Guidelines for the temporary closing of funds

Adopted by the Board of the Swedish Investment Fund Association on 6th April 2005[1]

Background

The report issued by the Investment Fund Committee (SOU 2002:104) includes pro­posals for legislative regulation of the ability to postpone the sale and redemption of units in the event of extraordinary events[2].

The proposal in the Committee’s report has not as yet resulted in legislation.

The proposal in the Committee’s report addressed the issue of the temporary closing of funds to deposits and withdrawals due to extraordinary events. The need to close a fund to deposits and withdrawals may also arise even in the absence of circumstances that can be described as “extraordinary”, e.g. in cases where a fund invests in assets listed on a stock market that is either wholly or partially closed for a fixed period of time, e.g. due to a public holiday.

Regulation in fund provisions

Chapt 14, §11 of the Swedish Financial Supervisory Authority’s regulations, 2008:11 states that a fund to which the Swedish Investment Funds Act applies must have pro­visions stating that the fund may be closed to deposits and withdrawals in the event of extraordinary circumstances that render it impossible to effect a valuation of the fund’s assets in a manner that ensures the equal rights of the fund’s unit holders.

If the fund management company also wishes to be able to close a fund in “non-ex­traordinary” circumstances, such as in conjunction with investment in markets that are wholly or partially closed for a fixed period of time, the fund provisions should also contain a provision to this effect without, in the opinion of the Association, any requirement as to formulating specified parameters governing when the fund may be closed. 

Guidelines for the temporary closing of funds to deposits and withdrawals

As a guideline for the fund management companies, the Association believes that grounds for a temporary closing of the fund can exist in both of the above-mentioned instances if half (50 per cent) or more of the fund’s holdings are not quoted or cannot otherwise, in the opinion of the fund management company, be priced or valued in a manner that ensures the equal rights of the fund’s unit holders.

Grounds for a temporary closing of a fund may also exist in certain cases when a considerably lower percentage of the fund assets cannot be valued accurately, if, in the opinion of the fund management company, this renders it impossible to ensure the equal rights of the unit holders. This may, for example, be the case in conjunction with unforeseen events that affect the market and have a significant effect on price fluctuations.

 

[1] Revised on 23rd July 2008 regarding references to regulation (FFFS).

[2] Draft proposal for §13 a of the Swedish Investment Funds Act

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