1. (1)

   This chapter applies in relation to ICVCs and AUTs which:

   1. (a)

      are not UCITS schemes; or

   2. (b)

      were UCITS schemes when their authorisation order was made and operate under Transitional provision 14.

2. (2)

   This section (CIS 5A.1) applies to authorised fund managers and depositaries of schemes within (1).1

This section (CIS 5A.2) applies to authorised fund managers, except :

1. (1)

   CIS 5A.2.13 R (Significant influence for ICVCs), which applies only to ICVCs;

2. (2)

   CIS 5A.2.14 R (Significant influence for managers of AUTs), which applies only to managers of AUTs; and

3. (3)

   CIS 5A.2.15 R (Concentration), which also applies to ICVCs.

An authorised fund manager must ensure that, taking account of the investment objectives and policy of the authorised fund as stated in the most recently published prospectus of the authorised fund, the scheme property of the authorised fund aims to provide a prudent spread of risk.

1. (1)

   The scheme property of an authorised fund may, subject to the rules in this chapter, comprise any assets or investments to which it is dedicated. For ICVCs, the scheme property may also include movable or immovable property that is necessary for the direct pursuit of the ICVC's business of investing in those assets or investments.

2. (2)

   The scheme property of each authorised fund must be invested only in accordance with the relevant provisions in this chapter that are applicable to that authorised fund and within any upper limit in this chapter. However, the instrument constituting the scheme may further restrict:

   1. (a)

      the kind of property in which the scheme property may be invested;

   2. (b)

      the proportion of the capital property of the authorised fund to be invested in assets of any description;

   3. (c)

      the descriptions of transactions permitted; and

   4. (d)

      the borrowing powers of the authorised fund.

1. (1)

   In this chapter, the value of the scheme property of an authorised fund means the net value of the scheme property determined in accordance with CIS 4.8 (Valuation) (for ICVCs and single-priced AUTs) or CIS 15.8 (Valuation) (for dual-priced AUTs), after deducting any outstanding borrowings (including, in the case of a property scheme, any capital outstanding on a mortgage of an immovable), whether immediately due to be repaid or not.

2. (2)

   When valuing the scheme property for this chapter:

   1. (a)

      the time as at which the valuation is being carried out ("the relevant time") is treated as if it were a valuation point, but the valuation and the relevant time do not count as a valuation or a valuation point for the purposes of CIS 4 (for ICVCs and single-priced AUTs) and CIS 15 (for dual-priced AUTs);

   2. (b)

      initial outlay is regarded as remaining part of the scheme property;

   3. (c)

      if the authorised fund manager having taken reasonable care determines that the authorised fund will become entitled to any unrealised profit which has been made on account of a transaction in derivatives, that prospective entitlement is regarded as part of the scheme property; and

   4. (d)

      for a dual-priced AUT, CIS 15.8.4 R (Valuation) applies to any valuation of the scheme property for the purposes of this chapter, and in applying CIS 15.8.4 R (Valuation):

      1. (i)

         the cancellation basis only is required; and

      2. (ii)

         paragraphs 1 to 8, 11 and 23 are not applicable.

1. (1)

   Where a rule in this chapter allows a transaction to be entered into or an investment to be retained only if possible obligations arising out of the investment transactions or out of the retention would not cause any breach of any limits in this chapter:

   1. (a)

      it must be assumed that the maximum possible liability of the authorised fund under any other of those rules has also to be provided for; and

   2. (b)

      the scheme property must be valued in accordance with CIS 4.8 (Valuation) (for ICVCs and single-priced AUTs) or CIS 15.8 (Valuation) (for dual-priced AUTs).

2. (2)

   Where a rule in this chapter permits an investment transaction to be entered into or an investment to be retained only if that investment transaction, or the retention, or other similar transactions, are covered:

   1. (a)

      it must be assumed that in applying any of those rules, the authorised fund must also simultaneously satisfy any other obligation relating to cover; and

   2. (b)

      no element of cover must be used more than once.

1. (1)

   An investment is not a transferable security if the title to it cannot be transferred, or can be transferred only with the consent of a third party.

2. (2)

   In applying (1) to an investment which is issued by a body corporate, and which is an investment falling within articles 76 (Shares, etc) or 77 (Instruments creating or acknowledging indebtedness) of the Regulated Activities Order, the need for any consent on the part of the body corporate or any members or debenture holders of it may be ignored.

3. (3)

   An investment is not a transferable security unless the liability of the holder of it to contribute to the debts of the issuer is limited to any amount for the time being unpaid by the holder of it in respect of the investment.

Units in a collective investment scheme do not fall within CIS 5A.4.5 R (Securities Schemes : Investment in collective investment schemes), CIS 5A.5.3 R (2)(e) (Money market schemes: general), CIS 5A.6.7 R (Investment in collective investment schemes) (for futures and options schemes), CIS 5A.7.8 R (for geared futures and options schemes) or CIS 5A.8.7 R (for property schemes) if that collective investment scheme is managed or operated by (or, if it is an ICVC, has as its ACD) the authorised fund manager of the investing authorised fund or an associate of that authorised fund manager, unless:

1. (1)

   the instrument constituting the scheme in which the authorised fund is investing states that investment by that scheme will be restricted or specialised in terms of a particular geographic area or economic sector;

2. (2)

   the instrument constituting the scheme of the investing authorised fund and its prospectus clearly state that the property of the investing authorised fund may include such units; and

3. (3)

   CIS 5A.2.11 R (Investment in other group schemes) is complied with.

1. (1)

   An authorised fund must not invest in or dispose of units in another collective investment scheme (the second scheme), which is managed or operated by (or in the case of an ICVC, whose ACD is):

   1. (a)

      the authorised fund manager of such authorised fund; or

   2. (b)

      an associate of that authorised fund manager;

   unless the authorised fund manager of the authorised fund is under a duty to pay to the authorised fund by the close of business on the fourth business day next after the agreement to buy or to sell the amount referred to in (2) and (3).

2. (2)

   On investment, either:

   1. (a)

      any amount by which the consideration paid by the authorised fund for the units in the second scheme exceeds the price that would have been paid for the benefit of the second scheme had the units been newly issued or sold by it; or

   2. (b)

      if such price cannot be ascertained by the authorised fund manager of the authorised fund, the maximum amount of any charge permitted to be made by the seller of units in the second scheme.

3. (3)

   On disposal, the amount of any charge made for the account of the authorised fund manager or operator of the second scheme or an associate of any of them in respect of the disposal.

4. (4)

   In (1), (2) and (3):

   1. (a)

      any addition to or deduction from the consideration paid on the acquisition or disposal of units in the second scheme, which is applied for the benefit of the second scheme and is, or is like, a dilution levy made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or SDRT provision made in accordance with CIS 4.6.3 R (for ICVCs and single-priced AUTs) or CIS 15.6.3 R (for dual-priced AUTs) is to be treated as part of the price of the units and not as part of any charge; and

   2. (b)

      any charge made in respect of an exchange of units in one sub-fund or separate part of the second scheme for units in another sub-fund or separate part of that scheme is to be included as part of the consideration paid for the units.

Where a reference to an authorised fund of a particular type is made in CIS 5A.5.3 R (2)(e) (Money market schemes: general), CIS 5A.6.7 R (Investment in collective investment schemes) (for futures and options schemes), CIS 5A.7.8 R (for geared futures and options schemes) or CIS 5A.8.7 R (for property schemes), that reference is to be treated as a reference also to: 1

1. (1)

   a sub-fund which would, if it were the subject of a separate authorisation order be an authorised fund of that particular type; and1

2. (2)

   a separate part of a recognised scheme that is equivalent to a sub-fund within (1).

1. (1)

   An ICVC must not acquire transferable securities issued by a body corporate and carrying rights to vote (whether or not on substantially all matters) at a general meeting of that body corporate if:

   1. (a)

      immediately before the acquisition, the aggregate of any such securities held by the ICVC gives the ICVC power significantly to influence the conduct of business of that body corporate; or

   2. (b)

      the acquisition gives the ICVC that power.

2. (2)

   For the purpose of (1), an ICVC is to be taken to have power significantly to influence the conduct of business of a body corporate if it can, because of the transferable securities held by it, exercise or control the exercise of 20% or more of the voting rights in that body corporate (disregarding for this purpose any temporary suspension of voting rights in respect of the transferable securities of that body corporate).

3. (3)

   This rule (CIS 5A.2.13 R) does not apply to investment by a property scheme in property related assets.

1. (1)

   A manager must not acquire, or cause to be acquired for an AUT of which it is the manager, transferable securities issued by a body corporate and carrying rights to vote (whether or not on substantially all matters) at a general meeting of the body corporate if:

   1. (a)

      immediately before the acquisition, the aggregate of any such securities held for that AUT, taken together with any such securities already held for other AUTs of which it is also the manager, gives the manager power significantly to influence the conduct of business of that body corporate; or

   2. (b)

      the acquisition gives the manager that power.

2. (2)

   In (1), a manager is to be taken to have power significantly to influence the conduct of business of a body corporate if it can, because of the transferable securities held for all the AUTs of which it is the manager, exercise or control the exercise of 20% or more of the voting rights in that body corporate (disregarding for this purpose any temporary suspension of voting rights in respect of the transferable securities of that body corporate).

3. (3)

   This rule (CIS 5A.2.14 R) does not apply to investment by a property scheme in property related assets.

An authorised fund must not hold:

1. (1)

   transferable securities (other than debt securities) which:

   1. (a)

      do not carry a right to vote on any matter at a general meeting of the body corporate that issued them; and

   2. (b)

      represent more than 10% of those securities issued by that body corporate;

2. (2)

   more than 10% of the debt securities issued by any single issuing body; and

3. (3)

   except in the case of a fund of funds scheme and a feeder fund, more than 10% of the units in a collective investment scheme.

This section (CIS 5A.3) applies to authorised fund managers, except CIS 5A.3.3 R (2)(d), which applies to depositaries.

1. (1)

   A securities market is eligible for the purposes of the rules in this sourcebook if it is a market established in an EEA State on which transferable securities admitted to the official list1 in the EEA State are dealt in or traded.

