1 / 21

THE COLLECTIVE INVESTMENT SCHEMES CONTROL BILL, 2002

THE COLLECTIVE INVESTMENT SCHEMES CONTROL BILL, 2002. PRESENTATION TO THE SELECT COMMITTEE ON FINANCE 17 SEPTEMBER 2002 SAMANTHA ANDERSON DIRECTOR OF FINANCIAL MARKETS NATIONAL TREASURY. THE COLLECTIVE INVESTMENT SCHEMES CONTROL BILL, 2002. OVERVIEW

rnewton
Download Presentation

THE COLLECTIVE INVESTMENT SCHEMES CONTROL BILL, 2002

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. THE COLLECTIVE INVESTMENT SCHEMES CONTROL BILL, 2002 PRESENTATION TO THE SELECT COMMITTEE ON FINANCE 17 SEPTEMBER 2002 SAMANTHA ANDERSON DIRECTOR OF FINANCIAL MARKETS NATIONAL TREASURY

  2. THE COLLECTIVE INVESTMENT SCHEMES CONTROL BILL, 2002 OVERVIEW 1.WHAT IS A COLLECTIVE INVESTMENT SCHEME? 2. HISTORY OF COLLECTIVE INVESTMENTS 3. PROFILE OF THE INDUSTRY 4. PROFILE OF INVESTORS 5. PRUDENTIAL AND OTHER MEASURES FOR INVESTOR PROTECTION 6. INTERFACE WITH OTHER INVESTOR PROTECTION MEASURES

  3. WHAT IS A COLLECTIVE INVESTMENT SCHEME? • A SCHEME THAT ALLOWS INVESTORS WITH SIMILAR OBJECTIVESTO POOL THEIR FUNDS FOR INVESTMENT IN A SINGLE PORTFOLIO OF SECURITIES/ PROPERTY/ PARTICIPATION BONDS THAT WILL BE ADMINISTERED BY PROFESSIONAL MANAGERS • INVESTORS IN A PORTFOLIO DO NOT PURCHASE THE UNDERLYING ASSETS DIRECTLY. • OWNERSHIP OF THE ASSETS IS DIVIDED INTO “UNITS OF ENTITLEMENT” OR A “PARTICIPATORY INTEREST”

  4. WHAT IS A COLLECTIVE INVESTMENT SCHEME? • THE NUMBER AND VALUE OF THE PARTICIPATORY INTEREST ACQUIRED BY THE INVESTOR DEPENDS ON THE UNIT PURCHASE PRICE AT THE TIME THE INVESTMENT WAS MADE AND THE AMOUNT OF FUNDS INVESTED • THE RETURN ON AN INVESTMENT IS USUALLY IN THE FORM OF DIVIDENDS AND CAPITAL APPRECIATION DERIVED FROM THE POOL OF ASSETS UNDERLYING THE FUND • INVESTMENTS CAN BE MADE EITHER AS A LUMP SUM OR BY MONTHLY OR ANNUAL INSTALMENTS – OR BOTH • DEFINITION CONTAINED IN THE BILL & SECTION 62 DEALS WITH A DECLARED CIS

  5. HISTORY OF COLLECTIVE INVESTMENT SCHEMES 1.ORIGINS OF THE INDUSTRY • CHANGE OF CLASSIFICATION FROM “UNIT TRUST” TO COLLECTIVE INVESTMENT. • FIRST UNIT TRUSTS WERE ESTABLISHED IN THE 186O’s IN LONDON FOR PURPOSES OF RAISING FUNDS FOR THE BRITISH COLONIAL GOVERNMENT - “FOREIGN AND COLONIAL GOVERNMENT TRUST” • LAUNCHED IN THE US IN THE 1920’s AND ONLY BECAME POPULAR IN THE UK IN THE 1930’s. IN OTHER COUNTRIES COLLECTIVE INVESTMENT SCHEMES ONLY BECAME POPULAR INVESTMENT INSTRUMENTS AFTER THE 1950’S

  6. HISTORY OF COLLECTIVE INVESTMENT SCHEMES • IN SOUTH AFRICA, FIRST UNIT TRUSTS LAUNCHED IN 1965 • INDUSTRY GREW IN THE LATE 1960’s. THEN THE 1969 CRASH OF THE JSE SPARKED A DECADE OF BEAR MARKETS WHICH ONLY RECOVERED AGAIN IN THE LATE 1970’s • SINCE THE MID 1990’s THE INDUSTRY HAS GROWN SUBSTANTIALLY • COLLECTIVE INVESTMENTS, HOWEVER, HAVE A LONG HISTORY IN OUR CULTURE THROUGH THE PROLIFERATION OF STOKVELS • ALTHOUGH STOKVELS ARE AIMED AT PROVIDING ACCESS TO A LUMP SUM OF CAPITAL, THE WAY IN WHICH THE CAPITAL IS RAISED IS VIA COLLECTIVE INVESTMENT IN A FUTURE RETURN

