (3) does not apply to units in a feeder fund or fund of funds.

        Note Fund of funds is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.3.7 Spread for OTC Derivatives—QFC Retail Schemes

        (1) The operator of a QFC retail scheme must ensure that the exposure to a single counterparty in an OTC derivative transaction does not exceed 10% in value of the scheme property.

        Note OTC derivative is defined in the glossary.
        (2) In calculating a limit under this rule, the exposure in relation to an OTC derivative may be reduced to the extent that collateral is held in relation to it if the collateral meets all the following requirements:
        (a) it is marked-to-market on a daily basis and its value exceeds the amount at risk;
        (b) it is exposed only to negligible risks (for example, risks for government bonds of first credit rating or cash) and is liquid;
        (c) it is held by a third-party custodian not related to the provider or is legally secured from the consequences of a failure of a related party;
        (d) it can be fully enforced by the QFC retail scheme at any time.

        Note Collateral is defined in the glossary.
        (3) In calculating a limit under this rule, OTC derivative positions with the same counterparty may be netted if the netting procedures—
        (a) correspond as closely as possible to—
        (i) the off-balance sheet netting procedures required to be used by an authorised firm under BANK, Division 4.5.E; or
        (ii) substantially equivalent provisions under the law of another jurisdiction; and
        (b) are based on legally binding agreements.

        Guidance for para (a) (ii)

        Substantially equivalent provisions would include the conditions in the Banking Consolidation Directive (the Directive of the European Parliament and Council of 14 June 2006 relating to the taking up and pursuit of the business of credit institutions (No 2006/48/EC)), annex III, part 7 (Contractual netting (Contracts for novation and other netting agreements)).
        (4) In applying this rule, a derivative transaction is taken to be free of counterparty risk if—
        (a) it is performed on an exchange; and
        (b) it is cleared through a clearing house that meets both of the following requirements:
        (i) the clearing house is backed by an appropriate performance guarantee;
        (ii) the clearing house is characterised by a daily mark-to-market valuation of the derivative position and at least daily margining.
        Guidance on spread generally

        The operator of a QFC retail scheme should particularly note rule 7.3.7 (2) (d) under which collateral has to be legally enforceable at any time. The Regulatory Authority, therefore, expects the operator to undertake legal due diligence before entering into any financial collateral arrangement. This is particularly important if the collateral arrangement has a cross-border dimension. The Regulatory Authority also expects the independent entity to exercise reasonable care to review collateral arrangements in accordance with its functions.
        Amended by QFCRA RM/2014-3 (as from 1st January 2015)

      • COLL 7.3.8 Spread for Deposits—QFC Retail Schemes

        (1) The operator of a QFC retail scheme must ensure that no more than 20% in value of the scheme property consists of deposits placed with any single eligible bank.

        Note Deposit and eligible bank are defined in the glossary.
        (2) For subrule (1), all uninvested cash that is capital property of the scheme is taken to be a deposit.

        Note Capital property is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.3.9 Spread for Certain Investments with Single Person-QFC Retail Schemes

        (1) The operator of a QFC retail scheme must ensure that no more than 20% in value of the scheme property consists of any combination of 2 or more of the following issued by or made with a single person:
        (a) transferable securities (including covered bonds) or money-market instruments;
        (b) deposits;
        (c) exposures to an OTC derivative transaction.

        Note For investments that are treated as transferable securities, see the following provisions:
        •   r 7.4.2 (Investments in closed-ended schemes as transferable securities—QFC retail schemes)
        •   r 7.4.3 (Investments linked etc to other assets as transferable securities—QFC retail schemes).
        (2) In calculating the limit under this rule, the provisions of rule 7.3.7 (2) to (4) (Spread for OTC derivatives-QFC retail schemes) apply with any necessary changes.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.3.10 Concentration-QFC Retail Schemes

        (1) The operator of a QFC retail scheme must ensure that the scheme does not acquire transferable securities (other than debt instruments) that—
        (a) do not give a right to vote on any matter at a general meeting of the issuer of the transferable securities; and
        (b) represent more than 10% of the transferable securities issued by the issuer.

        Note 1 Transferable security is defined in r 7.1.6. Debt instrument is defined in the glossary.

        Note 2 For investments that are treated as transferable securities, see the following provisions:
        •   r 7.4.2 (Investments in closed-ended schemes as transferable securities—QFC retail schemes)
        •   r 7.4.3 (Investments linked etc to other assets as transferable securities—QFC retail schemes).
        (2) The operator of a QFC retail scheme must ensure that the scheme does not acquire—
        (a) more than 10% of the debt instruments issued by a single issuer; or
        (b) more than 25% of the units in a collective investment scheme; or
        (c) more than 10% of the money-market instruments issued by a single issuer.
        (3) However, the operator need not comply with a limit under subrule (2) if, at the time of the acquisition, the net amount in issue of the debt instruments, units in the collective investment scheme or money-market instruments cannot be calculated.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.3.11 Application of pt 7.3—QFC Retail Schemes

        The provisions of this part do not apply to a QFC retail scheme until 6 months after the day the initial offer period starts if rule 7.3.1 (Prudent spread of risk—QFC retail schemes) is complied with during that period.

        Note Month and initial offer are defined in the glossary.

        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL Part 7.4 COLL Part 7.4 Particular kinds of Investments—QFC Retail Schemes

      • COLL Division 7.4.A COLL Division 7.4.A Transferable Securities—QFC Retail Schemes

        • COLL 7.4.1 General Investment Requirements for Non-Approved Transferable Securities—QFC Retail Schemes

          (1) A QFC retail scheme may invest in a transferable security that is not an approved security if the security meets all the following requirements:
          (a) the potential loss that the scheme may incur in relation to holding the transferable security is limited to the amount paid for it;
          (b) its liquidity does not compromise the ability of the operator to comply with its obligation under these rules to redeem units on the instructions of any unitholder;

          Note See r 8.1.17 (3) (Issue and redemption generally—QFC retail schemes).
          (c) a reliable valuation is available for it (see subrule (2));
          (d) appropriate information is available for it (see subrule (3));
          (e) it is negotiable;
          (f) its risks are adequately captured by the operator's risk management process.

