• COLL Division 8.2.B COLL Division 8.2.B Valuation and Pricing—QFC Retail Schemes

    Note for div 8.2.B

    The operator of a QFC retail scheme is responsible for valuing the scheme property and for calculating the price of units. This division protects unitholders and potential unitholders by—

    (a) setting out rules to ensure that the price of units is calculated fairly and regularly; and
    (b) allowing the operator to mitigate the effects of any dilution (reduction) in value of the scheme property caused by buying and selling underlying investments as a result of the issue or redemption of units; and
    (c) ensuring that prices are made public in an appropriate way.
    Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.5 Application of Div 8.2.B to Umbrella Schemes—QFC Retail Schemes

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

      Note Umbrella scheme and subscheme are defined in r 1.2.11.
      (2) The currency of a subscheme may, if appropriate, be used for the subscheme instead of the base currency of the umbrella scheme.

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

    • COLL 8.2.6 Duty of Operator to Rectify Breaches of Div 8.2.B—QFC Retail Schemes

      (1) The operator of a QFC retail scheme must take immediate action to rectify any breach of this division.

      Note Breach is defined in the glossary.
      (2) If the breach relates to the incorrect pricing of units in relation to the issue of units, the rectification must extend to the reimbursement or payment of amounts by the operator to unitholders, former unitholders or the scheme.

      Note Issue and money are defined in the glossary.
      (3) However, if the independent entity considers that the breach is of minimal significance or that making the reimbursement or payment would be inappropriate, the independent entity may direct that rectification need not extend to reimbursement or payment.
      (4) The independent entity may consider the breach to be of minimal significance if—
      (a) the independent entity has reviewed the operator's controls (and supporting systems) in accordance with rule 8.2.12 (Review by independent entity of operator's pricing controls etc—QFC retail schemes); and
      (b) the independent entity is satisfied, based on the review, that the operator's pricing controls comply with rule 8.2.11 (Pricing controls of operatorQFC retail schemes); and
      (c) the error in pricing of a unit is less than 0.5% of the correct price.
      (5) If the breach was caused by 1 or more factors or existed over a period, then, in deciding whether the breach is of minimal significance, the independent entity must consider each incorrect price separately.
      (6) To remove any doubt, even though the independent entity considers the breach to be of minimal significance, the independent entity may require reimbursement or payment of amounts by the operator to unitholders, former unitholders or the scheme.
      (7) In deciding under subrule (3) whether reimbursement or payment is inappropriate, the independent entity must take into account the need not to prejudice the rights of unitholders or unitholders of a class of units.
      (8) If the independent entity decides that making the reimbursement or payment would be inappropriate, the independent entity must tell the Regulatory Authority about the breach and its decision immediately, but within 1 business day.

      Examples

      See examples to rule 4.1.4 (2) on the meaning of 'within 1 business day'.

      Note See also r 4.2.4 (Duty of independent entity to report certain breaches of law etc—all QFC schemes).
      (9) The independent entity must give the Regulatory Authority any information about the breach and its decision that the authority reasonably requires.
      (10) The independent entity must satisfy itself that any reimbursement or payment required under this rule is accurately and promptly calculated and paid.
      (11) This rule does not require reimbursement to unitholders or former unitholders of amounts that the operator and independent entity reasonably consider to be immaterial.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.7 Valuation Requirement——QFC Retail Schemes

      To calculate the price of units in a QFC retail scheme, the operator must conduct a fair and accurate valuation of all scheme property, on a forward price basis, in accordance with—

      (a) these rules; and
      (b) the constitutional document and latest filed prospectus.

      Note Constitutional document is defined in r 3.1.1. Forward price and latest filed prospectus are defined in the glossary.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.8 General Rules for Valuation of Scheme Property—QFC Retail Schemes

      (1) The operator of a QFC retail scheme must value the scheme's investments using a reputable source.
      (2) The operator must keep the reliability of the source of prices under regular review.
      (3) For some or all of the investments held as part of the scheme property, the operator may quote different prices according to whether they are being bought (offer prices) or sold (bid prices).
      (4) The valuation of investments held as part of the scheme property must reflect their mid-market value.
      (5) If single prices are quoted for both buying and selling investments, the latest filed prospectus must explain how the investments must be valued.

