COLL 5.5 Cash, borrowing, lending and other provisions

Subject to (2), this section applies to an ICVC, an ACD, an authorised fund manager of an AUT or ACS, and a depositary of an ICVC, AUT or ACS, where such ICVC, AUT or ACS is a UCITS scheme as set out in COLL 5.5.2R (Table of application).7

Other than COLL 5.5.3R and COLL 5.5.9R, this section does not apply to an ICVC, an ACD, an authorised fund manager of an AUT or ACS, or a depositary of an ICVC, AUT or ACS, where such ICVC, AUT or ACS is a regulated money market fund.7

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

1. (a)

   the pursuit of the scheme's investment objectives; or

2. (b)

   redemption of units; or

3. (c)

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

4. (d)

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

During the period of the initial offer the scheme property may consist of cash and near cash without limitation.

The ICVC or depositary of an AUT or ACS4 (on the instructions of the authorised fund manager4) may, in accordance with this rule and COLL 5.5.5 R (Borrowing limits), borrow money for the use of the authorised fund on terms that the borrowing is to be repayable out of the scheme property.

Paragraph (1) is subject to the obligation of the authorised fund to comply with any restriction in the instrument constituting the fund.5

The ICVC or depositary of an AUT or ACS4 may borrow under (1) only from an eligible institution or an approved bank.

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.

In addition to complying with (4), 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 may only give its consent as required under (5) on such conditions as appear to the depositary appropriate to ensure that the borrowing does not cease to be on a temporary basis only.

This rule does not apply to "back to back" borrowing under COLL 5.3.5 R (2) (Borrowing).

An ICVC must not issue any debenture unless it acknowledges or creates a borrowing that complies with (1) to (6)

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

This rule does not apply to "back to back" borrowing under COLL 5.3.5 R (2)(Borrowing).

In this rule, 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.

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.

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

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.

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

Transactions permitted by COLL 5.4 (Stock lending) are not to be regarded as lending for the purposes of (1).

The scheme property must not be mortgaged.

Where transactions in derivatives or forward transactions are used for the account of the authorised fund in accordance with any of the rules in this chapter, nothing in this rule prevents the ICVC or the depositary at the request of the ICVC, or the depositary of an AUT or ACS4 at the request of the authorised fund manager4, from2:

1. (a)

   lending, depositing, pledging or charging scheme property for margin requirements; or

2. (b)

   transferring scheme property under the terms of an agreement in relation to margin requirements, provided that the authorised fund manager reasonably considers that both the agreement and the margin arrangements made under it (including in relation to the level of margin) provide appropriate protection to unitholders.

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

This rule applies to any agreement or understanding which:

1. (a)

   is an underwriting or sub-underwriting agreement; or

2. (b)

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

Paragraph (2) does not apply to:

1. (a)

   an option; or

2. (b)

   a purchase of a transferable security which confers a right to:

   1. (i)

      subscribe for or acquire a transferable security; or

   2. (ii)

      convert one transferable security into another.

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

1. (a)

   covered under COLL 5.3.3A R (Cover for investment in derivatives and forward transactions); and3

   3
2. (b)

   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.

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.

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.

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; and

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 unitholders in the ICVC; and

3. (c)

   for an AUT or ACS4, an indemnity given to a person winding up a body corporate or other scheme in circumstances where those assets are becoming part of the scheme property by way of a unitisation.