          Note Transferable security is defined in r 7.1.6. Approved security is defined in r 7.1.9.
          (2) For subrule (1) (c), reliable valuation is available for the transferable security if—
          (a) for a transferable security that is an approved security—there are accurate, reliable and regular prices that are either market prices or prices made available by valuation systems independent from issuers; and
          (b) for a transferable security that is not an approved security— there is a valuation on a periodic basis that is derived from information from the issuer of the security or competent independent research.
          (3) For subrule (1) (d), appropriate information is available for the transferable security if—
          (a) for a transferable security that is an approved security—there is regular, accurate and comprehensive information available to the market on the security or, if relevant, on the security's portfolio; and
          (b) for a transferable security that is not an approved security— there is regular and accurate information available to the scheme's operator on the security or, if relevant, on the security's portfolio.
          (4) Unless there is information available to the scheme's operator that would lead to a different decision, a transferable security that is an approved security is presumed—
          (a) not to compromise the operator's ability to comply with its obligation under these rules to redeem units at the request of any unitholder; and
          (b) to be negotiable.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.4.2 Investments in Closed-Ended Schemes as Transferable Securities—QFC Retail Schemes

          (1) For this chapter, a unit in a closed-ended scheme is taken to be a transferable security (and not a unit in a scheme) if it would meet all the requirements mentioned in rule 7.4.1 (General investment requirements for non-approved transferable securities—QFC retail schemes) if it were a transferable security and—
          (a) for a unit in a closed-ended scheme constituted as a company—both the following requirements are met in relation to that scheme:
          (i) the scheme is subject to corporate governance applied to companies;
          (ii) if another person carries out asset management activity for the scheme—the other person is subject to regulation by a regulatory or governmental entity for the purposes of investor protection; or
          (b) for a unit in a closed-ended scheme constituted as a trust—both the following requirements are met in relation to that scheme:
          (i) the scheme is subject to corporate governance equivalent to that applied to companies;
          (ii) if another person carries out asset management activity for the scheme—the other person is subject to regulation by a regulatory or governmental entity for the purposes of investor protection; or
          (c) for a unit in a closed-ended scheme constituted as a limited partnership or under contract law—all the following requirements are met in relation to that scheme:
          (i) the scheme is subject to corporate governance equivalent to that applied to companies;
          (ii) the scheme is managed by a person who is subject to regulation by a regulatory or governmental entity for the purposes of investor protection;
          (iii) the assets of the scheme are held separately from the property of the operator of that scheme and the property of any other scheme;
          (iv) the scheme is subject to liquidation rules that adequately protect its investors.
          Guidance for para (b) (i) and (c) (i)

          In assessing whether a closed-ended scheme in trust or contractual form is subject to corporate governance equivalent to that applied to companies, the operator of a QFC retail scheme should consider whether the trust or contract constituting the closed-ended scheme provides its investors with rights—
          (a) to vote on essential decisions affecting the closed-ended scheme, including appointment and removal of its operator, amendment of the trust or contract, changes to its investment objectives, strategies and policy, merger and liquidation; and
          (b) to control the closed-ended scheme's investment objectives, strategies and policy through appropriate mechanisms.
          (2) However, a QFC retail scheme must not invest in a unit in a closed-ended scheme under this rule if the purpose of the investment is to circumvent any investment limit or restriction (however described) of this chapter.

          Note Closed-ended scheme is defined in r 1.2.10 (2).
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.4.3 Investments Linked etc to Other Assets as Transferable Securities—QFC Retail Schemes

          (1) For this chapter, any other investment is taken to be a transferable security (and not an investment of another kind) if—
          (a) the investment would meet all the requirements mentioned in rule 7.4.1 (General investment requirements for non-approved transferable securities—QFC retail schemes) if it were a transferable security; and
          (b) the investment is backed by or linked to the performance of other assets, which may differ from those in which a QFC retail scheme may otherwise invest.
          (2) If the investment embeds a derivative, the requirements of this chapter about derivatives and forward positions apply to the embedded derivative component of the investment.
          (3) For subrule (2), an investment embeds a derivative if it contains a component that meets all the following requirements:
          (a) by virtue of that component some or all of the cash flows that otherwise would be required by the investment (which functions as host contract) can be modified according to a specified interest rate, financial instrument price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, and therefore change in a way similar to a stand-alone derivative;
          (b) the component's characteristics and risks are not closely related to the economic characteristics and risks of the investment functioning as host contract;
          (c) the component has a significant impact on the risk profile and pricing of the investment;
          (d) the component is not transferable by contract independently of the investment.

          Note See guidance to r 7.4.8 on transferable securities and money-market instruments that embed derivatives.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL Division 7.4.B COLL Division 7.4.B Money-Market Instruments—QFC Retail Schemes

        • COLL 7.4.4 Investments in Approved Money-Market Instruments not Admitted to Eligible Markets etc—QFC Retail Schemes

          (1) This rule applies to an approved money-market instrument that is not admitted to or dealt in on an eligible market.

          Note Approved money-market instrument is defined in r 7.1.5 and eligible market is defined in r 7.1.7.
          (2) A QFC retail scheme may invest in the approved money-market instrument if all the following requirements are met:
          (a) the instrument is—
          (i) issued or guaranteed by—
          (A) the State or the central government of a zone 1 country; or
          (B) the Qatar Central Bank or the central bank of a zone 1 country; or
          (C) a multilateral development bank; or

          Note Zone 1 country and multilateral development bank are defined in INAP.
          (ii) issued or guaranteed by—
          (A) a regional or local authority of the State or a zone 1 country; or
          (B) an entity owned by an entity mentioned in subparagraph (i) (A) or (ii) (A) if the first entity exercises regulatory or other non-commercial functions; or
          (iii) issued by an entity if any of its securities are dealt with on an eligible market; or
          (iv) issued or guaranteed by an entity that is subject to, and complies with, prudential rules, and meets 1 or more of the following requirements:
          (A) it is located in Qatar or a zone 1 country;
          (B) it has at least investment grade rating given by a rating agency;

          Note Rating agency is defined in INAP.
          (C) on the basis of an in-depth analysis of the entity, it can be demonstrated that the prudential rules applying to the entity are at least as stringent as those applied by the Regulatory Authority in the QFC;
          (b) appropriate information in accordance with subrules (3) to (5) is available for the instrument;
          (c) the instrument is freely transferable.
          (3) If the approved money-market instrument is issued or guaranteed by an entity mentioned in subrule (2) (a) (i), or issued by an entity mentioned in subrule (2) (a) (ii) and guaranteed by an entity mentioned in subrule (2) (a) (i), information must be available on the issue or the issue programme, or on the legal and financial situation of the issuer before the issue of the instrument.
          (4) If the approved money-market instrument is issued or guaranteed by an entity mentioned in subrule (2) (a) (ii) but is not guaranteed by an entity mentioned in subrule (2) (a) (i), or is issued by an entity mentioned in subrule (2) (a) (iii), all the following information must be available:
          (a) information on the issue or the issue programme, or on the legal and financial situation of the issuer before the issue of the instrument;
          (b) updates of that information on a regular basis and whenever a significant event happens;
          (c) available and reliable statistics on the issue or the issue programme, or other data enabling an appropriate assessment of the credit risks related to investment in the instruments.