  7. PROFILE OF THE COLLECTIVE INVESTMENT SCHEMES INDUSTRY 2. PROFILE OF INSTITUTIONS 2.1 CORPORATE/OWNERSHIP STRUCTURE • THE MAJORITY OF CIS OPERATORS OR MANAGEMENT COMPANIES ARE EITHER INSURERS OR BANKS, OR OWNED BY INSURERS OR BANKS • THE MARKET IS DOMINATED BY 3 OR 4 LARGE COMPANIES THAT HAVE THE LARGEST NUMBER OF MANAGEMENT COMPANIES UNDER THEIR CONTROL • TOTAL ASSETS UNDER CONTROL BY ALL REGISTERED MANAGEMENT COMPANIES IS APPROX. R 176 billion

  8. PROFILE OF THE COLLECTIVE INVESTMENT SCHEMES INDUSTRY 2. PROFILE OF INVESTORS • RETAIL VERSUS INSTITUTIONAL - 21% INSTITUTIONAL ; 79% RETAIL • DATA FROM “ALL MEDIA PRODUCT SURVEY 2001” (“AMPS”) SHOWS THE FOLLOWING BREAKDOWN OF CONSUMERS OF UNIT TRUSTS: By age : 65yrs + 8.03% By race : White 19.7% 50 - 64yrs 7.25% Asian 9.52% 35 - 49yrs 6.45% Coloured 4.54% 25 - 34yrs 4.62% Black 1.75% 16 - 24yrs 0.92%

  9. PROFILE OF THE COLLECTIVE INVESTMENT SCHEMES INDUSTRY 2. PROFILE OF INVESTORS (Contd.) • OWNERSHIP ACCORDING TO HOUSEHOLD INCOME ( income per month) + R 16 000 30.37% R10 - R 16 000 19.99% R5 - R 10 000 13.38% R3 - R 5 000 5.98% R2 - R 3 000 3.41% > R 2000 0.56% SOURCE : “AMPS” 2001

  10. PRUDENTIAL AND OTHER MEASURES FOR INVESTOR PROTECTION 1. SEPARATION OF THE MANAGER OF A SCHEME FROM THE CUSTODIAN/TRUSTEE OF ASSETS • EVERY SCHEME MUST APPOINT A MANAGER THAT IS RESPONSIBLE FOR THE ADMINISTRATION OF THE SCHEME AND THE INVESTMENT STRATERGY TO BE FOLLOWED. SECTIONS 2, 4 & 5 OF THE BILL EXPLAIN THE DUTIES OF THE MANAGER OF A SCHEME • PART IX: SECTIONS 68 - 72 GOVERN THE APPOINTMENT, QUALIFICATIONS, DUTIES & LIABILITY OF THE CUSTODIAN/ TRUSTEE - SUFFICIENT FINANCIAL RESOURCES; ALL OPERATIONAL ACCOUNTS OF A SCHEME ARE CONTROLLED BY THE TRUSTEE • PART XII: SECTIONS 104 & 105 EXPLAIN THE DETAIL OF THE SEPARATION OF INVESTOR FUNDS FROM THE MANAGER

  11. INVESTORS SCHEME OPERATOR MANAGER SCHEME STRUCTURE SCHEME PORTFOLIO TRUST DEED PORTFOLIO TRUSTEE PORTFOLIO PORTFOLIO UNDERLYING ASSETS

  12. PRUDENTIAL AND OTHER MEASURES FOR INVESTOR PROTECTION 2. LIQUIDITY PROVISIONS • RISK ASSOCIATED WITH THE SALE OF THE WHOLE OR PART OF A PARTICIPATORY INTEREST BY ONE OR MORE INVESTORS FOR THOSE REMAINING IN THE SCHEME • THE MAIN PROVISIONS TO ASSIST WITH THE EFFECTIVE MANAGEMENT OF LIQUIDTY IN A SCHEME ARE: 1. BORROWING BY MANAGERS OF A SCHEME AGAINST THE ASSETS UNDER MANAGEMENT (ALL TYPES OF CIS’s) 2. “RING FENCING” OF SALE ORDERS FOR SCHEMES IN SECURITIES; AND 3. CAPITAL ADEQUACY OF THE MANAGER

  13. PRUDENTIAL AND OTHER MEASURES FOR INVESTOR PROTECTION LIQUIDITY PROVISIONS: 1. BORROWING • IN TERMS OF SECTION 96 OF THE BILL BORROWING IS LIMITED TO 10% OF TOTAL VALUE OF ASSETS (EQUITIES) AND IS RESTRICTED FOR PURPOSES OF “BRIDGING LIQUIDITY” • FOR A PROPERTY CIS, BORROWING OF UP TO 30% OF ASSETS UNDER MANAGEMENT IN THE SHORT-TERM • SECTION 58: FOR PARTICIPATION BONDS THERE IS A MINIMUM INVESTMENT PERIOD OF 5 YRS. LIQUIDITY IS MANAGED IN THIS WAY • REGULATIONS WILL DETERMINE ALL THE TERMS OF BORROWING FOR ALL TYPES OF CIS’s e.g. REPAYMENT SCHEDULES, INTEREST RATES ETC.