      Note Latest filed prospectus is defined in the glossary.
      (6) If the scheme invests in approved money-market instruments, the operator must value an approved money-market instrument on an amortised cost basis if the instrument has a residual maturity of less than 3 months and has no specific sensitivity to market parameters, including credit risk.

      Note Approved money-market instrument is defined in r 7.1.5.
      (7) Any part of the scheme property that is not an investment must be valued at fair value. An interest in an immovable held by a QFC retail property fund must be valued by the fund's standing independent valuer under rule 12.5.6.

      Note Under rules 12.3.2 (3) and 12.5.6, an investment in an intermediate holding vehicle for the purpose of holding an immovable:
      (a) must be treated as if it were a direct investment in the immovable; and
      (b) must be valued as an immovable.
      (8) Any fiscal charges, commissions, professional fees or other charges that were paid, or would be payable, on acquiring or disposing of an investment or other part of the scheme property must be excluded from the value of the investment or other part of the scheme property.
      (9) The operator must—
      (a) document the basis of valuation of the scheme property (including any fair value pricing policy for rule 8.2.9) and, if appropriate, the basis of any methodology; and
      (b) act consistently and fairly in making a valuation.
      Amended by QFCRA RM/2016-1 (as from 19th September 2016)

    • COLL 8.2.9 Fair Value Pricing for Securities—QFC Retail Schemes

      (1) If the operator of a QFC retail scheme has reasonable grounds to believe—
      (a) that no reliable price exists for a security at a valuation point; or
      (b) that the most recent price available for a security does not reflect the operator's best estimate of the value of the security at the valuation point;
      the operator must value the security at a price that, in its opinion, reflects a fair and reasonable price for the security (the fair value price).

      Note Security and valuation point are defined in the glossary.
      (2) Without limiting subrule (1), the operator may use the fair market price for the security if—
      (a) there has been no recent trade in the security; or
      (b) a significant event has happened since the most recent closure of the market where the price of the security is taken.
      (3) For subrule (2) (b), an event is significant if, because of the event, the most recent price of the security (or a basket of securities that includes the security) is materially different from the price that the operator believes on reasonable grounds would have existed at the valuation point had the relevant market been open.
      (4) In deciding whether to use a fair value price for the security, the operator must consider the following:
      (a) the nature of the QFC retail scheme;
      (b) the kind of security;
      (c) the basis and reliability of the alternative price used;
      (d) the operator's policy on the valuation of scheme property as disclosed in the latest filed prospectus.
      (5) Subrule (4) does not limit the matters the operator may consider.
      (6) If the unit price is calculated by the operator using—
      (a) properly applied fair value prices in accordance with this rule; and
      (b) a documented fair value pricing policy for the scheme;
      any subsequent information that indicates that the price should (or should perhaps) have been different from the price calculated by the operator does not, of itself, establish that the price was incorrectly calculated by the operator.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.10 Valuation Points—QFC Retail Schemes

      (1) A QFC retail scheme must not have less than 2 regular valuation points in any month and, if there are only 2 valuation points in any month, the regular valuation points must be at least 2 weeks apart.

      Note The prospectus of a QFC retail scheme must contain information about its regular valuation points for the purpose of dealing in units in accordance with rule S4.15 (Valuation and pricing).
      (2) No valuation points are required during the initial offer period.

