ASSET MANAGEMENT RULES, 1995
[Gazette of Pakistan, Extraordinary, Part 11, 20th May, 1995]
S.R.O. 392(1)/95 dated 15‑5‑1995.‑‑In exercise of the powers conferred by sections 32 and 33 of the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Federal Government is pleased to make the following rules to regulate the business of asset management companies, namely:‑‑
- **Short title and commencement.‑‑(1)**These rules may be called the Asset Management Companies Rules, 1995.
(2) They shall come into force at once.
- **Definitions.‑‑(1)**In these rules, unless there is anything repugnant in the subject or context.‑‑
(a) "Authority" means the Corporate Law Authority;
(b) "connected person", in relation to a company means,‑‑
(i) any person or company beneficially owning, directly or indirectly, ten per cent or more of the ordinary share capital of that company or able to exercise, directly, or indirectly, ten per cent or more of the total votes in that company;
(ii) any person or company controlled by a person who or which meets one or both of the descriptions given in clause (i);
(iii) any member of the group of which that company forms part; or
(iv) any director or officer of that company or of any of its connected persons specified in clauses (i), (ii) or (iii);
(c) "constitutive documents" means the principal documents governing the formation of the scheme, and includes the trust deed of a unit trust and all material agreements;
(d) "distribution function" means the functions with regard to:‑‑
(i) receiving application and money for units from persons;
(ii) issuing receipts in respect of the applications received in accordance with clause(i);
(iii) issuing contract notes to the applicants in accordance with the‑terms of the scheme; and
(iv) receiving redemption notices, transfer instructions and conversion notices from holders for immediate transmission to the management company or the scheme;
(e) "Form" means a form set out in Schedule I;
(f) "net assets", in relation to a scheme, means the excess of assets over liabilities of the scheme, such excess being computed in the manner specified hereunder:‑‑
(i) A security listed on a stock exchange shall be valued at its last sale price on such exchange on the date as of which it is valued, or if such exchange is not open on such date, then at its last sale price on the next preceding date on which such exchange was open and if no sale is reported for such date, the security shall be valued at an amount not higher than the closing asked price nor lower than the closing bid price;
(ii) an investment purchased and awaiting payment against delivery shall be included for valuation purposes as a security held, and the cash account of the company shall he adjusted to reflect the purchase price, including brokers' commission and other expenses incurred in the purchase thereof but not disbursed as of the valuation date;
(iii) an investment sold but not delivered pending receipt of proceeds shall be valued at the net sale price;
(iv) the value of any dividends, bonus, shares or rights which may have been declared on securities in the portfolio but not received by the company as of the close of business on the valuation date shall be included as assets of the company, if the security upon which such dividends, bonuses or rights were declared is included in the assets and is valued ex‑dividend, ex‑bouns or ex- rights as the case may be;
(v) a security not listed or quoted on a stock exchange shall be valued at investment price or its break‑up value as per last audited accounts, whichever is lower;
(vi) interest accrued on any interest‑bearing security in the portfolio shall be included as an asset of the company if such accrued interest is not otherwise included in the valuation of the security;
(vii) any other income accrued up to the date on which computation was made shall also be included in the assets; and
(viii) all liabilities, expenses, taxes and other charges due or accrued up to the date of computation which are chargeable under these rules, other than the paid‑up capital of the company, shall be deducted from the value of the assets;
(g) "offering document" means documents containing information on a scheme calculated to invite offers by the public for purchase of the units in that scheme;
(h) "Ordinance" means the Securities and Exchange Ordinance, 1969 (XVIIof 1969);
(i) "Schedule" means a schedule to these rules;
(j) "scheme" means a unit trust scheme constituted by way of 9 trust deed which continuously offers for sale a security which entitles the holder of such security on demand to receive his proportionate share of the net assets of the security;
(k) "trust" means a trust established by a deed under the provisions of the Trusts Act, 1882 (II of 1882);
(1) "trustee" means a company appointed as a trustee and includes a bank licensed under the Banking Companies Ordinance, 1962 (LVII of 1962). a trust company which is a subsidiary of such a bank and a banking institution incorporated outside Pakistan acceptable to the Authority; and
(m) "unlisted security" means a security not listed or quoted on a stock exchange.
(2) Words and expressions used but not defined herein shall have the meanings assigned to them in the Ordinance.
