Related provisions for COBS 11.7.2
An operator when it is carrying on scheme management activity:
Table: Application of conduct of business rules
Application of conduct of business rules
Chapter, section or rule |
Description |
Modifications |
1 |
Application |
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2.1.1 |
Acting honestly, fairly and professionally |
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2.3 |
Inducements |
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2.4 |
Agent as client and reliance on others |
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4.2.1 - 4.2.3 |
Fair, clear and not misleading communications |
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25.1 |
Distance communications |
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5.2 |
E-Commerce |
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56.1G.2 |
Re-registration requests: firms acting as registrars |
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11.2 |
Best execution |
In the case of an unregulated collective investment scheme, COBS 18.5.4R (Modification of best execution) applies instead of COBS 11.2 in the circumstances set out in COBS 18.5.4R.1 |
11.3 |
Client order handling |
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11.5 |
Record keeping: client orders and decisions to deal |
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11.6 |
Use of dealing commission |
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311.8 |
Recording telephone conversations and electronic communications |
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18.5 |
Operators of collective investment schemes |
- (1)
In order to provide adequate information to describe how the operation of the scheme is governed, an operator of an unregulated collective investment scheme should include in the scheme documents a provision about each of the items of relevant information set out in the following table (Content of scheme documents).
- (2)
Compliance with (1) may be relied on as tending to establish compliance with COBS 18.5.5 R.
- (3)
Contravention of (1) may be relied on as tending to establish contravention of COBS 18.5.5 R.
Table: Content of scheme documents
Content of scheme documents
The scheme documents should include provision about: |
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(1) |
Regulator The firm statutory status in accordance with GEN 4 Annex 1 R (Statutory status disclosure); |
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(2) |
Services the nature of the services that the operator will provide in relation to the scheme; |
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(3) |
Payments for services details of any payment for services payable by the scheme or from the property of the scheme or participants in the scheme to the operator, including where appropriate: |
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(a) |
the basis of calculation; |
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(b) |
how it is to be paid and collected; |
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(c) |
how frequently it is to be paid; and |
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(d) |
whether or not any other payment is receivable by the operator (or to its knowledge by any of its associates) in connection with any transactions effected by the operator with or for the scheme, in addition to or in lieu of any fees; |
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(4) |
Commencement when and how the operator is appointed; |
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(5) |
Accounting the arrangements for accounting to the scheme or participants in the scheme for any transaction effected; |
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(6) |
Termination method how the appointment of the operator may be terminated; |
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(7) |
Complaints procedure how to complain to the operator and a statement that the participants in the scheme may subsequently complain direct to the Financial Ombudsman Service; |
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(8) |
Compensation whether or not compensation may be available from the compensation scheme should the operator be unable to meet its liabilities, and information about any other applicable compensation scheme; and, for each applicable scheme, the extent and level of cover and how further information can be obtained; |
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(9) |
Investment objectives the investment objectives for the portfolio of the scheme; |
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(10) |
Restrictions |
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(a) |
any restrictions on: |
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(i) |
the types of investments or property which may be included in the portfolio of the scheme; |
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(ii) |
the markets on which investments or property may be acquired for the portfolio of the scheme; |
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(iii) |
the amount or value of any one investment or asset, or on the proportion of the portfolio of the scheme which any one investment or asset or any particular kind of investment or asset may constitute; or |
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(b) |
that there are no such restrictions; |
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(11) |
Holding scheme assets |
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(a) |
if it is the case, that the operator will: |
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(i) |
hold money on behalf of the scheme or be the custodian of investments or other property of the scheme; or |
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(ii) |
arrange for some other person to act in either capacity and, if so, whether that person is an associate of the operator identifying that person and describing the nature of any association; and |
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(b) |
in either case: |
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(i) |
how any money is to be deposited; |
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(ii) |
the arrangements for recording and separately identifying registrable investments of the scheme and, where the registered holder is the operator's own nominee, that the operator will be responsible for the acts and omissions of that person; |
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(iii) |
the extent to which the operator accepts liability for any loss of the investment of the scheme; |
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(iv) |
the extent to which the operator or any other person mentioned in (11)(a)(ii), may hold a lien or security interest over investments of the scheme; |
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(v) |
where investments of the scheme will be registered collectively in the same name, a statement that the entitlements of the scheme may not be identifiable by separate certificates or other physical documents of title, and that, should the operator default, any shortfall in investments of the scheme registered in that name may be shared proportionately among all schemes and any other customers of the operator whose investments are so registered; |