   1
2. (2)

   A securities market not falling within (1) or a derivatives market is, at any time, eligible for the purposes of the rules in this sourcebook if:

   1. (a)

      the authorised fund manager, after consultation with the depositary (and in the case of an ICVC, any directors in addition to the ACD), has decided to choose that market as one which is appropriate for the purpose of investment of, or dealing in, the scheme property beyond, where appropriate, any limit which under the rules in this chapter would otherwise apply;

   2. (b)

      the decision is notified in writing to the depositary and has not been revoked;

   3. (c)

      the market is included in a list in the prospectus; and

   4. (d)

      the depositary has taken reasonable care to determine that:

      1. (i)

         adequate custody arrangements can be provided for the investments dealt in on the market in question; and

      2. (ii)

         all reasonable steps have been taken by the authorised fund manager in deciding whether the market in question is eligible.

3. (3)

   In (2), a market must not be considered appropriate unless it:

   1. (a)

      is regulated (CIS 5A.3.5 G);

   2. (b)

      operates regularly (CIS 5A.3.6 G);

   3. (c)

      is recognised (CIS 5A.3.7 G); and

   4. (d)

      is open to the public (CIS 5A.3.8 G).

4. (4)

   In exercising the choice in (2), the authorised fund manager must have regard to:

   1. (a)

      whether the market is adequately liquid (CIS 5A.3.9 G); and

   2. (b)

      the arrangements relevant to the market for unimpeded transmission of income and capital to or to the order of investors.

This section (CIS 5A.4) applies to authorised fund managers of securities schemes.

1. (1)

   The scheme property of a securities scheme must, except where otherwise provided in the rules in this chapter, only consist of transferable securities.

2. (2)

   Not more than 10% in value of the scheme property of a securities scheme is to consist of transferable securities which are not approved securities, but there is no limit on the value of the scheme property which is to consist of approved securities.

3. (3)

   Not more than 5% in value of the scheme property is to consist of transferable securities which are units in collective investment schemes, and those units must fall within CIS 5A.4.5 R(Securities Schemes : Investment in collective investment schemes).

4. (4)

   Investment under (3) counts towards the limit in (2) (except where the units are approved securities).

5. (5)

   CIS 5A.4.3 R(Spread: general) and CIS 5A.4.4 R(Spread: government and public securities) do not apply until the earlier of:

   1. (a)

      the expiry of a period of six months after the date of effect of the authorisation order in respect of the authorised fund (or on which the initial offer commenced if later); or

   2. (b)

      the date when the value of the scheme property of the securities scheme first exceeds £2 million (or the equivalent in the base currency of the securities scheme).

6. (6)

   The following sections also apply to securities schemes:

   1. (a)

      CIS 5A.2(General investment powers and limits for authorised funds);

   2. (b)

      CIS 5A.13(Efficient portfolio management);

   3. (c)

      CIS 5A.14(Stock lending);

   4. (d)

      CIS 5A.15(Cash, borrowing, lending and other provisions); and

   5. (e)

      CIS 5A.16(Cover for sales).

1. (1)

   This rule (CIS 5A.4.3 R) does not apply to government and public securities.

2. (2)

   Not more than 5% in value of the scheme property is to consist of transferable securities issued by any one issuer.

3. (3)

   In applying (2), certificates representing certain securities are treated as equivalent to the underlying security.

4. (4)

   The figure of 5% in (2) may be increased to 10% in respect of up to 40% of the value of the scheme property.

1. (1)

   This rule (CIS 5A.4.4 R) applies to government and public securities ("such securities") only.

2. (2)

   As long as no more than 35% of the value of the scheme property of an authorised fund is invested in such securities issued by any one issuer, there is no limit on the amount which may be invested in such securities or such securities issued by any one issuer or of any one issue.

3. (3)

   No more than 35% in value is to be invested in such securities issued by any one issuer unless the authorised fund manager, after consultation with the depositary, considers the issuer of such securities as one which is appropriate in accordance with the investment objectives of the authorised fund.

4. (4)

   Where more than 35% in value of the scheme property is invested in such securities issued by any one issuer:

   1. (a)

      up to 30% in value of the scheme property may consist of such securities of any one issue;

   2. (b)

      the scheme property must include such securities issued by that or another issuer, of at least six different issues; and

   3. (c)

      the disclosures in (5) must have been duly made.

5. (5)

   Where it is intended that (3) and (4) may apply, the instrument constituting the scheme, and the most recently published prospectus, must clearly state:

   1. (a)

      the fact that more than 35% in value of the scheme property is or may be invested in government and public securities issued by one issuer; and

   2. (b)

      the names of the States, and of the local authorities or public international bodies or both in whose government and public securities the authorised fund may invest over 35% of its assets.

6. (6)

   In (2), (3), (4) and (5), in relation to government and public securities:

   1. (a)

      issue, issued and issuer include guarantee, guaranteed and guarantor; and

   2. (b)

      an issue differs from another if there is a difference as to repayment date, rate of interest, guarantor or other material terms of the issue.

A securities scheme may invest in units in a collective investment scheme only if the second scheme is a collective investment scheme that complies with the conditions necessary for it to enjoy the rights conferred by the UCITS directive or is a collective investment scheme that:

1. (1)

   complies with section 243(10) of the Act (Authorisation orders: entitlement to have units redeemed) or is treated as complying with it by section 243(11) of the Act;

2. (2)

   is either:

   1. (a)

      a recognised scheme; or

   2. (b)

      a collective investment scheme constituted outside the United Kingdom in which the investments of the scheme consist of units which are approved securities;

3. (3)

   is dedicated to investing funds raised from the public in transferable securities;

4. (4)

   operates on the principle of risk spreading; and

5. (5)

   has terms which prohibit more than 5% in value of the property of the scheme consisting of units in collective investment schemes.

1. (1)

   A warrant ("the proposed warrant") falls within any power of investment only if, on the assumptions that:

   1. (a)

      there is no change to the scheme property between the acquisition of the proposed warrant and its exercise; and

   2. (b)

      the rights conferred by the proposed warrant and all other warrants forming part of the scheme property at the time of the acquisition of the proposed warrant will be exercised (whether or not it is intended that they will be);

   it is reasonably foreseeable that the right conferred by the proposed warrant could be exercised by the authorised fund without contravening the rules in this chapter.

2. (2)

   A transferable security on which any sum is unpaid falls within a power of investment only if it is reasonably foreseeable that the amount of any existing and potential call for any sum unpaid could be paid by the authorised fund, at the time when payment is required, without contravening the rules in this chapter.

3. (3)

   Not more than 5% in value of the scheme property is to consist of warrants.

4. (4)

   A warrant which is an investment falling within article 80 of the Regulated Activities Order (Certificates representing certain securities) and which is akin to an investment falling within article 79 (Instruments giving entitlement to investments) of the Regulated Activities Order may not be included in the scheme property unless it is listed on an eligiblesecurities market. 1

This section (CIS 5A.5) applies to authorised fund managers of money market schemes.

1. (1)

   The scheme property of a money market scheme must, except where otherwise provided in the rules in this chapter, consist of "money market scheme assets".

2. (2)

   For this purpose, "money market scheme assets" means any of:

   1. (a)

      cash and near cash;

   2. (b)

      bills of exchange accepted by an eligible institution or an approved bank, if repayable within 12 months;1

   3. (c)

      instruments creating or acknowledging indebtedness which are:

      1. (i)

         repayable within 12 months;

      2. (ii)

         not subordinated; and

      3. (iii)

         either approved securities or investments which are issued by an eligible institution or an approved bank otherwise than in return for a deposit in (a);1

   4. (d)

      a deposit which would be within (a) (near cash) except that it is repayable within six months (instead of immediately) and without payment of a penalty exceeding seven days' interest calculated at ordinary commercial rates; and

   5. (e)

      units in one or more regulated collective investment schemes, each of which is either a money market scheme or a scheme of a category that is equivalent to a money market scheme.

3. (3)

   The following also apply to money market schemes:

   1. (a)

      CIS 5A.2 (General investment powers and limits for authorised funds);

   2. (b)

      CIS 5A.4.6 R (2) (Investment in warrants and nil or partly paid securities);

   3. (c)

      CIS 5A.13 (Efficient portfolio management);

   4. (d)

      CIS 5A.14 (Stock lending);

   5. (e)

      CIS 5A.15 (Cash, borrowing, lending and other provisions); and

   6. (f)

      CIS 5A.16 (Cover for sales).

1. (1)

   At least 50% in value of the scheme property of a money market scheme must consist of instruments or deposits which are permitted under CIS 5A.5.3 R (Money market schemes: general) and which are:

   1. (a)

      redeemable or repayable within two weeks; or

   2. (b)

      in the case of instruments, capable of being transferred without the consent of a third party (and for this purpose the issuer of the instrument must be regarded as a third party).

2. (2)

   Not more than 80% in value of the scheme property is to consist of transferable securities, in accordance with CIS 5A.4 (Securities schemes) (but excluding investment in units in collective investment schemes under CIS 5A.4.5 R).

1. (1)

   This rule (CIS 5A.5.5 R) does not apply to a money market scheme until the date on which the value of its scheme property first exceeds £1 million (or the equivalent in the base currency of the money market scheme).

2. (2)

   Not more than 5% in value of the scheme property of a money market scheme is to consist of instruments issued by any one issuer; but this limit does not apply to instruments which are government and public securities.

3. (3)

   Not more than 30% in value of the scheme property is to consist of government and public securities of the same issue.

4. (4)

   Where more than 35% in value of the scheme property is invested in government and public securities, it must include such securities of at least six different issues.

5. (5)

   Not more than 5% in value of the scheme property is to consist of units within CIS 5A.5.3 R (2)(e) (Money market schemes: general).

6. (6)

   Whenever the total value of the scheme property of a money market scheme which is held on deposit is more than £1 million:

   1. (a)

      not more than 10% in value is to be kept on deposit with any one person;

   2. (b)

      for the purposes of (a):

      1. (i)

         the depositary and its associates are regarded as one person;

      2. (ii)

         the manager and its associates are regarded as one person; and

      3. (iii)

         each director of an ICVC including the ACD and his or its associates are regarded as one person; and

   3. (c)

      the figure of 10% in (a) may be increased to 20% if:

      1. (i)

         the person is an eligible institution and is not one of the persons referred to in (b); and

      2. (ii)

         the amount of the deposit does not exceed 10% in value of that eligible institution's issued capital and reserves as shown in its most recently published annual accounts.

This section (CIS 5A.6) applies to authorised fund managers of futures and options schemes except:

1. (1)

   CIS 5A.6.6 R (3), which also applies to depositaries of futures and options schemes; and

2. (2)

   CIS 5A.6.14 R, which applies to ICVCs that are futures and options schemes and to trustees of AUTs that are futures and options schemes.

