Unit Trusts (Hansard, 28 January 1988)

§ Mr. Maude

My Department has had useful discussions with a number of interested parties on this subject, taking forward the consultations started by the Securities and Investments Board. The Securities and Investments Board352W has been actively involved in our discussions on these issues and endorses the approach I have decided upon. Our aim has been to achieve a system which is fair to investors and provides as much flexibility for management groups as is consistent with this.

It was suggested to us that conflicts of interest between the manager's role as market-maker in dealing in units and his role as investment manager for the fund could be resolved only by confining managers to acting as agent in unit dealings. Although I do not intend to require this in the regulations, it is clearly a matter which deserves further study, and I welcome the intention of the Securities and Investments Board to look at it fully, in the light of experience of the new regulations.

I will shortly be laying regulations before the House, the main provisions of which will be as follows:

(i) In their dealings with trustees, managers will have to inform the trustee within 2 hours of the valuation point of the number and/or value of units they wish to create or cancel at that valuation. They may not give creation or cancellation orders at any other time. They must request at least sufficient units to enable them to fulfil all purchase orders taken. They must tell the trustee straight away if they revalue the fund.
(ii) In their dealings with unitholders, managers will be able to choose to deal with unit-holders on a forward basis only, at the price calculated following receipt of their order. If they wish to offer deals on the last valuation (backward basis) they must:

— decide their spread at the beginning of the dealing period and inform the trustee (this spread must be the one used for forward deals in the previous period)
— deal at this spread for all transactions except large ones unless they move to a forward basis for all deals
— cease to deal on a backward basis if they know, or have reason to believe, that the fund value has moved by 2 per cent. or more
— deal at a forward price if the unitholder requests it or if no price is agreed.

(iii) For large deals managers will be able to deal outside the spread notified to the Trustee provided that the price used is still within permitted units or deal on a forward pricing basis (within permitted limits). (Large deals will be defined as £15,000 or such larger amount as is stated in the scheme particulars.)
(iv) If the manager knows or has reason to believe that the fund value has moved by 2 per cent. or more he can as an alternative to complete revaluation, use a revaluation be reference to movements in an Index if the Trustee agrees and the composition of the Index reflects the composition of the fund.
(v) The manager will be able to choose the regular time of valuation but this must be stated in the scheme particulars and must not be two hours or less before the opening of the main market in which the fund is invested.
(vi) Unit prices will be calculated so as to reflect the net asset value of the fund on a buying or selling basis, and including any initial charge. Unit prices will have to be accurate to 4 significant figures both for transactions and publication in newspapers. For transactions rounding to the lowest unit of currency will also be permitted.
(vii) On contract notes and in newspapers, the cancellation price will need to be shown in addition to the ruling bid/offer price as appropriate. In addition on contract notes and at least weekly in the newspaper the initial charge as a percentage will need to be shown. The prices shown in the newspapers will have to be the most recent valuation available with the actual spreads used for deals (other than large deals).
(viii) Settlement within five days will be required for all trustee/manager dealings for all funds other than money market and gilts funds in which case the requirement will be to settle by the close of business on the next working day. In the case of manager — unitholder dealings the requirement will be to pay out on redemptions within five days of receipt of the relevant documents of title.

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As the pricing regulations are likely to require changes in systems and working procedures, I intend to allow current lawful arrangements to continue until 1 July.

I have also received representation about the position of offshore funds. Such funds cannot be certain, at this stage, whether their home territory will be able to obtain designation under section 87 of the Act by "A" day, or that applications for their individual recognition under section 88 will have been determined by then. I therefore intend to permit offshore funds which have a listing on the stock exchange to continue, until 1 July, to promote by means of a prospectus.