          Guidance for r (4) (b) and r (5) (b)

          Regular updates of information should normally happen on at least an annual basis.
          (5) If the approved money-market instrument is issued or guaranteed by an entity mentioned in subrule (2) (a) (iv), all the following information must be available:
          (a) information both on the issue or the issue programme, and the legal and financial situation of the issuer before the issue of the instrument, verified by appropriately qualified third parties not subject to instructions from the issuer;

          Guidance for para (a)

          The appropriately qualified third parties should specialise in the verification of legal or financial documentation and be composed of persons meeting professional standards of integrity.
          (b) updates of that information on a regular basis and whenever a significant event happens;
          (c) available and reliable statistics on the issue or the issue programme.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL Division 7.4.C COLL Division 7.4.C Nil and Partly Paid Securities—QFC Retail Schemes

        • COLL 7.4.5 Investments in Nil and Partly Paid Securities—QFC Retail Schemes

          A QFC retail scheme may invest in a transferable security or money-market instrument on which an amount is unpaid only if it is reasonably foreseeable that the amount of any existing and potential call for any amount unpaid could be paid by the scheme, at the time payment is required, without breaching this chapter.

          Note For other kinds of investments that are taken to be transferable securities, see the following provisions:

          •   r 7.4.2 (Investments in closed-ended schemes as transferable securities—QFC retail schemes)
          •   r 7.4.3 (Investments linked etc to other assets as transferable securities—QFC retail schemes).

      • COLL Division 7.4.D COLL Division 7.4.D Collective Investment Schemes—QFC Retail Schemes

        • COLL 7.4.6 Investments in Collective Investment Schemes Generally —QFC Retail Schemes

          (1) A QFC retail scheme (the investing scheme) may invest in units in a collective investment scheme (the second scheme) only if the second scheme meets all the following requirements:
          (a) the second scheme is a QFC retail scheme or a non-QFC retail customer scheme;

          Note Non-QFC retail customer scheme is defined in r 1.4.1.
          (b) if the second scheme is a non-QFC retail customer scheme— the investment and borrowing powers of the second scheme are the same as, or more restrictive than, the investment and borrowing powers of a QFC retail scheme under these rules;
          (c) if the second scheme is a non-QFC retail customer scheme— the second scheme and its operator are required to comply with requirements equivalent to the requirements applying under rule 7.4.7 (Investments in associated schemes—QFC retail schemes) in relation to a QFC retail scheme;
          (d) the second scheme is prohibited from having more than 10% in value of its scheme property consisting of units in collective investment schemes;
          (e) if the second scheme is an umbrella scheme—each subscheme meets the requirements of paragraph (d) and, if the second scheme is a non-QFC retail customer scheme, also of paragraph (c).

          Note 1 Umbrella scheme and subscheme are defined in r 1.2.11.

          Note 2 Investments to which r 7.4.2 (Investments in closed-ended schemes as transferable securities—QFC retail schemes) applies are treated as investments in transferable securities, and not investments in units in a scheme.

          Note 3 See also r 7.3.6 (3) (Spread for units in schemes etc—QFC retail schemes).
          (2) To remove any doubt, this rule is subject to rule 7.4.7.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.4.7 Investments in Associated Schemes—QFC Retail Schemes

          (1) For this rule, a scheme is an associated scheme for a QFC retail scheme if the operator of the first scheme is—
          (a) the operator of the QFC retail scheme; or
          (b) an associate of the operator of the QFC retail scheme.

          Note Associate is defined in the glossary.
          (2) A QFC retail scheme must not invest in units in an associated scheme unless the latest filed prospectus of the QFC retail scheme clearly states that the scheme property of the QFC retail scheme may include units in the associated scheme.

          Note Latest filed prospectus is defined in the glossary.
          (3) If—
          (a) a QFC retail scheme invests in units in an associated scheme or disposes of units in an associated scheme; and
          (b) there is a charge in relation to the investment or disposal;

          the operator of the QFC retail scheme must pay the QFC retail scheme the amount payable under subrule (4) or (5) within 4 business days after the day the operator agrees to make the investment or disposal.
          (4) For an investment mentioned in subrule (3), the operator of the QFC retail scheme must pay the QFC retail scheme—
          (a) any amount by which the consideration paid by the QFC retail scheme exceeds the price that would have been paid for the benefit of the associated scheme if the units were newly issued or sold by the associated scheme; or
          (b) if that price cannot be ascertained by the operator—the maximum amount of any charge permitted to be made by the seller of units in the associated scheme.
          (5) For a disposal mentioned in subrule (3), the operator of the QFC retail scheme must pay the QFC retail scheme the amount of any charge made in relation to the disposal for the operator of the associated scheme, the operator of the QFC retail scheme or an associate of either operator.
          (6) For this rule—
          (a) any addition to or deduction from the consideration paid on the acquisition or disposal by a QFC retail scheme of units in an associated scheme that is applied for the benefit of the associated scheme, and is (or is like) a dilution levy made under rule 8.2.16 (Dilution—QFC retail schemes), must be treated as part of the price of the units and not as part of any charge; and
          (b) any charge made in relation to an exchange of units in a subscheme or separate part of the associated scheme for units in another subscheme or separate part of that scheme must be included as part of the consideration paid for the units.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL Division 7.4.E COLL Division 7.4.E Derivatives and forward transactions—QFC retail schemes

        Amended by QFCRA RM/2012-5 (as from 1st July 2013).

        • COLL 7.4.8 Derivatives and Forward Transactions Generally—QFC Retail Schemes

          (1) A transaction in a derivative or a forward transaction must not be effected for a QFC retail scheme unless the transaction is—
          (a) permitted under rule 7.4.9 (Permitted transactions in derivatives and forward transactions—QFC retail schemes); and
          (b) covered as required by rule 7.5.1 (Cover for transactions in derivatives and forward transactions—QFC retail schemes).