1. (1)

   The scheme property of a futures and options scheme must, except where otherwise provided in the rules in this chapter, consist only of any or all of:

   1. (a)

      transferable securities available to a securities scheme, in accordance with CIS 5A.4 (Securities schemes) (but excluding investment in units in collective investment schemes under CIS 5A.4.5 R);

   2. (b)

      derivatives permitted under this rule (CIS 5A.6.3 R) and CIS 5A.6.4 R - CIS 5A.6.6 R;

   3. (c)

      forward transactions in currencies or gold permitted under this rule (CIS 5A.6.3 R), CIS 5A.6.4 R and CIS 5A.6.5 R;

   4. (d)

      cash or near cash;

   5. (e)

      units in collective investment schemes under CIS 5A.6.7 R (Investment in collective investment schemes); and

   6. (f)

      gold.

2. (2)

   For investment within (1)(a), CIS 5A.4 (Securities schemes) applies as if the futures and options scheme were a securities scheme, but subject to any specific modification in this section (CIS 5A.6).

3. (3)

   For investment within (1)(b) or (1)(c), a transaction in derivatives or a forward transaction must not be effected unless:

   1. (a)

      the transaction is of the kind specified in CIS 5A.6.4 R (Permitted transactions); and

   2. (b)

      the transaction is:

      1. (i)

         fully covered, as required by CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions); or

      2. (ii)

         the subject of deposit arrangements, as required by CIS 5A.6.13 R (Deposit arrangements (for purchased options)).

4. (4)

   Not more than 10% in value of the scheme property is to be used for transactions in derivatives in the form of uncovered purchased options (taking the current market value of the option as its value for this purpose), but there must be deducted from that figure of 10% any percentage of the value of the scheme property invested in transferable securities in the form of warrants.

5. (5)

   Not more than 10% in value is to be held in the form of gold.

6. (6)

   Whenever the total value held on deposit of the scheme property of a futures and options scheme is more than £1 million:

   1. (a)

      not more than 10% in value is to be kept as cash on deposit with any one person;

   2. (b)

      in (a):

      1. (i)

         the depositary and its associates are regarded as one person;

      2. (ii)

         the manager and its associates are regarded as one person; and

      3. (iii)

         each director of an ICVC including the ACD and his or its associates are regarded as one person; and

   3. (c)

      the figure of 10% in (a) may be increased to 20% if:

      1. (i)

         the person is an eligible institution or an approved bank and is not one of the persons referred to in (b); and

      2. (ii)

         the amount of the deposit does not exceed 10% in value of that eligible institution's or an approved bank's issued capital and reserves as shown in its most recently published annual accounts.1

7. (7)

   The following also apply to futures and options schemes:

   1. (a)

      CIS 5A.2 (General investment powers and limits for authorised funds);

   2. (b)

      CIS 5A.13 (Efficient portfolio management);

   3. (c)

      CIS 5A.14 (Stock lending);

   4. (d)

      CIS 5A.15 (Cash, borrowing, lending and other provisions); and

   5. (e)

      CIS 5A.16 (Cover for sales).

1. (1)

   A transaction in derivatives under this section (CIS 5A.6) must be:

   1. (a)

      in an approved derivative; or

   2. (b)

      one which complies with CIS 5A.6.6 R (OTC transactions in derivatives); or

   3. (c)

      a synthetic future.

2. (2)

   Any transaction in an approved derivative must be effected on or under the rules of an eligiblederivatives market.

3. (3)

   Any forward transaction must be with an approved counterparty under CIS 5A.6.6 R (2)(OTC transactions in derivatives).

4. (4)

   Not more than 5% in value of the scheme property is to be directed to initial outlay in respect of over the counter transactions with any one counterparty.

A derivatives or forward transaction (which is a permitted transaction under CIS 5A.6.4 R (Permitted transactions (derivatives and forwards)) which will or could lead to delivery of property for the account of the ICVC or to the trustee for the account of the AUT may be entered into only if:

1. (1)

   that property can be held for the account of the ICVC or can be held by the AUT (or else the transaction is a bought future or bought call option); and

2. (2)

   the authorised fund manager having taken reasonable care determines that delivery of the property under the transaction will not occur or will not lead to a breach of the rules in this sourcebook.

Any transaction in derivatives under CIS 5A.6.4 R (1)(b)must be:

1. (1)

   a future or an option or a contract for differences resembling an option;

2. (2)

   with an approved counterparty; a counterparty to a transaction in derivatives is approved only if the counterparty is:

   1. (a)

      an eligible institution or an approved bank; or1

   2. (b)

      a firm whose permission (including any requirements or limitations), as published in the FSA record, permits it to enter into the transaction as principaloff-exchange;

3. (3)

   on approved terms; the terms of a transaction in derivatives are approved only if, before the transaction is entered into, the depositary is satisfied that the counterparty has agreed with the ICVC or with the manager:

   1. (a)

      to provide a valuation in respect of that transaction (which, for dual-priced AUTs should be on a buying and selling basis) at least once a week and at any other time at the request of the ICVC or manager; and

   2. (b)

      that it will, at the request of the ICVC or manager, enter into a further transaction to close out that transaction, at a reasonable price arrived at under the pricing model or other reliable basis agreed under (4); and

4. (4)

   capable of valuation; a transaction in derivatives is capable of valuation only if the authorised fund manager having taken reasonable care determines that, throughout the life of the derivative (if the transaction is entered into), it will be able to value the investment concerned with reasonable accuracy:

   1. (a)

      on the basis of a pricing model which has been agreed between the authorised fund manager and the depositary; or

   2. (b)

      on some other reliable basis reflecting an up-to-date market value which has been so agreed.

1. (1)

   Investments in units of a collective investment scheme must not be made unless that scheme:

   1. (a)

      is a regulated collective investment scheme which is either a futures and options scheme or a money market scheme or a scheme of a category that is equivalent to the category of one of such schemes; or

   2. (b)

      (after taking account of CIS 5A.2.10 R) (Investment in associated collective investment schemes):

      1. (i)

         is within CIS 5A.4.5 R (Securities schemes: investment in collective investment schemes); or

      2. (ii)

         would be within CIS 5A.4.5 R (Securities schemes: investment in collective investment schemes) if paragraph (3) of that rule read: "is dedicated to investing funds raised from the public in approved and other derivatives (where most or all of the transactions in derivatives are fully covered by cash, securities or other derivatives) whether with or without transferable securities or covered forward transactions in currency or gold."

2. (2)

   Not more than 5% in value of the scheme property of a futures and options scheme is to consist of units in collective investment schemes.

1. (1)

   Except where CIS 5A.6.13 R (1) (Deposit arrangements (purchased options)) applies, a transaction in derivatives or forward transaction is to be entered into under this section (CIS 5A.6) only if the maximum potential exposure created by the transaction, in terms of the principal or notional principal of the derivative contract or forward contract, is:

   1. (a)

      covered individually under (2) or (3); and

   2. (b)

      covered globally under (4).

2. (2)

   Exposure is covered individually if there is, in the scheme property:

   1. (a)

      (in the case of an exposure in terms of property) a transferable security or other property which is of the right kind, and sufficient in amount, to match the exposure; and

   2. (b)

      (in the case of an exposure in terms of money), cash or near cash (or borrowing under CIS 5A.6.14 R (Borrowing)) or transferable securities which is or are, or, on being turned into money in the right currency, will be, sufficient in amount to match the exposure.

3. (3)

   However, exposure to an index or basket of securities or other assets is covered individually for the purposes of (2) if the futures and options scheme holds transferable securities or other property which (taking into account the closeness of the relation between fluctuations in the price of the two) can reasonably be regarded as appropriate to provide cover for the exposure; they may be so regarded even if there is not complete congruence between the cover and the exposure.

4. (4)

   Exposure is covered globally if, after taking account of all the cover required under (2) or (3) for other positions already in existence, adequate cover from within the scheme property is available to enable the fresh transaction to be entered into.

5. (5)

   Whether or not a derivative or forward transaction is available under CIS 5A.6.12 R (Derivatives covering derivatives : requirements) to provide cover for another derivative or forward transaction under this section (CIS 5A.6):

   1. (a)

      the two transactions involved in a synthetic future are to be treated as if they were a single derivative, and the net exposure from the combination is to be covered on the basis of the higher of the cover requirements of the options which make up the synthetic future; and

   2. (b)

      synthetic cash is available to provide cover for a transaction as if it were cash.

6. (6)

   Cash not yet received into the scheme property but due to be received within one month is available as cover for the purposes of (2)(b) and (3).

7. (7)

   Property is not available for cover if it is the subject of a transaction under CIS 5A.14 (Stock lending), unless the authorised fund manager having taken reasonable care determines that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.

1. (1)

   Where an authorised fund manager proposes to use a position resulting from a transaction in derivatives as cover (whether in whole or in part) for the exposure of another transaction in derivatives, CIS 5A.6.9 R (Cover for derivatives and forward transactions) has effect as modified by this ruleCIS 5A.6.12 R).

2. (2)

   On the basis that the requirements of CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions) about the amount and right kind of assets as cover are satisfied, (3) contains the requirements for the purposes of (1).

3. (3)
   1. (a)

      In this rule (CIS 5A.6.12 R) "countervailing" means that one of the two derivatives has an exposure which, in terms of risk, is equal and opposite to the exposure of the other, and "offset" means that there is an equal and opposite coverage in terms of risk.

   2. (b)

      A derivative of one type provides cover for a countervailing derivative of the same type.

   3. (c)

      A derivative of one type provides cover for a countervailing derivative of a different type if, but only if:

      1. (i)

         the right under one offsets and is offset by the obligation under the other; or

      2. (ii)

         Paragraph (g) applies.

   4. (d)

      In applying (b) and (c), differences between the derivatives in terms of price, maturity and exercise price may be ignored, except where (b) is disapplied by (e).

   5. (e)

      Paragraph (b) does not apply if an opportunity to exercise the right under the one derivative will become available to the futures and options scheme only after the first date on which the potential obligation under the other may become an actual obligation.

   6. (f)

      Where, under (b), an authorised fund manager decides that a written option and a bought option should provide mutual cover, the authorised fund manager must arrange for the depositary to deposit and set aside with an eligible institution or an approved bank the whole amount of the difference between the exercise value of the two options (that is the amount which would be payable by or to the futures and options scheme on exercise of the options) inclusive of any margin requirements of the exchange. That amount must not be used for the purposes of providing cover, other than under this paragraph (f), under the rules of this chapter.

