COLL 5.1.6 Transactions with Affected Persons—Additional Restrictions for QFC Retail Schemes

(1) The operator of a QFC retail scheme must take reasonable care to ensure that the following transactions, arrangements or agreements are not entered into:
(a) the putting of cash on deposit by the scheme with an affected person, unless that person is an authorised firm or regulated financial institution and the transaction complies with the arm's length requirement in subrule (2);

Note Deposit, authorised firm and regulated financial institution are defined in the glossary.
(b) the lending of money by an affected person to or for the scheme, unless the affected person is an authorised firm or regulated financial institution and the transaction complies with the arm's length requirement in subrule (2);
(c) the dealing in property by an affected person with or in relation to the scheme (or the independent entity acting for the scheme), unless subrule (3) applies;

Note Deal is defined in the glossary.
(d) the vesting of property (other than cash) by an affected person in the scheme (or with the independent entity acting for the scheme) against the issue of units in the scheme, unless—
(i) subrule (3) applies; or
(ii) the purpose of the vesting is for—
(A) all or part of the property of a corporation or another collective investment scheme to become the first property of the QFC retail scheme; and
(B) holders of shares or units in the corporation or other collective investment scheme to become the first unitholders in the QFC retail scheme;

Note Corporation is defined in the glossary.
(e) the acquisition of scheme property by an affected person from the scheme (or the independent entity acting for the scheme), unless subrule (3) applies or the acquisition is otherwise permitted by the constitutional document or under these rules;

Note See r 8.1.20 (Issue or redemption otherwise than for cash—QFC retail schemes).
(f) a stock lending arrangement or repo agreement with or in relation to the scheme, unless the transaction complies with the arm's length requirement in subrule (2).

Note Stock lending arrangement and repo agreement are defined in the glossary.
(2) A transaction mentioned in subrule (1) (a), (b) or (f) must be as favourable to the scheme as any comparable arrangement on normal commercial terms negotiated at arm's length between the affected person and an independent third party.
(3) A transaction does not breach subrule (1) (c), (d) or (e) if the transaction complies with—
(a) subrule (4) (the best execution on-exchange requirement); or
(b) subrule (5) (the independent valuation requirement); or
(c) subrule (6) (the arm's length transaction requirement).
(4) For subrule (3), the transaction complies with this subrule (the best execution on-exchange requirement) if—
(a) the property is an approved derivative or approved security; and

Note Approved derivative is defined in r 7.1.8. Approved security is defined in r 7.1.9.
(b) the transaction is effected under the rules of the relevant market with or through a person who is bound by those rules; and
(c) there is written evidence of the effecting of the transaction and its terms; and
(d) the operator has taken all reasonable steps to ensure that the transaction is effected on the terms that are the best available for the scheme.
(5) For subrule (3), the transaction complies with this subrule (the independent valuation requirement) if—
(a) the value of the property is certified in writing for the purpose of the transaction by a person approved by the independent entity as—
(i) independent of any affected person; and
(ii) qualified to value property of the relevant kind; and
(b) the independent entity is of the opinion that the terms of the transaction are not likely to result in any material prejudice to unitholders.
(6) For subrule (3), the transaction complies with this subrule (the arm's length transaction requirement) if—
(a) the property is not an approved derivative or approved security; and
(b) it is not reasonably practicable to comply with subrule (5) (the independent valuation requirement); and
(c) the independent entity has reliable evidence that the transaction is or will be on terms that comply with the arm's length requirement in subrule (2).
Derived from QFCRA RM/2010-05 (as from 1st January 2011)