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)