   7. (g)

      A written option provides cover for, and is covered by, a countervailing future only if the option is in the money to the purchaser of the option. If the written option is out of the money to the purchaser, then both it and the future must each be separately covered under CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions).

   8. (h)

      A contract for differences may be included in this rule (CIS 5A.6.12 R) if and to the extent that it has the characteristics of a future or an option.1

1. (1)

   Where the purchase of an uncovered option is proposed in reliance on CIS 5A.6.3 R (4)(Futures and options schemes: general), the authorised fund manager must arrange for the depositary to deposit and set aside with an eligible institution or an approved bank any amount by which 5% of the exercise value of the option (that is the amount which would be payable by the futures and options scheme on exercise of the option) exceeds the amount paid by way of premium. That excess (if any) must not be used for the purposes of providing cover under the rules in this chapter.1

2. (2)

   The amount to be deposited and set aside may be in cash or in government and public securities (which are to be valued for this purpose at the current mark to market valuation).

1. (1)

   Cash obtained by borrowing, and borrowings which the authorised fund manager reasonably regards an eligible institution or an approved bank to be committed to provide, are available for cover under CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions) as long as the normal limits on borrowing (as to which see CIS 5A.15.3 R (General power to borrow) and CIS 5A.15.4 R (Borrowing limits)) are observed.1

2. (2)

   Where, for the purposes of this section (CIS 5A.6), the ICVC or the trustee for the account of the AUT on the instructions of the manager:

   1. (a)

      borrows an amount of currency from an eligible institution or an approved bank; and1

   2. (b)

      keeps an amount in another currency, at least equal to the borrowing for the time being in (a), on deposit with the lender (or his agent or nominee);

   then this section (CIS 5A.6) applies as if the borrowed currency, and not the deposited currency, were part of the scheme property, and the normal limits on borrowing under CIS 5A.15.3 R and CIS 5A.15.4 R do not apply to that borrowing.

1. (1)

   An authorised fund manager must, at each valuation point (and more frequently if necessary), re-calculate the amount of cover required in respect of derivatives and forward positions already in existence under this section (CIS 5A.6). Derivatives and rights under forward transactions under this section may be retained in the scheme property only so long as they remain covered both individually and globally under CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions) (or, where relevant, the deposit requirements in CIS 5A.6.13 R (Deposit arrangements (for purchased options)) are complied with).

2. (2)

   If at any time:

   1. (a)

      any fact or matter relating to the futures and options scheme or its economic environment; or

   2. (b)

      the aggregate of all outstanding derivatives or forward positions under this section;

   is such that at least one of the relevant transactions (assuming it did not exist) could not properly have been effected, either in that size or at all, the authorised fund manager must immediately on becoming aware of that fact or matter take the necessary steps to rectify the situation, whether by closing out or providing additional cover or otherwise.

This section (CIS 5A.7) applies to authorised fund managers of geared futures and options schemes.

1. (1)

   The scheme property of a geared futures and options scheme must, except where otherwise provided in the rules in this chapter, consist only of any or all of :

   1. (a)

      transferable securities available to a securities scheme in accordance with CIS 5A.4 (Securities schemes), (but excluding investments in units in collective investment schemes under CIS 5A.4.5 R);

   2. (b)

      transactions in derivatives or forward transactions which are covered on the basis available to a futures and options scheme (see CIS 5A.6.9 R - CIS 5A.6.12 R for requirements for cover);

   3. (c)

      derivatives permitted under the rules in this section (CIS 5A.7);

   4. (d)

      forward transactions in currencies or gold permitted under the rules in this section (CIS 5A.7);

   5. (e)

      cash or near cash;

   6. (f)

      units in collective investment schemes under CIS 5A.7.8 R(Investment in collective investment schemes);

   7. (g)

      gold.

2. (2)

   In respect of investment within (1)(a), CIS 5A.4 (Securities schemes) applies as if the geared futures and options scheme were a securities scheme, but subject to any special modifications in this section (CIS 5A.7).

3. (3)

   In respect of transactions in derivatives and forward transactions under (1)(b), CIS 5A.6 (Futures and options schemes), except CIS 5A.6.7 R (Investment in collective investment schemes), applies as if the geared futures and options scheme were a futures and options scheme, but subject to any special modifications in this section ( CIS 5A.7).

4. (4)

   In respect of derivatives within (1)(c):

   1. (a)

      any transaction in derivatives must be in an approved derivative, or in one which complies with CIS 5A.6.6 R (OTC transactions in derivatives); and

   2. (b)

      any transaction in an approved derivative must be effected on or under the rules of an eligiblederivatives market.

5. (5)

   In respect of transactions within (1)(d), this section (CIS 5A.7), except (4) and CIS 5A.7.4 R (7) (Limit on investment in initial outlay), applies as if any forward transaction were a transaction in derivatives; and the transaction must be with a counterparty which is approved for the purposes of CIS 5A.6.6 R (2).

6. (6)

   Not more than 10% in value of the scheme property is to be held in the form of gold.

7. (7)

   The following also apply to geared futures and options schemes:

   1. (a)

      CIS 5A.2 (General investment powers and limits for authorised funds);

   2. (b)

      CIS 5A.13 (Efficient portfolio management);

   3. (c)

      CIS 5A.14 (Stock lending);

   4. (d)

      CIS 5A.15 (Cash, borrowing, lending and other provisions); and

   5. (e)

      CIS 5A.16 (Cover for sales).

8. (8)

   Despite the rules referred to in (7), an ICVC that is a geared futures and options scheme or the trustee of an AUT that is a geared futures and options scheme does not have power to borrow, whether under this section (CIS 5A.7) or CIS 5A.13 (Efficient portfolio management) or otherwise.

1. (1)

   At any time, not more than 20% in value of the scheme property of a geared futures and options scheme is, subject to (3), to be devoted to initial outlay in any transactions in derivatives which are outstanding.

2. (2)

   For the purposes of initial outlay:

   1. (a)

      regard must be had to the rules of any relevant eligiblederivatives market;

   2. (b)

      any increase in margin or initial margin, if required by such a market, is regarded as initial outlay from then on;

   3. (c)

      any decrease in margin or initial margin, if allowed by such a market, ceases to be initial outlay from then on;

   4. (d)

      variation margin (that is, an additional sum required to be paid to retain the rights following a movement in prices or other movements) is not initial outlay;

   5. (e)

      premium which may become payable in the future under the transaction in respect of an option is regarded as initial outlay from the outset;

   6. (f)

      in the case of a purchased option, the amount mentioned in (6) is to be regarded as initial outlay;

   7. (g)

      in the case of a written option, the amount mentioned in (7) is to be regarded as initial outlay;

   8. (h)

      in the case of an over the counterfuture, the amount mentioned in (8) is to be regarded as initial outlay; and

   9. (i)

      in the case of a forward transaction, the amount mentioned in (9) is to be regarded as initial outlay.

3. (3)

   Not more than 10% in value of the scheme property is to be used for initial outlay on transactions in derivatives in the form of purchased options without counting this towards the 20% in (1). The figure of 10% must be reduced by any percentage of the value of the scheme property invested in transferable securities in the form of warrants.

4. (4)

   The authorised fund manager must arrange for the depositary to deposit and set aside with an eligible institution or an approved bank the amounts for the time being required by (6), (7), (8) and (9), and these amounts must not be used for the purpose of providing cover under the rules in this chapter.1

5. (5)

   The amounts to be deposited and set aside may be in cash or in government and public securities (which are to be valued for this purpose at the current mark to market valuation).

6. (6)

   Where an option is purchased for the account of the ICVC or of the AUT, the authorised fund manager must ascertain the amount, if any, by which 5% of the exercise value of the option (that is the amount which would be payable or receivable by the geared futures and options scheme on exercise of the option) exceeds the amount paid by way of premium.

7. (7)

   Where an option is written for the account of the ICVC or of the AUT, the authorised fund manager must ascertain at the outset and at each valuation the amount which is the sum of:

   1. (a)

      5% of the exercise value of the option (that is the amount which would be payable or receivable by the purchaser of the option, on exercise of the option); and

   2. (b)

      the amount, if any, by which the option is in the money to the purchaser of the option.

8. (8)

   Where a transaction in an over the counterfuture is entered into for the account of the ICVC or of the AUT, the authorised fund manager must ascertain at the outset and at each valuation the amount which is the sum of:

   1. (a)

      5% of the value of the amount of property to be bought or sold under the contract; and

   2. (b)

      the amount, if any, by which the future would cause a loss to the geared futures and options scheme if it were to be closed out.

9. (9)

   Where a forward transaction is entered into for the account of the ICVC or of the AUT, the authorised fund manager must ascertain at the outset and at each valuation the amount which is 5% of the value of the forward contract (that is the amount of currency or of gold to be purchased or sold by the transaction at the current valuation in the currency or one of the currencies relevant for the purposes of the transaction) for each period of three months (or part of them) between the date of the latest valuation and the date of maturity.

1. (1)

   There are no limits, other than those resulting from the requirement in CIS 5A.7.4 R (Limit on investment in initial outlay), on the value of the scheme property of a geared futures and options scheme which may be devoted to initial outlay in respect of derivatives on or related to any one category of underlying security, commodity or other factor.

2. (2)

   Not more than 5% in value of the scheme property of a geared futures and options scheme is to be devoted to initial outlay in respect of over the counter transactions with any one counterparty.

3. (3)

   Wherever the total value held on deposit of the scheme property of a geared futures and options scheme is more than £1 million:

   1. (a)

      not more than 10% in value is to be kept as cash on deposit with any one person;

   2. (b)

      for the purposes of (a):

      1. (i)

         the depositary and its associates are regarded as the same person;

      2. (ii)

         the manager and its associates are regarded as one person; and

      3. (iii)

         each director of an ICVC including the ACD and his or its associates are regarded as one person; and

   3. (c)

      the figure of 10% in (5) may be increased to 20% if:

      1. (i)

         the person is an eligible institution or an approved bank and is not one of the persons referred to in (b); and1

      2. (ii)

         the amount of the deposit does not exceed 10% of that eligible institution's or an approved bank's issued capital and reserves as shown in its most recently published annual accounts.1

1. (1)

   Investments in units of a collective investment scheme must not be made unless that scheme:

   1. (a)

      is a regulated collective investment scheme which is either a futures and options scheme or a geared futures and options scheme or a money market scheme or a scheme of a category that is equivalent to the category of one of such authorised funds; or

   2. (b)

      (after taking account of CIS 5A.2.10 R (Investment in associated collective investment schemes)):

      1. (i)

         is within CIS 5A.4.5 R (Securities scheme: investment in collective investment schemes); or

      2. (ii)

         would be within CIS 5A.4.5 R if CIS 5A.4.5 R (3)read: "is dedicated to investing funds raised from the public:

      (a) in approved and other derivatives (where most or all of the transactions in derivatives are fully covered by cash, securities and other derivatives), whether with or without transferable securities or covered forward transactions in currency or gold; or(b) in approved and other derivatives (where the extent of investment is limited by the amount of scheme property available to be put up as initial outlay), whether with or without transferable securities and whether with or without investment within (a)".

