Operational matters

Valuation and pricing

10.1 A scheme must be valued and priced in accordance with the provisions of its offering and constitutive documents and the provisions of Chapter 6.

Pricing errors

10.2 If an error is made in the pricing of units/shares, the error should be corrected as soon as possible and any necessary action should be taken to avoid further error. If the error results in an incorrect price of 0.5% or more of scheme's net asset value per unit/share, the trustee/custodian and the Commission must be informed immediately. In such a case, investors should be compensated as follows, unless determined otherwise by the trustee/custodian with justification to the Commission:-

(a) where total loss to individual investors (either purchasing or redeeming) is more than HK$100 or such lesser amount as the management company may decide, investors should be compensated in such manner as the management company should determine with the approval of the trustee/custodian; and

(b) where the loss is to the management company, no compensation should be paid.

Changes to dealing

10.3 Where a scheme deals at a known price, and based on information available, the price exceeds or falls short of the current value of the underlying assets by more than 5%, the management company should defer dealing and calculate a new price as soon as possible.

10.4 A permanent change in the method of dealing may only be made after one month's notice to holders.

10.5 A temporary change may only be made:-

(a) in exceptional circumstances, having regard to the interests of holders;

(b) if the possibility of a change and the circumstances in which it can be made have been fully disclosed in the offering document; and

(c) with the approval of the trustee/custodian.

Suspension and deferral of dealings

10.6 Suspension of dealings may be provided for only in exceptional circumstances, having regard to the interests of holders.

10.7 The management company or the Representative must immediately notify the SFC if dealing in units/shares ceases or is suspended. The fact that dealing is suspended must be published immediately following such decision and at least once a month during the period of suspension, in the newspaper(s) in which the scheme's prices are normally published.

10.8 Where redemption requests on any one dealing day exceed 10% of the total number of units/shares in issue, redemption requests in excess of 10% may be deferred to the next dealing day.

Transactions with connected persons

10.9 No person may be allowed to enter on behalf of the scheme into underwriting or sub-underwriting contracts without the prior consent of the trustee/custodian and unless the scheme or the management company provides in writing that all commissions and fees payable to the management company under such contracts, and all investments acquired pursuant to such contracts, will form part of the scheme's assets.

10.10 If cash forming part of the scheme's assets is deposited with the trustee/custodian, the management company, the investment adviser or with any connected person of these companies (being an institution licensed to accept deposits), interest must be received on the deposit at a rate not lower than the prevailing commercial rate for a deposit of that size and term.

10.11 All transactions carried out by or on behalf of the scheme must be at arm's length. In particular, any transactions between the scheme and the management company, investment adviser, the directors of the scheme or any of their connected persons as principal may only be made with the prior written consent of the trustee/custodian. All such transactions must be disclosed in the scheme's annual report.

10.12 Neither the management company nor any of its connected persons may retain cash or other rebates from a broker or dealer in consideration of directing transactions in

scheme property to the broker or dealer save that goods and services (soft dollars) may be retained if:-

(a) the goods or services are of demonstrable benefit to the holders;

(b) transaction execution is consistent with best execution standards and brokerage rates are not in excess of customary institutional full-service brokerage rates;

(c) adequate prior disclosure is made in the scheme's offering document the terms of which the holder has consented to [see C15 of Appendix C]; and

(d) periodic disclosure is made in the scheme's annual report in the form of a statement describing the manager's soft dollar practices, including a description of the goods and services received by the manager.

Note: Goods and services falling within (a) above may include: research and advisory services; economic and political analysis; portfolio analysis, including valuation and performance measurement; market analysis, data and quotation services;

computer hardware and software incidental to the above goods and services;

clearing and custodian services and investment-related publications. Such goods

and services may not include travel, accommodation, entertainment, general administrative goods or services, general office equipment or premises, membership fees, employee salaries, or direct money payments.

10.13 In transacting with brokers or dealers connected to the management company, investment adviser, directors of the scheme or any of their connected persons, the management company must ensure that it complies with the following obligations:

(a) such transactions should be on arm’s length terms;

(b) it must use due care in the selection of brokers or dealers and ensure that they are suitably qualified in the circumstances;

(c) transaction execution must be consistent with applicable best execution standards;

(d) the fee or commission paid to any such broker or dealer in respect of a transaction must not be greater than that which is payable at the prevailing market rate for a transaction of that size and nature;

(e) the management company must monitor such transactions to ensure compliance with its obligations; and

(f) the nature of such transactions and the total commissions and other quantifiable benefits received by such broker or dealer shall be disclosed in the scheme’s annual report.