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(vi) |
whether or not investments or other property of the scheme can be lent to, or deposited by way of collateral with, a third party and whether or not money can be borrowed on behalf of the scheme against the security of those investments or property and, if so, the terms upon which they may be lent or deposited; |
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(vii) |
the arrangements for accounting to the scheme for investments of the scheme, for income received (including any interest on money and any income earned by lending investments or other property) of the scheme, and for rights conferred in respect of investments or other property of the scheme; |
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(viii) |
the arrangements for determining the exercise of any voting rights conferred by investments of the scheme; and |
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(ix) |
where investments of the scheme may be held by an eligible custodian outside the United Kingdom, a general statement that different settlement, legal and regulatory requirements, and different practices relating to the segregation of those investments, may apply; |
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(12) |
Clients' money outside the United Kingdom if it is the case, that the operator may hold the money of the scheme in a client bank account outside the United Kingdom; |
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(13) |
Exchange rates if a liability of the scheme in one currency is to be matched by an asset in a different currency, or if the services to be provided to the operator for the scheme may relate to an investment denominated in a currency other than the currency in which the investments of the scheme are valued, a warning that a movement of exchange rates may have a separate effect, unfavourable or favourable, on the gain or loss otherwise made on the investments of the scheme; |
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(14) |
Stabilised investments if it is the case, that the operator is to have the right under the schemedocuments to effect transactions in investments the prices of which may be the subject of stabilisation; |
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(15) |
Conflict of interest and material interest if it is the case, that the operator is to have the right under the agreement or instrument constituting the scheme to effect transactions on behalf of the scheme in which the operator has directly or indirectly a material interest (except for an interest arising solely from the participation of the operator as agent for the scheme), or a relationship of any description with another party which may involve a conflict with the operator's duty to the scheme, together with a disclosure of the nature of the interest or relationship; |
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(16) |
Use of dealing commission if the operator receives goods or services in addition to the execution of its customer orders in accordance with the section on the use of dealing commission, the prior disclosure required by the rule on prior disclosure (see COBS 11.6.2 R); |
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(17) |
Acting as principal if it is the case, that the operator may act as principal in a transaction with the scheme; |
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(18) |
Stock lending if it is the case, that the operator may undertake stock lending activity with or for the scheme specifying the type of assets of the scheme to be lent, the type and value of relevant collateral from the borrower and the method and amount of payment due to the scheme in respect of the lending; |
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(19) |
Transactions involving contingent liability investments |
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(a) |
if it is the case, that the agreement or instrument constituting the scheme allows the operator to effect transactions involving contingent liability investments for the account of the portfolio of the scheme; |
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(b) |
if applicable, whether there are any limits on the amount to be committed by way of margin and, if so, what those limits are; and |
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(c) |
if applicable, that the operator has the authority to effect transactions involving contingent liability investments otherwise than under the rules of a recognised investment exchange or designated investment exchange and in a contract traded thereon; |
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(20) |
Periodic statements |
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(a) |
the frequency of any periodic statement (this should not be less than once every 12 months) except where a periodic statement is not required (see COBS 18.5.13R); and |
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(b) |
whether those statements will include some measure of performance, and, if so, what the basis of that measurement will be; |
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(21) |
Valuation the bases on which assets comprised in the portfolio of the scheme are to be valued; |
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(22) |
Borrowings if it is the case, that the operator may supplement the funds in the portfolio of the scheme and, if it may do so: |
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(a) |
the circumstances in which the operator may do so; |
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(b) |
whether there are any limits on the extent to which the operator may do so and, if so, what those limits are; and |
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(c) |
any circumstances in which such limits may be exceeded; |
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(23) |
Underwriting commitments if it is the case, that the operator may for the account of the portfolio of the scheme underwrite or sub-underwrite any issue or offer for sale of securities, and: |
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(a) |
whether there are any restrictions on the categories of securities which may be underwritten and, if so, what these restrictions are; and |
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(b) |
whether there are any financial limits on the extent of the underwriting and, if so, what these limits are; |
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(24) |
Investments in other collective investment schemes whether or not the portfolio may contain units in a collective investment scheme either operated or advised by the operator or by an associate of the operator or in a collective investment scheme which is not a regulated collective investment scheme; |
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(25) |
Investments in securities underwritten by the operator whether or not the portfolio may contain securities of which any issue or offer for sale was underwritten, managed or arranged by the operator or by an associate of the operator during the preceding 12 months. |
Table: Periodic statements
This table belongs to COBS 18.5.12 E.