          Note Derivative is defined in the glossary.
          (2) If a QFC retail scheme invests in a derivative, the exposure to the underlying assets must not exceed the limits in part 7.3 (Investment diversification—QFC retail schemes), except as provided in subrule (4).
          (3) If a transferable security or money-market instrument embeds a derivative, the embedded derivative component must be taken into account in applying any limit under this chapter.

          Note See r (7) on working out whether an instrument embeds a derivative.
          (4) If—
          (a) a QFC retail scheme invests in an index-based derivative; and
          (b) rule 7.4.10 (Permitted financial indices—QFC retail schemes) applies to the index;

          the underlying constituents do not have to be taken into account in the application of part 7.3 to subrule (2) of this rule.
          (5) The relaxation under subrule (4) is subject to the operator complying with rule 7.3.1 (Prudent spread of risk—QFC retail schemes).
          (6) A scheme must not use transferable securities or money-market instruments that embed a derivative to circumvent this chapter.
          (7) Rule 7.4.3(3) (Investments linked etc to other assets as transferable securities—QFC retail schemes) applies to subrules (3) and (6) of this rule, with any necessary changes, for the purpose of working out whether a transferable security or money-market instrument embeds a derivative.

          Guidance on transferable securities and money-market instruments that embed derivatives
          1 Collateralised debt obligations (CDOs) or asset-backed securities using derivatives, with or without active management, will generally not be considered as embedding a derivative unless—
          (a) they are leveraged, that is, the CDOs or asset-backed securities are not limited recourse vehicles and an investor's loss can be higher than the investor's initial investment; or
          (b) they are not sufficiently diversified.
          2 If a transferable security or money-market instrument embedding a derivative is structured as an alternative to an OTC derivative, the requirements of rule 7.4.13 (OTC transactions in derivatives—QFC retail schemes) will apply. This will be the case for tailor-made hybrid instruments, such as a single tranche CDO structured to meet the specific need of a QFC retail scheme. These tailor-made hybrid instruments should be considered to embed a derivative. Such a product offers an alternative to the use of an OTC derivative for the same purpose of achieving a diversified exposure to a preset risk level to a portfolio of entities.
          3 The following list of transferable securities and money-market instruments, which is illustrative and non-exhaustive, could be assumed to embed a derivative:
          (a) credit linked notes;
          (b) transferable securities and money-market instruments if their performance is linked to the performance of a bond index;
          (c) transferable securities and money-market instruments if their performance is linked to the performance of a basket of shares, with or without active management;
          (d) transferable securities or money-market instruments with a fully guaranteed nominal value if their performance is linked to the performance of a basket of shares, with or without active management;
          (e) convertible bonds;
          (f) exchange bonds.
          4 Transferable securities and money-market instruments that embed a derivative are subject to the requirements of this chapter applying to derivatives. It is the operator's responsibility to ensure that these requirements are complied with. The nature, frequency and scope of checks performed should depend on the characteristics of the embedded derivatives and their impact on the scheme, taking into account its investment objectives, strategies and policy and its risk profile.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.4.9 Permitted Transactions in Derivatives and Forward Transactions—QFC Retail Schemes

          (1) A transaction in a derivative by a QFC retail scheme must—
          (a) be in an approved derivative; or

          Note Approved derivative is defined in r 7.1.8.
          (b) if the transaction is in an OTC derivative—comply with rule 7.4.13 (OTC transactions in derivatives—QFC retail schemes).
          (2) The underlying of a transaction in a derivative by a QFC retail scheme must—
          (a) comply with part 7.2 (Investments generally—QFC retail schemes) and this part; or
          (b) consist of any 1 or more of the following to which the scheme is dedicated:
          (i) financial indices that are permitted financial indices under rule 7.4.10 (Permitted financial indices—QFC retail schemes);
          (ii) interest rates;
          (iii) foreign exchange rates;
          (iv) currencies.

          Note Dedicated is defined in the glossary.
          (3) A transaction in an approved derivative by a QFC retail scheme must be effected on, or under the rules of, a derivatives market that is an eligible market.

          Note Eligible market is defined r 7.1.7.
          (4) A transaction in a derivative must not cause a QFC retail scheme to diverge from its investment objectives, strategies and policy as stated in the constitutional document and the latest filed prospectus.

          Note Constitutional document is defined in r 3.1.1. Latest filed prospectus is defined in the glossary.
          (5) A transaction in a derivative must not be effected by a QFC retail scheme if the intended effect is to create the potential for an uncovered sale of any of the following:
          (a) transferable securities;
          (b) money-market instruments;
          (c) units in collective investment schemes;
          (d) derivatives.

          Note Transferable security is defined in r 7.1.6.
          (6) For subrule (5), a sale is not considered uncovered if the requirements mentioned in rule 7.4.12 (3) (Requirements to cover sales—QFC retail schemes) are met in relation to the sale.
          (7) Any forward transaction by a QFC retail scheme must be made with an eligible bank.

          Note Eligible bank is defined in the glossary.
          (8) A QFC retail scheme must not effect a transaction in a derivative on a commodity.

          Note Commodity is defined in the glossary.
          Amended by QFCRA RM/2016-1 (as from 19th September 2016)

        • COLL 7.4.10 Permitted Financial Indices—QFC Retail Schemes

          (1) For rule 7.4.9 (2) (b) (i) (Permitted transactions in derivatives and forward transactions—QFC retail schemes), a permitted financial index is a financial index that meets all the following requirements:
          (a) the index is sufficiently diversified (see subrule (2));
          (b) the index represents an adequate benchmark for the market to which it refers (see subrule (3));
          (c) the index is published in an appropriate way (see subrule (4)).
          (2) For subrule (1) (a), a financial index is sufficiently diversified if—
          (a) it is composed in such a way that price movements or trading activities for a component do not unduly influence the performance of the whole index; and
          (b) its components are at least as diverse as the investments of a QFC retail scheme are required to be under part 7.3 (Investment diversification—QFC retail schemes).
          (3) For subrule (1) (b), a financial index represents an adequate benchmark for the markets to which it refers if—
          (a) it measures the performance of a representative group of underlyings in a relevant and appropriate way; and
          (b) it is revised and rebalanced periodically, following criteria that are publicly available, to ensure that it continues to reflect the markets to which it refers; and
          (c) the underlyings are sufficiently liquid, allowing users to replicate it if necessary.
          (4) For subrule (1) (c), a financial index is published in an appropriate way if—
          (a) its publication process relies on sound procedures to collect prices, and calculate and subsequently publish the index value, including pricing procedures for components for which a market price is not available; and
          (b) material information is provided on a wide and timely basis on matters such as index calculation, rebalancing methodologies, index changes, and any operational difficulties in providing timely or accurate information.
          (5) If the composition of underlyings of a transaction in a derivative does not satisfy the requirements mentioned in subrule (1) for a permitted financial index, the underlyings for that transaction may be regarded as a combination of the underlyings if they satisfy the requirements of rule 7.4.9 (2) (Permitted transactions in derivatives and forward transactions—QFC retail schemes).

