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TRINIDAD AND TOBAGO SECURITIES AND EXCHANGE COMMISSION

TRINIDAD AND TOBAGO SECURITIES AND EXCHANGE COMMISSION. GUIDELINES FOR COLLECTIVE INVESTMENT SCHEMES, 2006. CIS Guidelines Reflect a Mixed Approach. The Guidelines:

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TRINIDAD AND TOBAGO SECURITIES AND EXCHANGE COMMISSION

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  1. TRINIDAD AND TOBAGO SECURITIES AND EXCHANGE COMMISSION GUIDELINES FOR COLLECTIVE INVESTMENT SCHEMES, 2006 April 12, 2006

  2. CIS Guidelines Reflect a Mixed Approach The Guidelines: • Contain provisions that are designed to bring the regulation of CISs in Trinidad and Tobago to the level of international best practice • Have adopted a mixed “disclosure and substantive regulation approach” consistent with practice in Canada and the US • The Guidelines do not restrict the legal form of a CIS, which can be constituted as a trust, a corporation or other type of entity April 12, 2006

  3. CIS Guidelines Reflect a Mixed Approach (cont’d) Some of the issues addressed in the Guidelines include: • Continuous financial reporting similar to those already observed by other issuers of securities • Nomenclature rules to ensure that fund names are not misleading April 12, 2006

  4. CIS Guidelines Reflect a Mixed Approach (cont’d) • Prospectus disclosure that ensures adequate disclosure of both general risks and those associated with a fund’s specific investment objectives to existing and potential investors April 12, 2006

  5. CIS Guidelines Reflect a Mixed Approach (cont’d) • Performance measurement and advertising, and comparison of fund performance • Fund governance to ensure adequate separation of functions to protect investors’ interests April 12, 2006

  6. Definition of a CIS (GL 2) A CIS is defined as an issuer: • That is established for the principal purpose of investing property, including money, provided by its security holders; and • The securities of which entitle the holder to receive on demand or within a specified period after demand, an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets of the issuer; • In addition to the feature of redemptions on demand, a CIS includes any scheme or fund that the Commission may deem to be a CIS, including a closed-end fund. April 12, 2006

  7. Application of Guidelines(GL 3 & 4) • The Guidelines apply to all CISs other than CISs that are: • Pure contracts of insurance • Pension schemes • Commodity pools • In respect of foreign CISs, Policy Guideline 11.1 applies (in addition to GL 43 & 44). Policy 11.1 is to be revised. April 12, 2006

  8. Foreign Collective Investment Schemes(GL 4, 43 & 44) Guidelines 43 and 44 stipulate: • Cash received by an agent of a foreign CIS: -shall be accounted for separately and deposited in a trust account; -may be commingled only with cash received by the agent or service provider for the sale or redemption of the foreign CIS securities • The filing and publication of a volume report April 12, 2006

  9. New Collective Investment Schemes (GL 7) A prospectus filed for the registration of a new CIS must show that at least 5 million dollars is beneficially owned by the promoter, manager or investment adviser to the CIS and/or any of their respective partners, directors, officers or security holders April 12, 2006

  10. Prospectus Disclosure Requirements (Schedule 1, Form No 1) • The investment objectives and strategies of the CIS; • A statement on the suitability of the investment for certain types of investors; • A description of the risk factors specific to an investment in the CIS; April 12, 2006

  11. Prospectus Disclosure Requirements(cont’d) • Fees and expenses payable by the CIS and by holders of securities in the CISs • Potential conflict of interest relationships of the CIS or its manager April 12, 2006

  12. Prospectus Disclosure Requirements (cont’d) • How net asset value is calculated and the frequency of valuation • Disclosure of the 10 largest holdings of the CIS • The inclusion of certain warning language where performance data is included April 12, 2006

  13. Regulation of Trustees (GL 9) • The Trustee of a CIS is held responsible for the supervision of the activities of all the parties involved in the management and administration of the CIS • The specific duties, responsibilities and requirements of CIS trustees are not in the Guidelines as they are more appropriately regulated by trust law and the agreement or declaration of trust establishing the CIS April 12, 2006

  14. Regulation of Trustees (cont’d) • The Trustee is under a fiduciary duty to the holders of securities of the CIS to effectively manage the trust and to exercise the degree of care, diligence and skill that a reasonably prudent person would exercise in the circumstances April 12, 2006

