• 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)