2. (2)

   Not more than 5% in value of the scheme property of a geared futures and options scheme is to consist of units in collective investment schemes.

1. (1)

   When entering into any transaction in derivatives as a result of which any investment or asset may become part of the scheme property of the geared futures and options scheme, the authorised fund manager must take reasonable care to determine:

   1. (a)

      (where the investment or asset is one of which the scheme property could in some measure consist) that the transaction will not result in any breach of any other rule in this chapter:

      1. (i)

         because it can be readily closed out; or

      2. (ii)

         because the investment or asset concerned will at the expected time be included within the scheme property in a manner which conforms with the rules in this chapter; or

   2. (b)

      (in any other case) that the transaction can readily be closed out.

2. (2)

   Where, in the event, the determination in (1)(a) or (1)(b) proves unjustified, and the authorised fund manager decides with the consent of the depositary, in accordance with CIS 7.5.3 R (Duties of the ACD and depositary: investment and borrowing powers) (in the case of an ICVC) or CIS 7.10.3 R (Duties of the manager and trustee: investment and borrowing powers) (in the case of an AUT) that it is in the interests of the holders that the property should be temporarily acquired, then the property concerned may, despite any other rule in this chapter, form part of the scheme property until the position can be rectified.

This section (CIS 5A.8) applies to authorised fund managers of property schemes, except CIS 5A.8.11 R (1) (Initial periods), which also applies to the trustee of an AUT that is a property scheme.

1. (1)

   The scheme property of a property scheme must, except where otherwise provided in the rules in this chapter, only consist of any or all of :

   1. (a)

      approved immovables;

   2. (b)

      property related assets;

   3. (c)

      government and public securities; and

   4. (d)

      units in collective investment schemes, under (5).

2. (2)

   Not more than 80% in value of the scheme property is to consist of approved immovables, but this limit is subject to (6).

3. (3)

   Not more than 80% in value is to consist of transferable securities, but the transferable securities must be property-related assets which are approved securities or else separately permitted under (4), (5) or (6).

4. (4)

   Not more than 35% in value is to consist of government and public securities.

5. (5)

   Not more than 5% in value is to consist of units in collective investment schemes under CIS 5A.8.7 R(Investment in collective investment schemes).

6. (6)

   Not more than 10% in value is to consist of shares which are property-related assets but are not approved securities. Any shares included under this paragraph must be included in the 80% limit in (2), which may therefore on occasion produce a limit of 70% for approved immovables.

7. (7)

   Not more than 5% in value is to consist of transferable securities within (3) which are warrants. These warrants must be property related assets which are approved securities.

8. (8)

   The following also apply to property schemes:

   1. (a)

      CIS 5A.2(General investment powers and limits for authorised funds);

   2. (b)

      CIS 5A.4.6 R(Investment in warrants and nil and partly paid securities);

   3. (c)

      CIS 5A.13(Efficient portfolio management);

   4. (d)

      CIS 5A.14(Stock lending);

   5. (e)

      CIS 5A.15(Cash, borrowing, lending and other provisions); and

   6. (f)

      CIS 5A.16(Cover for sales).

An interest in land or a building is a permitted immovable if:

1. (1)

   the land or building is situated in a country or territory identified in the prospectus for the purpose of this rule (CIS 5A.8.4 R);

2. (2)

   the land or building is situated in England and Wales or in Northern Ireland, and the interest is a freehold or leasehold interest; or if the land or building is situated in Scotland and the interest is any interest or estate in or over land or heritable right including a long lease; or if the land or building is situated elsewhere and the interest is equivalent to any of the interests mentioned in this paragraph; and

3. (3)

   where the interest is leasehold (or its equivalent) and it has an unexpired term of 20 years or more;

and furniture, fittings or other contents of any building may for this purpose be regarded as part of it.

1. (1)

   In this sourcebook, an approved immovable is a permitted immovable which satisfies all of the conditions in (3) to (6) and either (2)(a) or (2)(b).

2. (2)
   1. (a)

      Unless (b) is satisfied, the immovable must be transferable; an immovable is not regarded as transferable unless the manager or the ICVC has received a report from an appropriate valuer that:

      1. (i)

         contains a valuation of the immovable (with and without any relevant subsisting mortgage); and

      2. (ii)

         states that, in the appropriate valuer's opinion, the immovable would, if acquired for the property scheme, be capable of being disposed of reasonably expeditiously at that valuation.

   2. (b)

      Unless (a) is satisfied, the approved immovable must have marriage value; an immovable is not regarded as having marriage value unless the manager or the ICVC has received a report from an appropriate valuer valuing the immovable and stating that:

      1. (i)

         the immovable is adjacent to or contiguous with another immovable included in the scheme property; and

      2. (ii)

         in the opinion of the appropriate valuer, the total value of the immovable, if acquired for the property scheme, and of the other immovable, would at least equal the sum of the price payable for the immovable and the existing value of the other immovable.

3. (3)

   The immovable must be accessible; an immovable is not regarded as accessible unless the authorised fund manager has taken reasonable care to determine that reasonable access to it is assured.

4. (4)

   The immovable must have a good root of title; an immovable is not regarded as having a good root of title unless the authorised fund manager has taken reasonable care to determine that the title to the immovable is a good marketable title.

5. (5)

   The immovable must be unencumbered or adequately unencumbered; an immovable is not regarded:

   1. (a)

      as unencumbered, unless there is no subsisting mortgage over or on it; and

   2. (b)

      as adequately unencumbered, unless the only mortgages over or on it are one or more approved mortgages within CIS 5A.8.9 R (Mortgaged property), which secures, or together secure, on the immovable repayment of a sum or sums not exceeding 50% of the value at (2)(a) (that is, that part of the value which is valued on the assumption that the immovable is not mortgaged).

6. (6)

   The immovable must be or have been or is to be bought promptly and at a reasonable price; an immovable is not regarded as bought promptly and at a reasonable price unless:

   1. (a)

      it is bought or agreed by enforceable contract to be bought within six months after receipt of the report of the appropriate valuer referred to in (2)(a) or (2)(b);

   2. (b)

      at the time of the purchase or agreement it would not have been apparent to the authorised fund manager that the report could no longer reasonably be relied upon; and

   3. (c)

      the immovable is bought at no more than 105% of the valuation in the report.

7. (7)

   A person is an appropriate valuer if:

   1. (a)

      he has knowledge of and experience in the valuation of immovables of the relevant kind in the relevant area;

   2. (b)

      he is or is qualified to be the standing independent valuer of a property scheme or is reasonably considered by the property scheme'sstanding independent valuer to hold equivalent qualifications;

   3. (c)

      he is independent of the ICVC, the depositary and each of the directors of the ICVC or of the manager and the trustee of the AUT in the sense required for a standing independent valuer under CIS 12.3.1 R (2)(Standing independent valuer); and

   4. (d)

      neither he nor any of his partners (if any) nor a fellow director of a corporate appropriate valuer (if any) have been engaged, whether as principal or as agent, in relation to the finding of the immovable for the property scheme or the finding of the property scheme for the immovable.

1. (1)

   Property-related assets qualify for investment purposes (under CIS 5A.8.3 R (6)) only if:

   1. (a)

      they are transferable securities; and

   2. (b)

      they are shares in a body corporate at least 75% of whose total assets (before deduction of liabilities and as shown in the most recently published accounts) consist of permitted immovables.

2. (2)

   Not more than 5% in the value of the scheme property of a property scheme is to consist of investments of the type referred to in (1) issued by any one issuer. The figure of 5% may be increased to 10% if:

   1. (a)

      the property scheme owns at least 90% of the rights to vote which are exercisable in all circumstances at general meetings of the body corporate;

   2. (b)

      the shares are or were bought within six months after receipt by the authorised fund manager of:

      1. (i)

         a report by an appropriate valuer relating to permitted immovables owned by the body corporate, indicating that they are transferable (as in CIS 5A.8.5 R (2)(a)) or have marriage value (as in CIS 5A.8.5 R (2)(b)); and

      2. (ii)

         a report, on the value of any assets other than permitted immovables, from a person then qualified to be an auditor of a company under the relevant legislation in any part of the United Kingdom;

   3. (c)

      at the time of the purchase it would not have been reasonably apparent to the authorised fund manager that the report at (b)(i) or (ii) could no longer reasonably be relied on; and

   4. (d)

      the shares were bought at no more than 105% of the total of the values in the reports at (b)(i) and (ii).

Investments in units of a collective investment scheme must not be made unless that scheme:

1. (1)

   is a regulated collective investment scheme which:

   1. (a)

      complies with section 243(10) of the Act (Authorisation orders: entitlement to have units redeemed) or is treated as complying with it by section 243(11) of the Act; and

   2. (b)

      is dedicated to approved immovables, with or without transferable securities which are property related assets or government and public securities; or

2. (2)

   is a regulated collective investment scheme which is a money market scheme or a scheme of a category that is equivalent to a money market scheme.

1. (1)

   Not more than 10% in value of the scheme property of a property scheme is to consist of approved immovables which are leasehold interests (or the equivalent: see CIS 5A.8.4 R (2)) having an unexpired term of less than 60 years.

2. (2)

   Not more than 25% in value is to consist of approved immovables which are unoccupied and non-income producing or in course of substantial development, redevelopment or refurbishment.

1. (1)

   Not more than 15% in value of that part of the scheme property of a property scheme which for the time being consists of immovables is to consist of mortgaged immovables.

2. (2)

   An immovable subject to one or more mortgages may be retained by the property scheme only so long as the mortgage or each of the mortgages is an approved mortgage, the total sums outstanding under which do not exceed 50% of the value of the immovable (assuming for this purpose that the immovable is not mortgaged).

1. (1)

   Not more than 15% in value of the scheme property of a property scheme is to consist of any one immovable.