  15. Regulation of Managers and Custodians • Standard of Care - the manager and the custodian of a CIS must adhere to a standard of care and are liable for losses arising out of its failure to meet such standard (GL 12 and 16); • A custodian must be a company that is licensed under the FIA 1993, or a person that is regulated as a banking institution or trust company under the laws of a foreign jurisdiction (GL 15). April 12, 2006

  16. The Manager • The manager of a CIS shall not act as a trustee or as a custodian of the CIS (GL 10) • However an affiliate of the manager may act as a trustee or as a custodian of the CIS provided that the majority of the Board of such affiliate consists of directors who are not managers or directors of the manager’s board • The manager of a CIS, other than a financial institution under the FIA or a registered market actor, must obtain the Commission’s approval before acting as the manager of the CIS (GL 11) April 12, 2006

  17. Name of a CIS • The name must not be misleading • The terms “Money Market” and “Money Market Fund” are not to be used unless 90% of the portfolio is invested in cash and evidences of indebtedness with a maturity of less than one year that are issued, or guaranteed as to principal and interest, by a financial institution or government entity April 12, 2006

  18. Name of CIS (cont’d) • The terms “Bond” or “Bond Fund” must not be used unless 70% of portfolio is invested in cash and bonds, debentures and similar instruments with a remaining term of maturity of more than one year • Where the name suggests a particular investment strategy, at least 80% of assets are to be invested in pursuit of that strategy April 12, 2006

  19. Name of CIS (cont’d) • Guarantee - Where the name of the CIS contains the words “guaranteed”, “secured” or similar words, the sponsor or investment manager must satisfy the Commission that sufficient assets have been set aside to give effect to the guarantee or to secure the investor’s assets April 12, 2006

  20. Financial Statements • A CIS is required to file with the Commission, and publish, annual and quarterly interim financial statements that include: • An income statement • A balance sheet • A statement of investment portfolio • A statement of portfolio transactions • A statement of changes in net assets • A statement of operations • A Volume Report • It must be accompanied by an MD&A April 12, 2006

  21. Calculation of Net Asset Value • NAV must be calculated each business day by the CIS in accordance with the methodology set forth in its prospectus. • The CIS Guidelines do not prescribe any method for calculating NAV but the requirement for daily calculation is consistent with international best practice (GL 22) April 12, 2006

  22. Records • A CIS must maintain true, complete and accurate records of: • The names and addresses of registered security holders • The number and class of securities held by such security holders • The date and details of each distribution and redemption of securities of the CIS GL 38 April 12, 2006

  23. Sales Communications • No sales communication shall contain a misrepresentation – GL 42(1) • A “misrepresentation” is defined in section 3 of the SIAas “(a) an untrue statement of a material fact; or (b) an omission to state a material fact that is required to be stated or is necessary to prevent a statement that is made from being false or misleading in the circumstances in which it is made” April 12, 2006

  24. Sales Communications(cont’d) • A written sales communication must include a statement that – • Recommends that the investor read the prospectus before purchasing securities • If investments are not guaranteed … • That the value of the investment changes frequently and that past performance may not be repeated • If investments are guaranteed … • The nature of the guarantee • That the value of the investment changes frequently and past performance may not be repeated April 12, 2006

  25. Investment Restrictions In respect of appropriate investment and borrowing restrictions: • 10% concentration restriction (GL 18); • 10% control restrictions relating to the investment activities of a CIS (GL 19); • Liquidity restrictions relating to purchasing equity securities that cannot be readily disposed of in the market (GL 20); • Limitation of a CIS’ ability to borrow money (GL 21). April 12, 2006

  26. Investment Restrictions(cont’d) • The concentration restriction excludes certain types of indebtedness such that money market and bond funds can acquire indebtedness of an issuer above the ten per cent limit • As well, the restriction on the purchase of illiquid securities only applies to equity securities, and again bond and money market funds should be largely unaffected by these provisions April 12, 2006

  27. Promotion Presentation Standards • Performance data must be calculated in accordance with promotion presentation standards to be published from time to time by the Commission and the CFA Institute • The Commission has prepared such Promotion Presentation Standards April 12, 2006

  28. The Unit Trust Corporation • Although the Unit Trust Corporation is not specifically referred to, the CIS Guidelines are meant to apply generally to any entity that establishes a CIS • The Guidelines would therefore also apply to the Unit Trust Corporation April 12, 2006

  29. TRINIDAD AND TOBAGO SECURITIES AND EXCHANGE COMMISSION THE END THANK YOU April 12, 2006

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