  14. PRUDENTIAL AND OTHER MEASURES FOR INVESTOR PROTECTION LIQUIDITY PROVISIONS: 2. RING FENCING OF ASSETS • IN TERMS OF CONDITIONS DEFINED BY THE REGISTRAR, PROVIDED FOR IN SECTION 114 (f) OF THE BILL, A MECHANISM FOR THE “RING FENCING” OF ASSETS IS PROVIDED FOR • THE “RING FENCING” PROVISIONS ARE NOT APPLICABLE TO INVESTORS WITH LESS THAN R50 000 IN A SCHEME INVESTED IN EQUITIES • AN INVESTOR WITH MORE THAN R50 000 IN A SCHEME THAT WISHES TO SELL ITS PARTICIPATORY INTEREST MAY BE REQUIRED TO WAIT UP TO 20 BUSINESS DAYS FOR PAYMENT - PRICE DETERMINED ON EACH DAY DURING THE PERIOD OF SALE • INVESTOR CAN CHOOSE TO CANCEL A SELL ORDER

  15. PRUDENTIAL AND OTHER MEASURES FOR INVESTOR PROTECTION LIQUIDITY PROVISIONS: 3. CAPITAL ADEQUACY • CHANGES TO THE CAPITAL ADEQUACY REQUIREMENTS - NO LONGER THAT THE ASSETS ARE IN-FUND BUT ARE HELD BY THE MANAGEMENT COMPANY • SECTION 88 – 90 : CAPITAL REQUIREMENTS OF THE MANAGER AND ISSUES OF FINANCIAL RECORD KEEPING

  16. PRUDENTIAL AND OTHER MEASURES FOR INVESTOR PROTECTION 4. INVESTMENT SPREAD • THE MOST COMMON PRUDENTIAL MEASURE IS LIMITATIONS ON THE TYPES OF INVESTMENTS PERMISSABLE IN A PORTFOLIO e.g 5% IN A SINGLE SHARE OR 5% OF TOTAL VALUE OF MARKET CAP IN A SINGLE SHARE - VARIES BETWEEN DIFFERENT TYPES OF PORTFOLIOS • SECTION 46 OF THE BILL MAKES PROVISION FOR CONDITIONS DEFINED BY THE REGISTRAR TO GOVERN THIS ASPECT OF THE BUSINESS OF A MANAGER • AN EXAMPLE IS THE REGULATIONS PERTAINING TO THE USE OF DERIVATIVES IN A SCHEME - ALL EXPOSURES MUST BE COVERED

  17. PRUDENTIAL AND OTHER MEASURES FOR INVESTOR PROTECTION 3. DISCLOSURE • DISCLOUSURE IS THE MOST IMPORTANT NON-PRUDENTIAL INVESTOR PROTECTION MEASURE • SECTION 3 OF THE BILL DEALS WITH DISCLOSURE OF INFORMATION • SECTION 93 GOVERNS PERMISSIBLE DEDUCTIONS FROM A PORTFOLIO - NO HIDDEN COSTS, FEES OR COMMISSIONS TO THE INVESTOR • ALL ADVERTISING AND PROMOTION MATERIAL DISTRIBUTED BY A MANAGER MUST BE LODGED WITH THE REGISTRAR AND CAN BE WITHDRAWN FROM PUBLIC CIRCULATION

  18. INTERFACE WITHOTHER INVESTOR PROTECTION MEASURES • MOST IMPORTANT TO REMEMBER THE ROLE THAT THE FAIS BILL, 2002 WILL PLAY ONCE PROMULGATED • PROVISIONS TO ENSURE THAT FRAUDULENT OR INAPPROPRIATE SCHEMES ARE NOT SOLD TO INVESTORS ARE CONTAINED IN THE FAIS BILL • WITHIN THE CIS BILL, PROVISIONS FOR INDUSTRY ASSOCIATIONS AND THE INTERFACE WITH THE REGISTRAR PROVIDE TWO LEVELS OF SUPERVISION IN TERMS OF THE CONDUCT OF MANAGERS • FOREIGN SCHEMES MAY ONLY OPERATE WITH PRIOIR LOCAL APPROVAL BY THE REGISTRAR • SECURITY SERVICES BILL AND THE UNDERLYING STRUCTURE OF THE INVESTMENT MANAGEMENT INDUSTRY

  19. QUESTIONS?

More Related