Periodic statements |
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Suitable intervals |
(1) |
A periodic statement should be provided at least: |
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(a) |
six-monthly; or |
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(b) |
once in any other period, not exceeding 12 months, which has been mutually agreed between the operator and the participant in the scheme. |
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Adequate information |
(2) |
(a) |
A periodic statement should contain: |
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(i) |
(A) |
The information set out in the table of general contents of a periodic statement; |
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(B) |
where the portfolio of the scheme includes uncovered open positions in contingent liability investments, the additional information in the table listing the contents of a periodic statement (see COBS 18.5.15E) in respect of contingent liability investments; or |
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(ii) |
such information as a participant who is a retail client ordinarily resident outside the United Kingdom, or a professional client, has on his own initiative agreed with the operator as adequate. |
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(b) |
For a firm acting as an outgoing ECA provider, the words 'United Kingdom' is replaced by 'EEA' |
Table: General contents of a periodic statement
This table belongs to COBS 18.5.15 E.
General contents of periodic statements |
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1 |
Contents and value |
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(a) |
As at the beginning of the account period, the total value of the portfolio of the scheme, being either: |
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(i) |
the value of the assets comprised in the portfolio on the date as at which the statement provided for the immediately preceding period of account is made up; or |
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(ii) |
in the case of the first periodic statement, the value of the assets comprised in the portfolio on the date on which the operator assumed responsibility for the management of the portfolio. |
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(b) |
As at the end of the account period: |
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(i) |
the number, description and value of each investment held on behalf of the scheme; |
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(ii) |
the amount of cash held on behalf of the scheme; and |
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(iii) |
the total value of the portfolio of the scheme. |
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2 |
Basis of valuation A statement of the basis on which the value of each investment has been calculated and, if applicable, a statement that the basis for valuing a particular investment has changed since the previous periodic statement. Where any investments are shown in a currency other than the usual one used for valuation of the portfolio of the scheme, the relevant currency exchange rates must be shown. |
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3 |
Details of any assets loaned or charged |
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(a) |
A summary of those investments (if any) which were, at the closing date, loaned to any third party and those investments (if any) that were at that date charged to secure borrowings made on behalf of the portfolio of the scheme; and |
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(b) |
the aggregate of any interest payments made and income received during the account period in respect of loans or borrowings made during the period. |
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4 |
Transactions and changes in composition Except in the case of a portfolio which aims to track the performance of an external index: |
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(a) |
a statement that summarises the transactions entered into for the portfolio of the scheme during the period; and |
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(b) |
the aggregate of money and a summary of all investments transferred into and out of the portfolio of the scheme during the period; and |
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(c) |
the aggregate of any interest payments, dividends and other benefits received by the operator for the portfolio of the scheme during that period. |
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5 |
Charges and remuneration If not previously advised in writing, a statement for the account period: |
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(a) |
of the aggregate charges of the operator and its associates; and |
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(b) |
of any remuneration received by the operator or its associates or both from a third party in respect of the transactions entered into, or any other services provided, for the portfolio of the scheme. |
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6 |
Movement in value of portfolio A statement of the difference between the value of the portfolio at the closing date and its value at the starting date of the account period, having regard at least, during the account period, to the following: |
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(a) |
the aggregate of assets received from participants of the scheme and added to the portfolio of the scheme; |
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(b) |
the aggregate of the value of assets transferred, or of amounts paid, to the scheme; |
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(c) |
the aggregate income received on behalf of the scheme in respect of the portfolio; and |
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(d) |
the aggregate of realised and unrealised profits or gains and losses attributable to the assets comprised in the portfolio of the scheme. |
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Notes: For the purposes of Item 1, where the scheme is a property enterprise trust, it will be sufficient for the periodic statement to disclose the number of properties held in successive valuation bands where this is appropriate to the size and composition of the scheme, rather than the value of each asset in the portfolio. The valuation bands of over £10m, £5-£10m, £2.5-£5m, £1-£2.5m and under £1m would be appropriate, unless an operator could show that different bands were justifiable in the circumstances. The statement to be provided under Item 6 is not intended to be an indicator of the performance of the portfolio of the scheme.An operator may wish to distinguish capital and income, and thereby provide more information than referred to in this table. If the statement includes some measure of performance, the basis of measurement should be stated. |
Table: Contents of a periodic statement in respect of contingent liability investments
This table belongs to COBS 18.5.15 E.