          Guidance on financial indices underlying derivatives
          1 An index based on derivatives on commodities or an index on property may be regarded as a permitted financial index under rule 7.4.10 if it meets all the requirements of the rule.
          2 If the composition of an index is not sufficiently diversified to avoid undue concentration, its underlying assets should be combined with the other assets of the scheme in assessing compliance with the requirements of rule 7.5.1 (Cover for transactions in derivatives and forward transactions—QFC retail schemes) and part 7.3 (Investment diversification—QFC retail schemes).
          3 To avoid undue concentration, if derivatives on an index composed of assets in which a QFC retail scheme cannot invest are used to track or gain high exposure to the index, the index should be at least diversified in a way that is equivalent to the diversification achieved for the scheme by part 7.3.
          4 If derivatives on that index are used for risk-diversification purposes and the exposure of the scheme to the index complies with part 7.3, there is no need to look at the underlying components of the index to ensure that it is sufficiently diversified.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.4.11 Delivery of Property Under Transactions in Derivatives and Forward Transactions—QFC Retail Schemes

          A transaction in a derivative or a forward transaction by a QFC retail scheme that will or could lead to the delivery of property for the scheme may be entered into only if—

          (a) the property can be held for the scheme; and
          (b) the operator, having taken reasonable care, decides that delivery of the property under the transaction will not happen or will not lead to a breach of these rules.

          Note Property and breach are defined in the glossary.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.4.12 Requirement to Cover Sales—QFC Retail Schemes

          (1) An agreement must not be made by or on behalf of a QFC retail scheme to dispose of property or rights unless—
          (a) the obligation to make the disposal and any other similar obligation could immediately be honoured by the scheme by delivery of property or the assignment of rights; and
          (b) the property or rights mentioned in paragraph (a) are owned by the scheme at the time the agreement is made.
          (2) Subrule (1) does not apply to a deposit.

          Note Deposit is defined in the glossary.
          (3) Subrule (1) does not apply if—
          (a) the risks of the underlying financial instrument of a derivative can be appropriately represented by another financial instrument and the underlying financial instrument is liquid; or
          (b) the operator or independent entity has the right to settle a derivative in cash, and cover exists within the scheme property that falls within 1 or more of the following asset classes:
          (i) cash;
          (ii) liquid debt instruments (for example, government bonds of first credit rating) with appropriate safeguards (in particular, haircuts);
          (iii) other liquid assets having regard to their correlation with the underlying of the financial derivative instrument, subject to appropriate safeguards (for example, haircuts if relevant).
          (4) In the asset classes mentioned in subrule (3), an asset may be considered as liquid if the financial instrument can be converted into cash in no longer than 7 business days at a price closely corresponding to the current valuation of the instrument on its own market.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.4.13 OTC Transactions in Derivatives—QFC Retail Schemes

          (1) A transaction in an OTC derivative under rule 7.4.9 (1) (b) (Permitted transactions in derivatives and forward transactions— QFC retail schemes) must be—
          (a) with an approved counterparty (see subrule (2)); and
          (b) on approved terms (see subrule (3)); and
          (c) capable of valuation (see subrule (5)); and
          (d) subject to verifiable valuation (see subrule (6)).

          Note OTC derivative is defined in the glossary.
          (2) For subrule (1) (a), a counterparty is an approved counterparty only if the counterparty is an eligible bank.

          Note Eligible bank is defined in the glossary.
          (3) For subrule (1) (b), the terms of a transaction are approved terms if, before the transaction is entered into, the independent entity is satisfied that the counterparty has agreed with the operator—
          (a) to provide a reliable and verifiable valuation in relation to the transaction corresponding to its fair value at least daily and at any other time at the operator's request; or
          (b) that it or an alternative counterparty will, at the operator's request, enter into a further transaction to sell, liquidate or close out the transaction at a fair value at any time.

          Note Close out is defined in the glossary.
          (4) For subrule (3) (b), fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction.
          (5) For subrule (1) (c), a transaction in a derivative is capable of valuation if the operator, having taken reasonable care, decides that, if the transaction were entered into, it would be able to value the investment throughout the life of the derivative with reasonable accuracy on a basis of—
          (a) an up-to-date market value that the operator and independent entity have agreed is reliable; and
          (b) if paragraph (a) does not apply—a pricing model that the operator and independent entity have agreed uses an adequate recognised methodology.
          (6) For subrule (1) (d), a transaction in a derivative is subject to verifiable valuation if the operator, having taken reasonable care, decides that, if the transaction were entered into, the valuation of the investment would be verified throughout the life of the derivative by—
          (a) an appropriate third party independent of the derivative's counterparty, at an adequate frequency and in such a way that the operator can check it; or
          (b) a department within the operator that is independent of the department in charge of managing the scheme property and is adequately equipped to verify the valuation.
          (7) Without limiting rule 4.2.3 (Oversight functions of independent entity—all QFC schemes), the independent entity must take reasonable care to ensure that the operator has systems and controls that are adequate to ensure compliance with this rule.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

        • COLL 7.4.14 Risk Management for Transactions in Derivatives and Forward Transactions—QFC Retail Schemes

          (1) The operator of a QFC retail scheme must use a risk management process that enables it to monitor and measure, as frequently as appropriate, the risks associated with—
          (a) the scheme's derivatives and forward positions; and
          (b) their contribution to the overall risk profile of the scheme.
          (2) The operator must tell the Regulatory Authority about the following details of the risk management process before using the process:
          (a) the methods for estimating risks in derivative and forward transactions;
          (b) the types of derivatives and forward transactions to be used within the scheme together with their underlying risks and any relevant quantitative limits.
          (3) The operator must tell the Regulatory Authority in advance about any material change proposed for the details of the risk management process mentioned in subrule (2) (a) or (b).