No asset management company to commence business without registration.‑‑Nocompany shall commence business as an asset management company unless it is registered with the Authority under these rules.
Eligibility for registration.‑‑Acompany proposing to commence business as an asset management company shall be eligible for registration, under these rules if,‑‑
(a) it is registered as a public limited company under the Companies Ordinance, 1984 (XLVIIof 1984);
(b) it has a paid up capital of not less than thirty million rupees;
(c) no director, officer or employee of such company has been convicted of fraud or breach of trust;
(d) no director, officer or employee of such company has been adjudicated as insolvent or has suspended payment or has compounded with his creditors; and
(e) the promoters and directors of such company are, in the opinion of the Authority, persons of means and integrity and have special knowledge and experience of matters which the company may have to deal with as an asset management company.
- **Registration.‑‑(1)**A company eligible for registration may make an application in Form I to the Authority for registration under these rules.
(2) The Authority may, after satisfying itself that the applicant is eligible for registration and that it would be in the interest of the capital marked so to do, grant a certificate of registration to such company in Form II.
6. Cancellation of registration.‑(1) Where the Authorityis of opinion that an asset management company has contravened any provision of the Ordinance, or has otherwise neglected or failed to comply with any requirement of these rules or has failed or neglected to carry out its duties to the satisfaction of the trustee, and the Authority or the trustee, as the case may be, considers that it would be in the interest of the unit holders so to do, the Authority may, on its own motion or on the report of the trustee, by order in writing, cancel the registration of the asset management company;
Provided that no such orders shall be made except after giving the asset management company an opportunity of being heard.
(2) If the registration of an asset management company is cancelled under sub‑rule (1), the Authority shall appoint another asset management company to manage the scheme or schemes as the case may be.
- Restrictions.‑‑Noasset management company shall,‑‑
(a) merge with, acquire or take over any other asset management company or a scheme, unless it has obtained the prior approval of the Authority in writing to scheme of such merger, acquisition or takeover;
(b) pledge any of the securities held or beneficially owned by a scheme except for the benefit of the scheme;
(c) accept deposits from a scheme;
(d) make a loan or advance money to any person except in connection with the normal business of the scheme;
(e) participate in a joint account with others in any transaction;
(f) apply any part of its assets or real estate except property for its own use:
(g) make any investment with the purpose of having the effect of vesting the management, or control, in the scheme; and
(h) employee as a broker, directly or indirectly, any of its director, officer or employee or a member of a family of such person which shall include spouse, parents, children, brothers and sisters.
- Obligations of asset management company.‑‑Anasset management company shall,‑‑
(a) be obliged to manage the assets of the scheme in the interest of the unit holders in good faith and to the best of the ability and without gaining any undue advantage for itself or any of its related parties or its officers;
(b) account to the trustee for any loss in value of the assets of the scheme where such loss has been caused by its negligence, reckless or wilful act or omission; .
(c) be responsible for the acts and omissions of all persons to whom it may delegate any of its functions as manager as if they were its own acts and omission;
(d) maintain at its principal office, proper accounts and records to enable a complete and accurate view to be formed of the assets and liabilities and the income and expenditure of the scheme, all transactions for the account of the scheme and amounts received by the scheme in respect of issues of units and paid out by the scheme on redemption of units and by way of distributions;
(e) prepare and transmit the annual report, together with a copy of the balance sheet and income and expenditure account and the auditor's report of a scheme within four months of closing of the accounting period to the unit holders, and the balance sheet and income and expenditure account shall comply with requirements set out in Schedule II.
(f) within two months of the close of the first half of its year of account, prepare and transmit to the unit holders and the Authority a profit and loss account for, and balance sheet as at the end of that half year, whether audited or otherwise;
(g) maintain a register of unit holders of a scheme and inform the Authority of the address where the register is kept;
(h) appoint, at the establishment of a scheme and upon any vacancy, an auditor who shall be a Chartered Accountant and independent of the auditor of the management company and the trustees. Contents of the auditor's report shall be in accordance with Schedule II;
(i) furnish a copy of the annual report together with copies of the balance sheet, income and expenditure account and the auditor's report of a scheme to the Authority within four months of the close of the accounting period together with a statement containing the following information, namely
(i) total number of unit holders; and
(ii) particulars of the personnel (executive, research and other) of the asset management company; and'
(i) furnish a copy of the company's annual report together with copies of the balance sheet, income and expenditure account and the auditors report within four months of the close of the accounting period;
- Remuneration payable to asset management company.‑‑Anasset management company shall be entitled to a remuneration,
(a) during the first five years of the scheme, of an amount not exceeding three per cent of the net assets of the scheme as at the end of its year of accounts and thereafter of an amount equal to two per cent of such assets; and
(b) of an amount not exceeding one‑half of the amount by which the dividend distributed by the scheme exceeds twenty per cent.
