• 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)