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

    • COLL 8.2.11 Pricing Controls of Operator—QFC Retail Schemes

      (1) The operator of a QFC retail scheme must be able to demonstrate that it has effective controls over its calculations of unit prices.
      (2) Without limiting subrule (1), the controls must be appropriate to ensure that—
      (a) prices of units are calculated in accordance with this division; and
      (b) the likelihood of incorrect prices is minimised.
      (3) In particular, the controls must ensure all the following:
      (a) asset prices are accurate and up-to-date;
      (b) investment transactions are accurately and promptly reflected in valuations;
      (c) the components of the valuation (including stock, cash, and units in issue) are regularly reconciled to their source or prime records and any reconciling items resolved promptly and debtors reviewed for recoverability;
      (d) sources of prices not obtained from the main pricing source are recorded and regularly reviewed;
      (e) compliance with investment and borrowing powers is regularly reviewed;
      (f) dividends are accounted for as soon as securities are quoted ex-dividend (unless it is prudent to account for them on receipt);
      (g) fixed interest dividends, interest and expenses are accrued at each valuation point;
      (h) tax positions are regularly reviewed and adjusted, if necessary;
      (i) reasonable tolerances are set for movements in the key elements of a valuation, and movements outside the tolerances are investigated;
      (j) the operator regularly reviews the portfolio valuation for accuracy;
      (k) valuation of OTC derivatives is accurate, up-to-date and complies with methods agreed with the independent entity.

      Note OTC derivative is defined in the glossary.
      (4) In exercising its pricing controls, the operator may exercise reasonable discretion in deciding the appropriate frequency of the operation of the controls and may choose a longer interval, if appropriate, given the level of activity in the scheme or the materiality of any effect on the price.
      (5) The operator must keep records to demonstrate the exercise of effective pricing controls.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.12 Review by Independent Entity of Operator's Pricing Controls Etc—QFC Retail Schemes

      (1) This rule sets out the reviews that the independent entity of a QFC retail scheme must conduct to be satisfied that the operator has controls that are appropriate to ensure that—
      (a) prices of units are calculated in accordance with this division; and
      (b) the likelihood of incorrect prices is minimised.
      (2) A review must extend to pricing functions that the operator has outsourced to a third party.
      (3) In conducting a review, the independent entity must—
      (a) thoroughly examine the operator's controls (and supporting systems) to confirm that they are appropriate; and
      (b) analyse the controls (and supporting systems) to decide the extent to which reliance can be placed on them.
      (4) A review must be conducted when the independent entity is appointed and afterwards as it considers appropriate given its knowledge of the robustness and stability of the operator's controls (and supporting systems).
      (5) A review must be conducted more frequently if the independent entity knows or suspects that the operator's controls (or any supporting systems) are weak or otherwise unsatisfactory.
      (6) In addition, the independent entity must from time to time review other aspects of the valuation of the scheme property, verifying on a sample basis, if necessary—
      (a) the assets, liabilities, accruals, units in issue and securities prices (and in particular the prices of securities that are not approved securities and the basis for the valuation of unquoted securities); and

      Note Approved security is defined in r 7.1.9.
      (b) any other relevant matter (for example, an accumulation factor or a currency conversion factor).
      (7) The independent entity must ensure that any issue identified in a review is properly followed up and resolved.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.13 Recording and Reporting Incorrect Pricing—QFC Retail Schemes

      (1) The operator must make and keep a record of each instance where the price of a unit is incorrect.
      (2) The record must be made as soon as the error is discovered.
      (3) The operator must—
      (a) report each instance to the independent entity as soon a practicable; and
      (b) give the independent entity details of the action taken, or to be taken, to avoid repetition of the error.

      Note Rule 4.2.4 deals with the duty of the independent entity to report certain breaches of the law.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.14 Prices of Units—QFC Retail Schemes

      (1) The operator of a QFC retail scheme must ensure that the price of a unit in any class is calculated—
      (a) by reference to the scheme's net asset value at the relevant time; and
      (b) in accordance with these rules, the constitutional document and the latest filed prospectus.

      Note Class, net asset value and latest filed prospectus are defined in the glossary. Constitutional document is defined in r 3.1.1.
      (2) To remove any doubt and without limiting subrule (1), the constitutional document or the latest filed prospectus (or both) may make provision for large deals to be conducted at a higher issue price or lower redemption price than those published for the scheme, if the prices do not exceed the relevant maximum and minimum limits applying under this division.