2. (2)

   In (1), immovables which would be regarded as having marriage value under CIS 5A.8.5 R (2)(b)must be regarded as one immovable.

3. (3)

   The figure of 15% in (1) may be increased to 25% once the immovable has been included in the scheme property of a property scheme in compliance with (1).

4. (4)

   Not more than 5% in value is to consist of property related assets issued (or conferring rights to investments issued) by any one issuer.

5. (5)

   The figure of 5% in (4) may be increased to 10% in respect of up to 40% of the value of the scheme property of a property scheme.

6. (6)

   Not more than 20% of the income receivable in any accounting period is to derive from members of any one group; but there is no restriction on the income receivable from any issuer of government and public securities.

1. (1)

   During the period of the initial offer, no immovable may be:

   1. (a)

      bought or leased; or

   2. (b)

      agreed, by enforceable contract, to be bought or leased;

   unless it appears to the ACD or to the manager and trustee that more than £5 million (or the equivalent amount in the base currency of the property scheme) has been paid or agreed to be paid for units to be issued or sold.

2. (2)

   During the first two years starting with the date on which the property scheme is authorised or on which the units are first issued (if later) and subject to (3) and (4):

   1. (a)

      CIS 5A.8.8 R (1)(Property related limits) and CIS 5A.8.10 R (Spread) do not apply; and

   2. (b)

      the obligation, derived from CIS 5A.8.3 R (Property schemes: general), that at least 20% in value of the scheme property must consist of approved immovables does not apply.

3. (3)

   Paragraph (2) ceases to apply if, at any time during the two year period, six months have elapsed from the first date on which the scheme property exceeds £15 million in value (or the equivalent amount in the base currency of the property scheme).

4. (4)

   Paragraph (2) postpones the application of CIS 5A.8.10 R (4)(Spread - (of property related assets)) for a maximum of only six months from the date on which the property scheme is authorised or on which the units are first issued (if later), and not of two years.

1. (1)

   No option may be granted to buy any immovable comprised in the scheme property, whether under CIS 5A.13 (Efficient portfolio management) or otherwise.

2. (2)

   No mortgage other than an approved mortgage may be created on or over any such immovable.

This section (CIS 5A.9) applies to authorised fund managers of warrant schemes.

1. (1)

   The scheme property of a warrant scheme must, except where otherwise provided in the rules in this chapter, only consist of property which could be the scheme property of a securities scheme, except that up to 100% in value of the scheme property may consist of warrants.

2. (2)

   Accordingly, CIS 5A.4 (Securities schemes) (except CIS 5A.4.6 R (Investment in warrants and nil and partly paid securities)) applies to a warrant scheme as it applies to a securities scheme.

3. (3)

   The following also apply to warrant schemes:

   1. (a)

      CIS 5A.2 (General investment powers and limits for authorised funds);

   2. (b)

      CIS 5A.13 (Efficient portfolio management);

   3. (c)

      CIS 5A.14 (Stock lending);

   4. (d)

      CIS 5A.15 (Cash, borrowing, lending and other provisions); and

   5. (e)

      CIS 5A.16 (Cover for sales).

This section (CIS 5A.10) applies to managers of feeder funds, except CIS 5A.10.4 R (2) which applies to trustees of feeder funds.

1. (1)

   The scheme property of a feeder fund must, except where otherwise provided in the rules in this chapter, only consist of:

   1. (a)

      units in a single regulated collective investment scheme; or

   2. (b)

      shares in or debentures of a single eligible investment trust (as to which see CIS 5A.10.4 R (Feeder funds investing in a single eligible investment trust)).

2. (2)

   An AUT may be a feeder fund only if it is a relevant pension scheme.

3. (3)

   A feeder fund under (1)(a) must not invest in:

   1. (a)

      a geared futures and options scheme;

   2. (b)

      a property scheme;

   3. (c)

      a warrant scheme;

   4. (d)

      a feeder fund;

   5. (e)

      a fund of funds scheme, unless the fund of funds scheme is prevented by the instrument constituting the scheme from investing in any authorised fund within (a), (b) or (c);

   6. (f)

      any sub-fund of a regulated collective investment scheme which is invested as if it were an authorised fund within (a) to (e); and

   7. (g)

      a recognised scheme which would, if authorised, fall within any of (a) to (f).

4. (4)

   A sub-fund of an AUT that is an umbrella scheme, which (if it were itself the subject of a separate authorisation order) would be a feeder fund, is to be treated as a feeder fund for the purposes of this rule (CIS 5A.10.3 R) and ruleCIS 5A.10.4 R (Feeder funds investing in a single eligible investment trust); but an AUT that is an umbrella scheme must not contain such a sub-fund unless that AUT is a relevant pension scheme.

5. (5)

   The following also apply to feeder funds:

   1. (a)

      CIS 5A.2 (General investment powers and limits for authorised funds);

   2. (b)

      CIS 5A.15 (Cash, borrowing, lending and other provisions); and

   3. (c)

      CIS 5A.16 (Cover for sales).

An investment trust is an eligible investment trust for the purposes of CIS 5A.10.3 R (1)(b) only if:

1. (1)

   at the date of the authorisation of the feeder fund, the property of the investment trust included net assets worth at least £25 million (or, if the base currency of the feeder fund is not sterling, the equivalent in that base currency); and

2. (2)

   at any time in the last six months, the trustee of the feeder fund having taken reasonable care has determined that:

   1. (a)

      at least 70% of the income of the investment trust received during either or both of:

      1. (i)

         the last completed accounting period; and

      2. (ii)

         the first half of the current accounting period;

      consisted of income from approved securities;

   2. (b)

      (apart from transactions for hedging purposes) the property of the investment trust either:

      1. (i)

         cannot be invested in derivatives; or

      2. (ii)

         can be invested in derivatives only on the footing of cover to at least the extent required of a futures and options scheme under CIS 5A.6.9 R (Cover for transactions in derivatives and forward transactions);

   3. (c)

      not more than 5% of the property of the investment trust consists of warrants;

   4. (d)

      not more than 5% of the property of the investment trust consists of transferable securities issued by any one issuer, except that the figure of 5% may be increased to 15% in respect of up to 30% in value of the investment trust;

   5. (e)

      the feeder fund owns not more than 20% of the shares (or of any class of shares) in or of the debentures (or of any class of debentures) of the investment trust;

   6. (f)

      the borrowing of the investment trust does not exceed 50% of the market value of the shares of the investment trust at the mid-value share price for the time being;

   7. (g)

      the shares in (or debentures of) the investment trust are regularly offered for purchase and sale by at least three market makers who are recognised or registered as members of an eligiblesecurities market; and

   8. (h)

      the investment trust has no limit on its duration.

This section (CIS 5A.11) applies to authorised fund managers of fund of funds schemes.

1. (1)

   The scheme property of a fund of funds scheme must, except where otherwise provided in the rules in this chapter, only consist of units in regulated collective investment schemes.

2. (2)

   A fund of funds scheme may not invest in:

   1. (a)

      a fund of funds scheme;

   2. (b)

      a feeder fund;

   3. (c)

      any recognised scheme which is dedicated to investment in a number of regulated collective investment schemes;

   4. (d)

      any recognised scheme which is dedicated to investment in a single regulated collective investment scheme or in a single eligible investment trust; and

   5. (e)

      any sub-fund of an umbrella scheme or sub-fund of any other recognised scheme which is equivalent to a scheme within (a) to (d).

3. (3)

   Not more than 20% in value of the scheme property is to consist of units in any one regulated collective investment scheme.

4. (4)

   The following also apply to fund of funds schemes:

   1. (a)

      CIS 5A.2 (General investment powers and limits for authorised funds);

   2. (b)

      CIS 5A.13 (Efficient portfolio management);

   3. (c)

      CIS 5A.15 (Cash, borrowing, lending and other provisions); and

   4. (d)

      CIS 5A.16 (Cover for sales).

1. (1)

   A fund of funds scheme may invest in units in any five or more authorised funds within:

   1. (a)

      any one of:

      1. (i)

         UCITS Schemes;

      2. (ii)

         CIS 5A.4 (Securities schemes);

      3. (iii)

         CIS 5A.5 (Money market schemes);

      4. (iv)

         CIS 5A.6 (Futures and options schemes);

      5. (v)

         CIS 5A.7 (Geared futures and options schemes);

      6. (vi)

         CIS 5A.8 (Property schemes); or

      7. (vii)

         CIS 5A.9 (Warrant schemes); or

   2. (b)

      any combination of:

      1. (i)

         UCITS schemes;

      2. (ii)

         CIS 5A.4 (Securities schemes); and

      3. (iii)

         CIS 5A.5 (Money market schemes).12

2. (2)

   A fund of funds scheme may invest in units in one or more money market schemes (within CIS 5A.5 (Money market schemes)) and in units in any one or more authorised funds within any one scheme type in (1)(a) or any combination permitted by (1)(b).2

3. (3)

   Each sub-fund of an umbrella scheme and each sub-fund of any recognised scheme that is equivalent to an umbrella scheme is to be treated for the purposes of (CIS 5A.11.4 R) and CIS 5A.11.3 R (3)as if it were a separate scheme.

4. (4)

   A recognised scheme may be treated for the purpose of this rule (CIS 5A.11.4 R) as if it were a scheme falling within the section which would be the relevant section if the recognised scheme were an authorised fund.

This section (CIS 5A.12) applies to authorised fund managers of umbrella schemes.

A sub-fund of an umbrella scheme must, subject to CIS 5A.12.4 R, only be invested as if it were a single authorised fund within one of CIS 5A.4 (Securities schemes) to CIS 5A.11 (Fund of fund schemes).

No sub-fund of an umbrella scheme may invest in units in another sub-fund of the same umbrella scheme.

This section (CIS 5A.13) applies to authorised fund managers, other than managers of feeder funds, except:

1. (1)

   CIS 5A.13.3 R which applies to ICVCs and to managers of AUTs other than feeder funds;

2. (2)

   CIS 5A.13.3 R (2)(c) which does not apply to ICVCs that are fund of funds schemes or to managers of AUTs that are fund of funds schemes or feeder funds;

3. (3)

   CIS 5A.13.4 R (2)(b), which does not apply to authorised fund managers of fund of funds schemes and managers of feeder funds; and

4. (4)

   CIS 5A.13.12 R, which applies to ICVCs and to trustees of AUTs, other than feeder funds.