          Guidance on risk management process
          1 The risk management process for a QFC retail scheme should take account of the investment objectives, strategies and policy of the scheme as stated in the constitutional document and latest filed prospectus.
          2 The independent entity should take reasonable care to review the appropriateness of the risk management process in accordance with its functions under these rules.
          3 The operator is expected to demonstrate more sophistication in its risk management process for a QFC retail scheme with a complex risk profile than for a QFC retail scheme with a simple risk profile. In particular, the risk management process should take account of any characteristic of non-linear dependence in the value of a position to its underlying.
          4 The operator should take reasonable care to establish and maintain the systems and controls appropriate to its business that are required by CTRL.
          5 The risk management process should enable the re-calculation required by rule 7.5.3 (Continuing nature of limits and requirements for derivatives and forward positions—QFC retail schemes) to be undertaken at least daily or at each valuation point, whichever the more frequent.
          6 The operator should undertake the risk assessment with the highest degree of care if the counterparty to the derivative is an associate of the operator or the credit issuer.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL Division 7.4.F COLL Division 7.4.F Deposits—QFC retail schemes

        • COLL 7.4.15 Investments in Deposits—QFC Retail Schemes

          A QFC retail scheme may invest in a deposit if—

          (a) it is with an eligible bank; and
          (b) it is either—
          (i) repayable on demand; or
          (ii) has the right to be withdrawn; and
          (c) it matures in no longer than 12 months.

          Note Deposit, eligible bank and month are defined in the glossary.
          Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL Part 7.5 COLL Part 7.5 Exposure for derivatives and forward transactions—QFC retail schemes

      Guidance for pt 7.5

      1 A scheme may invest in derivatives and forward transactions if the exposure to which the scheme is committed by the transaction itself is suitably covered from within the scheme property. Exposure will include any initial outlay in relation to the transaction.
      2 Cover ensures that a scheme is not exposed to the risk of loss of property, including money, to an extent greater than the scheme's net asset value at any time. Therefore, a scheme is required to hold scheme property sufficient in value or amount to match the exposure arising from a derivative obligation to which the scheme is committed. Rule 7.5.1 (Cover for transactions in derivatives and forward transactions—QFC retail schemes) sets out detailed requirements for cover.
      3 In accordance with rule 7.1.3 (2) (b) (Treatment of obligations under ch 7— QFC retail schemes), cover used in relation to a transaction in a derivative or forward transaction must not be used for cover in relation to another transaction in a derivative or forward transaction.
      Amended by QFCRA RM/2012-5 (as from 1st July 2013).

      • COLL 7.5.1 Cover for Transactions in Derivatives and Forward Transactions—QFC Retail Schemes

        (1) A transaction in a derivative or a forward transaction may be entered into by the operator of a QFC retail scheme only if the maximum exposure, in terms of the principal or notional principal created by the transaction to which the scheme is or may be committed by another person, is covered globally under subrule (2).

        Note Derivative, principal and notional principal are defined in the glossary.
        (2) Exposure is covered globally if adequate cover from within the scheme property is available to meet the scheme's total exposure, taking into account the value of the underlying assets, any reasonably foreseeable market movement, counterparty risk, and the time available to liquidate any positions.
        (3) Cash not yet received into the scheme property but due to be received within 1 month is available as cover for subrule (2).

        Note Month is defined in the glossary.
        (4) Property that is the subject of a transaction under part 7.6 (Stock lending and repos—QFC retail schemes) is only available for cover if the operator has taken reasonable care to decide that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.
        (5) The total exposure relating to derivatives held in the scheme property must not at any time exceed the scheme's net asset value.

        Note Net asset value is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.5.2 Borrowing not Available for Cover—QFC Retail Schemes

        (1) Cash obtained from borrowing by or for a QFC retail scheme, and borrowing that the operator of a QFC retail scheme reasonably regards an eligible bank to be committed to provide, is not available for cover under rule 7.5.1 (Cover for transactions in derivatives and forward transactions—QFC retail schemes).

        Note Borrowing and eligible bank are defined in the glossary.
        (2) If a QFC retail scheme, or the independent entity of a QFC retail scheme acting for the scheme on the operator's instructions—
        (a) borrows an amount of currency from an eligible bank; and
        (b) keeps an amount in another currency, at least equal to that borrowing for the time being, on deposit with the eligible bank (or its agent or nominee);
        this part applies as if the borrowed currency, and not the deposited currency, were part of the scheme property.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.5.3 Continuing Nature of Limits and Requirements for Derivatives and Forward Positions—QFC retail schemes

        (1) The operator of a QFC retail scheme must, as frequently as necessary, re-calculate the amount of cover required in relation to derivatives and forward positions al in existence under this chapter.
        (2) Derivatives and forward positions may be retained in the scheme property only so long as they remain covered globally under rule 7.5.1 (Cover for transactions in derivatives and forward transactions—QFC retail schemes).
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL Part 7.6 COLL Part 7.6 Stock Lending and Repos—QFC Retail Schemes

      Notes for pt 7.6

      1 This part covers techniques relating to transferable securities and money-market instruments that are used for the purpose of efficient portfolio management. It permits the generation of additional income for the benefit of the QFC retail scheme (and its investors) by entry into stock lending arrangements and repo agreements for the scheme.
      2 The particular method of stock lending permitted in this part is in fact not a transaction that is a loan in the normal sense. Rather it is an arrangement under which the lender transfers securities to the borrower otherwise than by way of sale and the borrower is to transfer the securities, or securities of the same type and amount, back to the lender at a later date. In accordance with good market practice, a separate transaction by way of transfer of assets is also involved in stock lending arrangements to provide collateral to cover the 'lender' against the risk that the future transfer back of the securities may not be satisfactorily completed.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.6.1 Stock Lending and Repos Generally—QFC Retail Schemes

        A QFC retail scheme may, or the independent entity of a QFC retail scheme may on the operator's instructions, enter into a stock lending arrangement or repo agreement if it reasonably appears to the operator to be appropriate to be entered into with a view to generating additional income for the scheme with an acceptable degree of risk.

        Note Stock lending arrangement and repo agreement are defined in the glossary.