Contents of a periodic statement in respect of contingent liability investments |
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(1) |
Changes in value The aggregate of money transferred into and out of the portfolio of the scheme during the account period. |
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(2) |
Open positions In relation to each open position in the portfolio of the scheme at the end of the account period, the unrealised profit or loss to the portfolio of the scheme (before deducting or adding any commission which would be payable on closing out). |
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(3) |
Closed positions In relation to each transaction effected during the account period to close out a position of the scheme, the resulting profit or loss to the portfolio of the scheme after deducting or adding any commission. (Instead of the specific detail required by Items 2 or 3, the statement may show the net profit or loss in respect of the overall position of the scheme in each contract) |
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(4) |
Aggregate of contents The aggregate of each of the following in, or relating to, the portfolio of the scheme at the close of business on the valuation date: |
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(a) |
cash; |
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(b) |
collateral value; |
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(c) |
management fees; and |
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(d) |
commissions attributable to transactions during the period or a statement that this information has been separately disclosed in writing on earlier statements or confirmations to the participant. |
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(5) |
Option account valuations In respect of each open option comprising the portfolio of the scheme on the valuation date: |
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(a) |
the share, future, index or other investment or asset involved; |
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(b) |
(unless the valuation statement follows the statement for the period in which the option was opened) the trade price and date for the opening transaction; |
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(c) |
the market price of the contract; and |
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(d) |
the exercise price of the contract. |
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Options account valuations may show an average trade price and market price in respect of an option series where a number of contracts within the same series have been purchased on behalf of the scheme. |
1This table belongs to COBS 2.3.14 G.
Reasonable non-monetary benefits |
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Gifts, Hospitality and Promotional Competition Prizes |
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1 |
A retail investment product provider5 giving and a firm receiving gifts, hospitality and promotional competition prizes of a reasonable value. 5 |
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Promotion |
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2 |
A retail investment product provider5 assisting another firm to promote its retail investment products5 so that the quality of its service to clients is enhanced. Such assistance should not be of a kind or value that is likely to impair the recipient firm's ability to pay due regard to the interests of its clients, and to give advice on, and recommend, retail investment products5 available from the recipient firm's whole range or ranges. 555 |
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Joint marketing exercises |
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3 |
A retail investment product provider5 providing generic product literature (that is, letter heading, leaflets, forms and envelopes) that is suitable for use and distribution by or on behalf of another firm if: 5 |
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(a) |
the literature enhances the quality of the service to the client and is not primarily of promotional benefit to the retail investment product provider;5 and 5 |
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(b) |
the total costs (for example, packaging, posting, mailing lists) of distributing such literature to its client are borne by the recipient firm. |
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4 |
A retail investment product provider5 supplying another firm with 'freepost' envelopes, for forwarding such items as completed applications, medical reports or copy client agreements. 5 |
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5 |
A retail investment product provider5 supplying product specific literature (for example, key features documents, minimum information) to another firm if: 5 |
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(a) |
the literature does not contain the name of any other firm; or |
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(b) |
if the name of the recipient firm is included, the literature enhances the quality of the service to the client and is not primarily of promotional benefit to the recipient firm. |
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6 |
A retail investment product provider5 supplying draft articles, news items and financial promotions for publication in another firm's magazine, only if in each case any costs paid by the product provider for placing the articles and financial promotions are not more than market rate, and exclude distribution costs. 5 |
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Seminars and conferences |
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7 |
A retail investment product provider5 taking part in a seminar organised by another firm or a third party and paying toward the cost of the seminar, if: 5 |