1. (1)

   This section enables the ICVC, or manager for the account of the AUT, to enter into transactions of the kind specified in CIS 5A.13.6 R (Permitted transactions) for the purpose of efficient portfolio management, but only when each of the following two conditions is satisfied:

   1. (a)

      the transaction is economically appropriate to that purpose, as required by CIS 5A.13.4 R (Economic appropriateness); and

   2. (b)

      the transaction is fully covered, as required by CIS 5A.13.8 R (Cover for transactions in derivatives and forward transactions)).

2. (2)

   A transaction under (1) must only be entered into if it is to achieve one or more of the following in respect of the authorised fund:

   1. (a)

      the reduction of risk;

   2. (b)

      the reduction of cost; and

   3. (c)

      the generation of additional capital or income for the authorised fund with an acceptably low level of risk.

3. (3)

   The purpose in (2) must relate to:

   1. (a)

      the scheme property of the authorised fund;

   2. (b)

      property (whether precisely identified or not) which is to be or is proposed to be acquired for the authorised fund; and

   3. (c)

      anticipated cash receipts of the authorised fund, if due to be received at some time and likely to be received within one month.

1. (1)

   Any transaction under this section must be one which (alone or in combination with one or more others) is ascertained with reasonable care by the authorised fund manager to be economically appropriate to the efficient portfolio management of the authorised fund.

2. (2)

   In consequence, the authorised fund manager must take reasonable care to determine that:

   1. (a)

      for transactions undertaken to reduce risk or cost (or both), the transaction (alone or in combination) will diminish a risk or cost of a kind or level which it is sensible to reduce; and

   2. (b)

      for transactions undertaken to generate additional capital or income, the authorised fund is certain (or certain barring events which are not reasonably foreseeable) to derive a benefit from the transaction.

3. (3)

   A transaction may not be entered into under this section (CIS 5A.13) if its purpose could reasonably be regarded as speculative.

4. (4)

   Where the transaction is for the account of a UCITS scheme and relates to the actual or potential acquisition of transferable securities, then the authorised fund manager must intend that the authorised fund should invest in transferable securities within a reasonable time; and it must thereafter ensure that, unless the position has itself been closed out, that intention is realised within that reasonable time.

1. (1)

   There is an acceptably low level of risk for the purposes of CIS 5A.13.3 R (2)(c), in any case where the authorised fund manager has taken reasonable care to determine that the authorised fund is certain (or certain barring events which are not reasonably foreseeable) to derive a benefit:

   1. (a)

      on a basis set out in (2) or (3); or

   2. (b)

      from stock lending under section CIS 5A.14.

2. (2)

   The first basis is to take advantage of pricing imperfections in relation to the acquisition and disposal (or disposal and acquisition) of rights in relation to property the same as, or equivalent to, property which the authorised fund holds or may properly hold.

3. (3)

   The second basis is to receive a premium for the writing of a covered call option or a covered put option, even if that benefit is obtained at the expense of surrendering the chance of yet greater benefit.

1. (1)

   A transaction under this section must be:

   1. (a)

      a transaction in derivatives; or

   2. (b)

      a forward transaction in a currency (or where the scheme property may include gold, in gold).

2. (2)

   A transaction in derivatives under (1)(a) must be:

   1. (a)

      in an approved derivative ; or

   2. (b)

      one which complies with CIS 5A.6.6 R (OTC transactions in derivatives); or

   3. (c)

      a synthetic future.

3. (3)

   Any transaction in an approved derivative must be effected on or under the rules of an eligiblederivatives market.

4. (4)

   Any forward transaction must be with an approved counterparty within the meaning of CIS 5A.6.6 R (2)(OTC transactions in derivatives).

5. (5)

   Not more than 5% of the value of the scheme property is to be directed to initial outlay in respect of over the counter transactions with any one counterparty.

6. (6)

   A transaction in derivatives or forward transaction which would or could lead to delivery of property to the depositary (or to the ICVC) may be entered into only if:

   1. (a)

      the property can be held by the authorised fund; and

   2. (b)

      the authorised fund manager has taken reasonable care to determine that delivery of the property by the transaction will not lead to a breach of the rules in this chapter.

1. (1)

   No transaction may be entered into under this section (CIS 5A.13) unless the maximum potential exposure created by the transaction, in terms of the principal or notional principal of the derivative or forward contract, is:

   1. (a)

      covered individually under (2) or (3); and

   2. (b)

      covered globally under (4).

2. (2)

   Exposure is covered individually if there is, in the scheme property:

   1. (a)

      (in the case of an exposure in terms of property) a transferable security or other property which is of the right kind, and sufficient in amount, to match the exposure; and

   2. (b)

      (in the case of an exposure in terms of money), cash or near cash (or borrowing under CIS 5A.13.12 R (Borrowing in the context of efficient portfolio management)) or transferable securities which is or are, or, on being turned into money in the right currency, will be, sufficient in amount to match the exposure.

3. (3)

   However, exposure to an index or basket of securities or other assets is covered individually for the purposes of (2) if the authorised fund holds securities or other property which (taking into account the closeness of the relationship between fluctuations in the price of the two) can reasonably be regarded as appropriate to provide cover for the exposure; they may be so regarded even if there is not complete congruence between the cover and the exposure.

4. (4)

   Exposure is covered globally for the purposes of this section if, after taking account of all the cover required under (2) or (3) for other positions already in existence, adequate cover from within the scheme property is available to enable the fresh transaction to be entered into.

5. (5)

   A transaction in derivatives or forward transaction is not available to provide cover for another derivative or forward transaction under this section, but:

   1. (a)

      the two transactions involved in a synthetic future are to be treated as if they were a single derivative, and the net exposure from the combination is to be covered on the basis of the higher of the cover requirements of the options which make up the synthetic future;

   2. (b)

      synthetic cash is available to provide cover for a transaction as if it were cash; and

   3. (c)

      a covered currency forward or a covered currency derivative may provide cover for a derivative.

6. (6)

   Cash not yet received into the scheme property but due to be received within one month is available as cover for the purposes of (2)(b) and (3).

7. (7)

   Property anticipated under a derivative transaction does not count as property under (2)(a).

8. (8)

   Property is not available for cover if it is the subject of a transaction under CIS 5A.14 (Stock lending), unless the authorised fund manager has taken reasonable care to determine that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.

1. (1)

   Cash obtained by borrowing, and borrowings which the authorised fund manager reasonably regards an eligible institution or an approved bank to be committed to provide, are available for cover under CIS 5A.13.8 R as long as the normal limits on borrowing (as to which see CIS 5A.15.3 R (General power to borrow) and CIS 5A.15.4 R (Borrowing limits)) are observed.1

2. (2)

   Where, for the purposes of this section (CIS 5A.13), the ICVC or the trustee for the account of the AUT with the instructions of the manager:

   1. (a)

      borrows an amount of currency from an eligible institution or an approved bank; and1

   2. (b)

      keeps an amount in another currency, at least equal to the borrowing for the time being in (a), on deposit with the lender (or his agent or nominee);

   then this section (CIS 5A.13) applies as if the borrowed currency, and not the deposited currency, were part of the scheme property, and the normal limits on borrowing under CIS 5A.15.3 R and CIS 5A.15.4 R do not apply to that borrowing.

1. (1)

   The authorised fund manager must, at each valuation point (and more frequently if necessary), re-calculate the amount of cover required in respect of positions already in existence under this section (CIS 5A.13). Derivatives and rights under forward transactions under this section (CIS 5A.13) may be retained in the scheme property only so long as they remain covered both individually and globally under CIS 5A.13.8 R.

2. (2)

   If at any time:

   1. (a)

      any fact or matter relating to the authorised fund or its economic environment; or

   2. (b)

      the aggregate of all outstanding positions under this section (CIS 5A.13);

   is such that at least one of the relevant transactions (assuming it did not exist) could not properly be effected, either in that size or at all, the authorised fund manager must immediately on becoming aware of that fact take the necessary steps to rectify the situation, whether by closing out or by providing additional cover or otherwise.

This section (CIS 5A.14) applies to depositaries of authorised funds which are not fund of funds schemes or feeder funds, except:

1. (1)

   CIS 5A.14.3 R, which applies to ICVCs other than fund of funds schemes, or to managers of AUTs other than fund of funds schemes and feeder funds; and

2. (2)

   in the case of ICVCs, CIS 5A.14.4 R which applies to ICVCs other than fund of funds schemes if the ICVC enters into the stock lending agreement.

The stock lending permitted by this section (CIS 5A.14) may be exercised by an authorised fund for the purpose of efficient portfolio management, that is, when it reasonably appears to the ICVC or to the manager to be economically appropriate to do so with a view to generating additional income for the authorised fund with an acceptable degree of risk.

1. (1)

   The ICVC, or the depositary at the request of the ICVC, or the trustee at the request of the manager, may enter into a stock lending arrangement of the kind described in section 263B of the Taxation of Chargeable Gains Act 1992 (without extension by section 263C), but only if:

   1. (a)

      all the terms of the agreement under which securities are to be reacquired by the depositary for the account of the ICVC or by the trustee, are in a form which is acceptable to the depositary or to the trustee and are in accordance with good market practice;

   2. (b)

      the counterparty is an authorised person; and

   3. (c)

      collateral is obtained to secure the obligation of the counterparty under the terms referred to in (a) and the collateral is:

      1. (i)

         acceptable to the depositary;

      2. (ii)

         adequate within CIS 5A.14.6 R (1); and

      3. (iii)

         sufficiently immediate within CIS 5A.14.6 R (2) .

2. (2)

   The counterparty for the purpose of (1) is the person who is obliged under the agreement referred to in (1)(a) to transfer to the depositary the securities transferred by the depositary under the stock lending arrangement or securities of the same kind.

1. (1)

   Collateral is adequate for the purposes of this section (CIS 5A.14) only if it:

   1. (a)

      is transferred to the depositary or its agent;

   2. (b)

      is at least equal in value, at the time of the transfer to the depositary, to the value of the securities transferred by the depositary; and

   3. (c)

      is in the form of one or more of:

      1. (i)

         cash;

      2. (ii)

         near cash;

      3. (iii)

         government and public securities;

      4. (iv)

         a certificate of deposit;

      5. (v)

         a letter of credit; and

      6. (vi)

         securities transferred in CREST.

2. (2)

   Collateral is sufficiently immediate for the purposes of this section (CIS 5A.14) if :

   1. (a)

      it is transferred before or at the time of the transfer of the securities by the depositary; or

   2. (b)

      the depositary takes reasonable care to determine at that time that it will be transferred at the latest by the close of business on the day of the transfer.