        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.6.2 Stock Lending Requirements—QFC Retail Schemes

        (1) A stock lending arrangement may be entered into by or for a QFC retail scheme only if all the following requirements are met:
        (a) all the terms of the agreement under which securities are to be reacquired by the independent entity for the scheme are in a form that is acceptable to the independent entity and are in accordance with good market practice;
        (b) the counterparty is—
        (i) an authorised firm; or
        (ii) a person authorised (however described) under the law of the State or a zone 1 country to deal in investments as principal in relation to OTC derivatives and the person is principally regulated by a regulatory or governmental entity in that jurisdiction;

        Note Authorised firm and OTC derivative are defined in the glossary. Zone 1 country is defined in INAP.
        (c) collateral is obtained to secure the obligation of the counterparty under the terms mentioned in paragraph (a) and the collateral is—
        (i) acceptable to the independent entity; and
        (ii) adequate under rule 7.6.3 (1) (Treatment of collateral for stock lending—QFC retail schemes); and
        (iii) sufficiently immediate under rule 7.6.3 (2).

        Note Collateral is defined in the glossary.
        (2) For subrule (1), the counterparty is the person who is obliged under the agreement mentioned in subrule (1) (a) to transfer to the independent entity—
        (a) the securities transferred by the independent entity under the stock lending arrangement; or
        (b) securities of the same type and amount.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.6.3 Treatment of Collateral for Stock Lending—QFC Retail Schemes

        Guidance on stock lending—treatment of collateral

        If a stock lending arrangement is entered into for a QFC retail scheme, the value of scheme property remains unchanged. The securities transferred cease to be part of the scheme property, but there is an obligation by the counterparty to transfer back the securities or equivalent securities. The independent entity will also receive collateral to set against the risk of default in transfer. The collateral is equally irrelevant to the valuation of the scheme property (because it is transferred against an obligation of equivalent value by way of re-transfer). This rule accordingly makes provision for the treatment of collateral in that context.

        (1) For rule 7.6.2 (1) (c) (ii) (Stock lending requirements—QFC retail schemes), collateral is adequate only if it is—
        (a) transferred to the independent entity or its nominee or delegate, as appropriate; and
        (b) at the time of the transfer to the independent entity, at least equal in value to the value of the securities transferred by the independent entity; and
        (c) in the form of 1 or more of the following:
        (i) cash;
        (ii) a certificate of deposit;
        (iii) a letter of credit;
        (iv) a readily realisable investment;
        (v) commercial paper with no embedded derivative content.
        (vi) units in an eligible money-market fund.

        Note Collateral, readily realisable investment and eligible money-market fund are defined in the glossary.
        (2) For rule 7.6.2 (1) (c) (iii), collateral is sufficiently immediate if—
        (a) it is transferred before or at the time of the transfer of the securities by the independent entity; or
        (b) the independent entity takes reasonable care to decide at the time mentioned in paragraph (a) that it will be transferred at the latest by the close of business on the day of the transfer.
        (3) The independent entity must ensure that the value of the collateral is, at all times, at least equal to the value of the securities transferred by the independent entity.
        (4) If the validity of any collateral expires or is about to expire, the independent entity's duty under subrule (3) is satisfied if the independent entity takes reasonable care to ensure that sufficient collateral will be transferred by close of business on the day of the expiry.
        (5) Any agreement for transfer at a future date of securities, collateral, or the equivalent of either, under this rule may be regarded, for the purposes of valuation under division 8.2.B (Valuation and pricing— QFC retail schemes), or this chapter, as an unconditional agreement for the sale or transfer of property, whether or not the property is part of the property of the scheme.
        (6) Collateral transferred to the independent entity is part of the scheme property for these rules, except in the following respects:
        (a) it must not be included in any valuation for division 8.2.B or this chapter, because it is offset under subrule (5) by an obligation to transfer;
        (b) it does not count as scheme property for any purpose of this chapter other than this rule.
        (7) Subrules (5) and (6) (a) do not apply to any valuation of collateral itself for this rule.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.6.4 No Limits on Stock Lending and Repos—QFC Retail Schemes

        (1) There is no limit on the value of the scheme property of a QFC retail scheme that may be the subject of stock lending arrangements or repo agreements under this part.
        (2) However, the use of stock lending arrangements or repo agreements, or the reinvestment of cash collateral, must not—
        (a) result in a change of the scheme's investment objectives, strategies and policy; or
        (b) add substantial supplementary risks to the scheme's risk profile.
        (3) Collateral in the form of cash may only be invested in 1 or more of the following:
        (a) certificates of deposit;
        (b) letters of credit;
        (c) readily realisable investments;
        (d) commercial paper with no embedded derivative component;
        (e) units in an eligible money-market fund;
        (f) deposits, but only if the deposits—
        (i) are with an eligible bank; and
        (ii) can be withdrawn within 5 business days or any shorter period required under the stock lending arrangement.

        Note Readily realisable investment, eligible money-market fund, deposit and eligible bank are defined in the glossary.
        (4) If a QFC retail scheme generates leverage through the reinvestment of collateral, this must be taken into account in calculating the scheme's global exposure.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL Part 7.7 COLL Part 7.7 Cash, Borrowing, Lending and Other Provisions—QFC Retail Schemes

      • COLL 7.7.1 Cash and Near cash—QFC Retail Schemes

        (1) Cash and near cash must not be retained in the scheme property of a QFC retail scheme except to the extent that its retention may reasonably be regarded as necessary to enable any of the following:
        (a) the pursuit of scheme's investment objectives, strategies and policy;
        (b) the redemption of units;
        (c) the efficient management of the scheme in accordance with its investment objectives, strategies and policy;
        (d) other purposes that may reasonably be regarded as ancillary to the scheme's investment objectives, strategies and policy.

        Note Near cash and redemption are defined the glossary.
        (2) However, during the period of the initial offer, the scheme property may consist of cash and near cash without any limit.

        Note Initial offer is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.7.2 General Power to Borrow—QFC Retail Schemes

        (1) A QFC retail scheme that is a CIC or CIP may, in accordance with this rule and rule 7.7.3 (Borrowing limits—QFC retail schemes), borrow money for the use of the scheme on terms that the borrowing is to be repaid out of the scheme property.

        Note CIC and CIP are defined in r 1.3.7 and r 1.3.8 respectively. Borrowing is defined in the glossary.
        (2) The independent entity of a QFC retail scheme that is a CIT may, on the operator's instructions and in accordance with this rule and rule 7.7.3, borrow money for the use of the scheme on terms that the borrowing is to be repaid out of the scheme property.

        Note CIT is defined in r 1.3.9.
        (3) Subrules (1) and (2) are subject to the obligation of the scheme to comply with any restriction in the constitutional document.

