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)