      Note Large deal and redemption are defined in the glossary.
      (3) Any unit price calculated in accordance with subrule (1) must be expressed in a form that is accurate to at least 4 significant figures.
      (4) For each class of units, a single price must be calculated at which units are to be issued and redeemed.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.15 Issue and Redemption Prices—QFC Retail Schemes

      The operator of a QFC retail scheme must not—

      (a) issue a unit for more than the price of a unit in the relevant class at the relevant valuation point, plus—
      (i) any issue charge permitted under rule 8.6.4 (Charges on buying and selling units—QFC retail schemes); and
      (ii) any payments required under rule 8.2.16 (Dilution—QFC retail schemes); or
      (b) redeem a unit for less than the price of a unit in the relevant class at the relevant valuation point, less—
      (i) any redemption charge permitted under rule 8.6.4; and
      (ii) any deductions required under rule 8.2.16.

      Note Class, valuation point, issue charge and redemption charge are defined in the glossary.

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

    • COLL 8.2.16 Dilution—QFC Retail Schemes

      (1) In issuing or redeeming units in a QFC retail scheme, the operator must include in the unit price the dilution adjustment the operator considers necessary to reduce the effect of dilution.

      Note 1 Issue, redemption, dilution adjustment and dilution are defined in the glossary.

      Note 2 See the independent entity's duties under r 8.2.17 (Particular duties of independent entity in relation to dilution—QFC retail schemes).
      (2) In issuing or redeeming units in a QFC retail scheme, the operator may, in exceptional circumstances, require the payment or deduction of a dilution levy for the purpose of reducing the effect of dilution if the independent entity has agreed that the levy should be required.

      Note Dilution levy is defined in the glossary.
      (3) In applying a dilution adjustment or dilution levy, the operator must act in a fair way to reduce dilution and solely for that purpose.

      Note Dilution is defined in the glossary.
      (4) A dilution adjustment is made—
      (a) as part of the calculation of the unit price for the purpose of reducing dilution in the scheme; or
      (b) to recover any amount the scheme has paid, or the operator reasonably expects it to pay, in relation to the issue or redemption of units.
      (5) A dilution levy is payable at the same time as payment or transfer of property is required for the issue or redemption.
      (6) As soon as practicable after a valuation point, the operator must tell the independent entity the rate or amount of any dilution adjustment or dilution levy.

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

    • COLL 8.2.17 Particular Duties of Independent Entity in Relation to Dilution—QFC Retail Schemes

      (1) The independent entity must take reasonable care to ensure that—
      (a) the operator considers whether or not to exercise the power under rule 8.2.16 (Dilution—QFC retail schemes) to require a dilution levy and, if applicable, the rate or amount of any dilution levy that is required; or

      Note Dilution levy is defined in the glossary.
      (b) the operator has, in considering the matters mentioned in paragraph (a), taken into account all factors that are material and relevant to the operator's decision; and
      (c) the operator has, in considering whether to exercise the power under rule 8.2.16 to require a dilution levy, acted in accordance with the restrictions of that rule.

      Note See r 4.2.3 (2) for other duties of the independent entity in relation to pricing.
      (2) To remove any doubt, the independent entity has no duty in relation to the operator's exercise of any discretion mentioned in subrule (1).
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)

    • COLL 8.2.18 Publication of Prices—QFC Retail Schemes

      (1) The operator of a QFC retail scheme must make dealing prices public in an appropriate way.

      Note Deal is defined in the glossary.
      (2) In deciding the appropriate way of making prices public, the operator must ensure all the following requirements are met:
      (a) that a unitholder or potential unitholder can obtain the prices at a reasonable cost;
      (b) that prices are available at reasonable times;
      (c) that publication is consistent with the way and frequency at which the units are dealt in;
      (d) that the way prices are made public is disclosed in the latest filed prospectus;

      Note Latest filed prospectus is defined in the glossary.
      (e) that prices are published in a consistent way.
      (3) Without limiting subrule (1), publication in the following ways may be appropriate:
      (a) publication in a national newspaper;
      (b) supply through an advertised local rate or freephone telephone number;
      (c) publication on the internet;
      (d) inclusion in a database of prices that is publicly available;
      (e) communication to all existing unitholders.
      (4) The operator must make previous prices available to any unitholder or potential unitholder on request.
      Derived from QFCRA RM/2010-05 (as from 1st January 2011)