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(a) |
its participation is for a genuine business purpose; and |
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(b) |
the contribution is reasonable and proportionate to its participation and by reference to the time and sessions at the seminar when its staff play an active role. |
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Technical services and information technology |
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8 |
A retail investment product provider5 supplying a 'freephone' link to which it is connected. 5 |
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9 |
A retail investment product provider5 supplying another firm with any of the following: 5 |
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(a) |
quotations and projections relating to its retail investment products5 and, in relation to specific investment transactions (or for the purpose of any scheme for review of past business), advice on the completion of forms or other documents; 5 |
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(b) |
access to data processing facilities, or access to data, that is related to the retail investment product provider’s5 business; 5 |
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(c) |
access to third party electronic dealing or quotation systems that are related to the retail investment product provider's5 business; and 5 |
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(d) |
software that gives information about the retail investment product provider's retail investment products5 or which is appropriate to its business (for example, for use in a scheme for review of past business or for producing projections or technical product information). 5 |
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10 |
A retail investment product provider5 paying cash amounts or giving other assistance to a firm not in the same immediate group for the development of software or other computer facilities necessary to operate software supplied by the retail investment product provider,5 but only to the extent that by doing so it will generate equivalent cost savings to itself or clients. 55 |
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11 |
A retail investment product provider5 supplying another firm with information about sources of mortgage finance. 5 |
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12 |
A retail investment product provider5 supplying another firm with generic technical information in writing, not necessarily related to the product provider's business, when this information states clearly and prominently that it is produced by the product provider or (if different) supplying firm. 5 |
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Training |
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13 |
A retail investment product provider5 providing another firm with training facilities of any kind (for example, lectures, venue, written material and software). 5 |
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Travel and accommodation expenses |
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14 |
A retail investment product provider5 reimbursing another firm's reasonable travel and accommodation expenses when the other firm: 5 |
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(a) |
participates in market research conducted by or for the retail investment product provider;5 5 |
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(b) |
attends an annual national event of a United Kingdom trade association, hosted or co-hosted by the retail investment product provider;5 5 |
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(c) |
participates in the retail investment product provider’s5 training facilities (see 13); 5 |
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(d) |
visits the retail investment product provider’s5United Kingdom office in order to: 5 |
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(i) |
receive information about the retail investment product provider's5 administrative systems; or 5 |
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(ii) |
attend a meeting with the retail investment product provider5 and an existing or prospective client of the receiving firm. 5 |
When a firm compares the benefits likely to be paid under a defined benefits pension scheme with the benefits afforded by a personal pension scheme or stakeholder pension scheme (COBS 19.1.2R (1)), it must:
- (1)
assume that:
(a) the annuity interest rate is the intermediate rate of return appropriate for a level or fixed rate of increase annuity in (2COBS 13 Annex 2 3.1R(6))2) unless COBS 19.1.4B R applies3 or the rate for annuities in payment (if less);3
(b) the retail prices index is
2.5%
(c) the average earnings index and the rate for section 21 orders is
4.0%
(d) the pre-retirement limited price indexation revaluation is
2.5%
(e) the annuity rate for3 post-retirement limited price increases with maximum increases less than or equal to 3.5% or with minimum increases more than or equal to 3.5% is the rate in (a) above; otherwise it is the rate in (f) below;3
33 (f) the index linked pensions rate is the intermediate rate of return in 2COBS 13 Annex 2 3.1 R (6)2 for annuities linked to the retail prices index unless COBS 19.1.4B R applies;3
(g) the mortality rate used to determine the annuity is based on the year of birth rate derived from each of the Institute and Faculty of Actuaries’ Continuous Mortality Investigation tables PCMA00 and PCFA00 and including mortality improvements derived from each of the male and female annual mortality projections models, in equal parts;3
or use more cautious assumptions;
- (2)
calculate the interest rate in deferment; and
- (3)
have regard to benefits which commence at difference times.