3. (3)

   The depositary must ensure that the value of the collateral at all times is at least equal to the value of the securities transferred by the depositary.

4. (4)

   The duty in (3) may be regarded as satisfied in respect of collateral the validity of which is about to expire or has expired where the depositary takes reasonable care to determine that sufficient collateral will again be transferred at the latest by the close of business on the day of expiry.

5. (5)

   Any agreement for transfer at a future date of securities or of collateral (or of the equivalent of either) under this section (CIS 5A.14) may be regarded, for the purposes of valuation under CIS 4 (Single-pricing and dealing), CIS 15 (Dual-pricing and dealing) or this chapter, as an unconditional agreement for the sale or transfer of property, whether or not the property is part of the property of the authorised fund.

6. (6)

   Collateral transferred to the depositary is part of the scheme property for the purposes of the rules in this sourcebook, except in the following respects:

   1. (a)

      it does not fall to be included in any valuation for the purposes of CIS 4 (Single-pricing and dealing), or CIS 15 (Dual-pricing and dealing) or this chapter, because it is offset under (5) by an obligation to transfer; and

   2. (b)

      it does not count as scheme property for any purpose of this chapter other than this section (CIS 5A.14).

7. (7)

   Paragraph (5) and (6)(a) do not apply to any valuation of collateral itself for the purposes of this section (CIS 5A.14).

There is no limit on the value of the scheme property which may be the subject of stock lending transactions within this section (CIS 5A.14).

1. (1)

   CIS 5A.15.1 R applies to authorised fund managers and depositaries.

2. (2)

   CIS 5A.15.2 R (1)(Cash and near cash) applies to authorised fund managers, other than authorised fund managers of money market schemes, futures and options schemes and geared futures and options schemes.

3. (3)

   CIS 5A.15.3 R (General power to borrow) applies (other than for geared futures and options schemes) to ICVCs and trustees of AUTs, except CIS 5A.15.3 R (3)and (4), which apply to authorised fund managers of authorised funds other than geared futures and options schemes and futures and options schemes.

4. (4)

   CIS 5A.15.4 R (Borrowing limits) applies to authorised fund managers of authorised funds other than geared futures and options schemes.

5. (5)

   CIS 5A.15.5 R (Restrictions on lending of money) applies to ICVCs or to managers and trustees, except for CIS 5A.15.5 R(3) which applies to ICVCs.

6. (6)

   CIS 5A.15.6 R (Restrictions on lending of property other than money) applies to ICVCs or managers and trustees, except for CIS 5.15.6R (4) which applies to ICVCs or to depositaries of ICVCs.

7. (7)

   CIS 5A.15.7 R (General power to accept or underwrite placings) applies to ICVCs or to managers.

8. (8)

   CIS 5A.15.8 R (Guarantees and indemnities) applies to ICVCs or depositaries.

1. (1)

   Cash and near cash must not be retained in the scheme property except to the extent that, where this may reasonably be regarded as necessary in order to enable:

   1. (a)

      redemption of units; or

   2. (b)

      efficient management of the authorised fund in accordance with its investment objectives; or

   3. (c)

      other purposes which may reasonably be regarded as ancillary to the investment objectives of the authorised fund.

2. (2)

   The scheme property of a money market scheme, a futures and options scheme and a geared futures and options scheme may consist of cash and near cash without limitation.

3. (3)

   Paragraph (2) does not apply during the period of the initial offer, during which the scheme property may consist of cash and near cash without limitation.

1. (1)

   The ICVC or trustee (on the instructions of the manager) may, in accordance with this rule (CIS 5A.15.3 R) and CIS 5A.15.4 R, borrow money for the use of the authorised fund on terms that the borrowing is to be repayable out of the scheme property. This power to borrow is subject to the obligation of the authorised fund to comply with any restriction in the instrument constituting the scheme.

2. (2)

   The ICVC or trustee may borrow under (1) only from an eligible institution or an approved bank.1

3. (3)

   The authorised fund manager must ensure that any borrowing is on a temporary basis and that borrowings are not persistent, and for this purpose the authorised fund manager must have regard in particular to:

   1. (a)

      the duration of any period of borrowing; and

   2. (b)

      the number of occasions on which resort is had to borrowing in any period.

4. (4)

   In addition to complying with (3), the authorised fund manager must ensure that no period of borrowing exceeds three months, whether in respect of any specific sum or at all, without the prior consent of the depositary; the depositary's consent may be given only on such conditions as appear to the depositary appropriate to ensure that the borrowing does not cease to be on a temporary basis only.

5. (5)

   This rule (CIS 5A.15.3 R) does not apply to "back to back" borrowing under CIS 5A.13.12 R(2) (Borrowing in the context of efficient portfolio management).

6. (6)

   An ICVC must not issue any debenture unless it acknowledges or creates a borrowing that complies with (1) to (4).

1. (1)

   The authorised fund manager must ensure that the authorised fund's borrowing does not, on any business day, exceed 10% of the value of the scheme property.

2. (2)

   For a property scheme, the authorised fund manager must ensure that the borrowing does not, on any business day, exceed 10% of the value of that part of the scheme property which for the time being does not consist of immovables.

3. (3)

   For a property scheme, an approved mortgage under CIS 5A.8.9 R (Mortgaged property) or CIS 5A.8.12 R (Grant of options, mortgages) does not count as borrowing for the purposes of (2).

4. (4)

   This rule (CIS 5A.15.4 R) does not apply to "back to back" borrowing under CIS 5.13.12R(2).

5. (5)

   In this rule (CIS 5A.15.4 R), "borrowing" includes, as well as borrowing in a conventional manner, any other arrangement (including a combination of derivatives) designed to achieve a temporary injection of money into the scheme property in the expectation that the sum will be repaid.

6. (6)

   [deleted]2

   2

1. (1)

   None of the money in the scheme property of an authorised fund may be lent and, for the purposes of this prohibition, money is lent by an authorised fund if it is paid to a person ("the payee") on the basis that it should be repaid, whether or not by the payee.

2. (2)

   Acquiring a debenture is not lending for the purposes of (1); nor is the placing of money on deposit or in a current account.

3. (3)

   Paragraph (1) does not prevent an ICVC from providing an officer of the ICVC with funds to meet expenditure to be incurred by him for the purposes of the ICVC (or for the purposes of enabling him properly to perform his duties as an officer of the ICVC) or from doing anything to enable an officer to avoid incurring such expenditure.

1. (1)

   The scheme property of an authorised fund other than money must not be lent by way of deposit or otherwise.

2. (2)

   Transactions falling within CIS 5A.14 (Stock lending) are not lending for the purposes of (1).

3. (3)

   The scheme property of an authorised fund must not be mortgaged except under CIS 5A.8 (Property schemes).

4. (4)

   Nothing in this rule (CIS 5A.15.6 R) prevents the ICVC or the depositary at the request of the ICVC, or the trustee at the request of the manager, from lending, depositing, pledging or charging scheme property for margin requirements where transactions in derivatives or forward transactions are used for the account of the authorised fund in accordance with any other of the rules in this chapter.

1. (1)

   Any power in this chapter to invest in transferable securities may be used for the purpose of entering into transactions to which this rule (CIS 5A.15.7 R) applies, subject to compliance with any restriction in the instrument constituting the scheme.

2. (2)

   This rule (CIS 5A.15.7 R) applies, subject to (3), to any agreement or understanding:

   1. (a)

      which is an underwriting or sub-underwriting agreement; or

   2. (b)

      which contemplates that securities will or may be issued or subscribed for or acquired for the account of the authorised fund.

3. (3)

   Paragraph (2) does not apply to:

   1. (a)

      an option; or

   2. (b)

      a purchase of a transferable security which confers a right :

      1. (i)

         to subscribe for or acquire a transferable security; or

      2. (ii)

         to convert one transferable security into another.

4. (4)

   No agreement or understanding to which this rule (CIS 5A.15.7 R) applies may be entered into if it relates to units in a collective investment scheme.

5. (5)

   The exposure of an authorised fund to agreements and understandings within (2) must, on any business day:

   1. (a)

      be covered under CIS 5A.13.8 R (Cover for transactions for efficient portfolio management) as if the exposure had been incurred in the context of CIS 5A.13 (Efficient portfolio management) by means of transactions in approved derivatives; and

   2. (b)

      be such that, if all possible obligations arising under them had immediately to be met in full, there would be no breach of any limit in this chapter.

1. (1)

   An ICVC or a depositary for the account of an authorised fund must not provide any guarantee or indemnity in respect of the obligation of any person.

2. (2)

   None of the scheme property of an authorised fund may be used to discharge any obligation arising under a guarantee or indemnity with respect to the obligation of any person.

3. (3)

   Paragraphs (1) and (2) do not apply to:

   1. (a)

      any indemnity or guarantee given for margin requirements where the derivatives or forward transactions are being used in accordance with the rules in this chapter;

   2. (b)

      for an ICVC:

      1. (i)

         an indemnity falling within the provisions of regulation 62(3) of the OEIC regulations (Exemptions from liability to be void);

      2. (ii)

         an indemnity (other than any provision in it which is void under regulation 62 of the OEIC regulations) given to the depositary against any liability incurred by it as a consequence of the safekeeping of any of the scheme property by it or by anyone retained by it to assist it to perform its function of the safekeeping of the scheme property; and

      3. (iii)

         an indemnity given to a person winding up a scheme if the indemnity is given for the purposes of arrangements by which the whole or part of the property of that scheme becomes the first property of the ICVC and the holders of units in that scheme become the first shareholders in the ICVC; and

   3. (c)

      for an AUT, an indemnity given to a person winding up a body corporate or other scheme in circumstances to which CIS 15.2.7 R (Creation of units) applies.

This section (CIS 5A.16) applies to ICVCs other than futures and options schemes and geared futures and options schemes and to managers and trustees of AUTs other than futures and options schemes or geared futures and options schemes.

1. (1)

   No agreement by or on behalf of an ICVC or on behalf of an AUT to dispose of property or rights may be made:

   1. (a)

      unless the obligation to make the disposal and any other similar obligation could immediately be honoured by the authorised fund by delivery of property or the assignment (or, in Scotland, assignation) of rights; and

   2. (b)

      the property and rights at (a) are owned by the authorised fund at the time of the agreement.

2. (2)

   Paragraph (1) does not apply to a transaction in derivatives or a forward transaction under CIS 5A.13 (Efficient portfolio management).