        Note Constitutional document is defined in r 3.1.1.
        (4) Money may be borrowed under subrule (1) or (2) only from an eligible bank.

        Note Eligible bank is defined in the glossary.
        (5) The operator must ensure that any borrowing is on a temporary basis and that borrowings are not persistent.
        (6) For subrule (5), the operator must have regard in particular to the following:
        (a) the duration of any borrowing;
        (b) the number of times the scheme borrows in any period.
        (7) Without limiting subrule (5), the operator must ensure that no borrowing is for longer than 3 months, whether in relation to a particular amount or at all, without the independent entity's prior agreement.
        (8) The independent entity may give its agreement under subrule (7) in relation to a borrowing only on the conditions that appear to the independent entity appropriate to ensure that the borrowing does not cease to be on a temporary basis only.
        (9) A CIC or CIP must not issue any debt instrument unless it acknowledges or creates a borrowing that complies with subrules (1), (3) and (4).

        Note Debt instrument is defined in the glossary.
        (10) This rule does not apply to back-to-back borrowing.

        Note Back-to-back borrowing is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.7.3 Borrowing Limits—QFC Retail Schemes

        (1) The operator of a QFC retail scheme (other than a retail property fund) must ensure that the scheme's total borrowing does not, on any day, exceed 10% of its net asset value.

        Note For the limits on borrowing by QFC retail property funds, see rule 12.5.9.
        (2) This rule does not apply to back-to-back borrowing.
        Amended by QFCRA RM/2016-1 (as from 19th September 2016)

      • COLL 7.7.4 Restrictions on Lending Money—QFC Retail Schemes

        (1) None of the money in the scheme property of a QFC retail scheme may be lent.

        Note Money is defined in the glossary.
        (2) For subrule (1), money is lent by the scheme if it is paid to a person on the basis that it must be repaid, whether or not by that person.
        (3) However, for subrule (1), the following are not lending:
        (a) acquiring a debt instrument;
        (b) placing money on deposit or in a current account.

        Note Debt instrument is defined in the glossary.
        (4) This rule does not prevent a QFC retail scheme that is a CIC or CIP from—
        (a) providing an officer of the scheme with funds to meet expenditure to be incurred by the officer for the purposes of—
        (i) the scheme; or
        (ii) to perform duties as an officer of the scheme; or
        (b) doing anything to enable an officer of the scheme to avoid expenditure mentioned in paragraph (a).

        Note CIC and CIP are defined in r 1.3.7 and r 1.3.8 respectively.
        (5) In this rule:

        officer, of a CIC or CIP, means—
        (a) a member of the governing body of the CIC or CIP; or
        (b) the chief executive, manager, secretary, or other similar officer, of the CIC or CIP.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.7.5 Restrictions on Lending Property Other Than Money—QFC Retail Schemes

        (1) The scheme property of a QFC retail scheme other than money must not be lent by way of deposit or otherwise.
        (2) For subrule (1), transactions permitted by part 7.6 (Stock lending and repos—QFC retail schemes) are not lending.
        (3) The scheme property must not be mortgaged.
        (4) If transactions in derivatives or forward transactions are used for a QFC retail scheme in accordance with this chapter, this rule does not prevent the scheme, or the independent entity on the operator's instructions, from—
        (a) lending, depositing, pledging or charging scheme property for margin requirements; or
        (b) transferring property under the terms of an agreement in relation to margin requirements, if the operator reasonably considers that both the agreement and the margin requirements made under it (including in relation to the level of margin) provide appropriate protection to unitholders.

        Note Margin is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.7.6 General Power to Accept or Underwrite Placings—QFC Retail Schemes

        (1) This rule applies to any agreement entered into by a QFC retail scheme—
        (a) that is an underwriting or sub-underwriting agreement; or
        (b) that contemplates that securities will or may be issued, subscribed or acquired for the scheme.

        Note Securities is defined in the glossary.
        (2) However, this rule, does not apply to—
        (a) an option; or
        (b) a purchase of a transferable security that gives a right to—
        (i) subscribe for or acquire a transferable security; or
        (ii) convert a transferable security into another transferable security.

        Note Option is defined in the glossary. Transferable security is defined in r 7.1.6.
        (3) Any power in this chapter to invest in transferable securities may be used by the QFC retail scheme for the purpose of entering into an agreement to which this rule applies, subject to any restriction in the constitutional document being complied with.

        Note Constitutional document is defined in r 3.1.1.
        (4) The exposure of the QFC retail scheme to agreements to which this rule applies must, on any day, be—
        (a) covered under rule 7.5.1 (Cover for transactions in derivatives and forward transactions—QFC retail schemes); and
        (b) such that, if all possible obligations arising under them had immediately to be met in full, there would be no breach of this chapter.
        (5) In this rule:

        agreement includes understanding.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)

      • COLL 7.7.7 Guarantees and Indemnities—QFC Retail Schemes

        (1) A QFC retail scheme, and the independent entity of a QFC retail scheme, must not provide any guarantee or indemnity in relation to the obligation of any person.
        (2) None of the scheme property of a QFC retail scheme may be used to discharge any obligation arising under a guarantee or indemnity in relation to the obligation of any person.
        (3) This rule does not apply to any of the following:
        (a) any indemnity or guarantee given for margin requirements if the derivatives or forward transactions are being used in accordance with the provisions of this chapter;

        Note Margin and derivative are defined in the glossary.
        (b) any indemnity given to the independent entity against any liability incurred by it in safeguarding the scheme property;
        (c) any indemnity given by the scheme or the independent entity to another person if—
        (i) the other person is engaged to assist the independent entity to safeguard any of the scheme property; and
        (ii) the indemnity is against any liability incurred by the other person in safeguarding scheme property;
        (d) for a CIC or CIP—an indemnity given to a person winding up a corporation or scheme (the relevant entity) if the indemnity is given for the purposes of arrangements by which all or part of the property of the relevant entity becomes the first property of the CIC or CIP and the shareholders or unitholders of the relevant entity become the first unitholders of the CIC or CIP;

        Note CIC and CIP are defined in r 1.3.7 and 1.3.8 respectively. Corporation is defined in the glossary.
        (e) for a CIT—an indemnity given to a person winding up a corporation or scheme if all or part of the property of the corporation or scheme is to become part of the scheme property of the CIT by way of unitisation.

        Note CIT is defined in r 1.3.9. Unitisation is defined in the glossary.
        Derived from QFCRA RM/2010-05 (as from 1st January 2011)