- **Authorization of scheme.‑‑(1)**No scheme shall be offered to the public unless the same is authorised by the Authority.
(2) An application for authorization of a scheme shall contain information as specified in Form III and shall be accompanied by the following information and documents, namely;‑‑
(a) The scheme's constitutive documents contents of which have been set out in Schedule III;
(b) the management company's latest audited accounts, if applicable, and resumes of its directors;
(c) the trustee's latest audited accounts, if available;
(d) letter of consent to the appointment from the trustee;
(e) an undertaking from the management company that it will invest or arrange the investment of two hundred fifty million rupees for a minimum period of two years; and
(f) application fee of twenty thousand rupees in the form of bank draft payable to the Authority.
- **De‑authorization.‑‑(1)**Following the authorization of a scheme, its management company shall give at least three months' notice to unit holders if it is intended not to maintain such authorization.
(2) If the Authority considers that further continuation of the authorization of the scheme will not be in the interest of unit holders; it will give a three months' notice to the unit holders about the Authority's intention to maintain such authorization;
Provided that no notice shall be served without offering an opportunity of hearing to the management company.
(3) In case of deauthorization, the management company shall be required to wind‑up the scheme and refund the proceeds to the unit holders in such manner and within such time as may be specified.
- Advertisement and invitations.‑‑‑(1) Advertisements and other invitations to the Public in Pakistan to invest in a scheme, including public announcements, shall be submitted to the Authority for approval prior to their issue.
(2) The offering documents shall contain the information set out in Schedule IV.
(3) Any advertisement or invitation submitted for approval which concern the trustee must be accompanied by its written consent.
(4) The approval so granted may be varied or withdrawn by the Authority after giving an opportunity of hearing to the management company.
(5) Approval of an advertisement or invitation shall be valid for a period of six months from the date of approval provided that there is no change in the scheme.
- **Investment policy and diversification.‑‑(1)**Investment policy with respect to a scheme shall be clearly and concisely stated in public offering document for the sale of securities of such scheme.
(2) A scheme shall invest not less than fifty per cent of its assets in listed securities or in securities for the listing of which an application has been approved by a stock exchange.
(3) Investment of a scheme in any company shall not, at any time, exceed an amount equal to ten per cent of the total net asset value of the scheme at the time of investment or ten per cent of the issued capital of the company.
(4) No scheme shall invest more than twenty‑five per cent of its net asset value in securities of any one sector as per classification of stock exchanges.
Short sale not allowed.‑‑Noscheme shall effect a short sale in a security whether listed or unlisted.
Limitation and prohibitions.‑‑‑(I) No setee shall lend, assume, guarantee, endorse or otherwise become directly or contingently liable for or in connection with any obligation or indebtedness of any person.
(2) The maximum borrowing of a scheme shall not exceed twenty‑five per cent of its total net asset value.
(3) The scheme shall not invest in any security of a company if any
director or officer of the management company owns more than five per cent of the total nominal amount of the securities issued, or, collectively the directors and officers of the management company owns more than ten per cent of those securities.
Appointment of trustees.‑‑Everyinvestment scheme for which authorization is requested shall appoint a trustee with the approval of the Authority.
Conditions applicable to trustees.‑‑Atrustee shall be,‑‑
(a) a scheduled bank licensed under the Banking Companies Ordinance, 1962 (LVII of 1962), and have been in business for at least five years; or
(b) a trust company which is a subsidiary of a scheduled bank; or
(c) a foreign bank operating as a scheduled bank in Pakistan and operating as trustee internationally; or
(d) a central depositor company approved by the Authority.
- Obligations of trustees.‑‑Atrustee shall,‑
(a) (i) take into its custody or under its control all the property of the scheme and hold it in trust for the unit holders in accordance with the law and the provision of the constitutive documents; and the cash and registrable assets shall be registered in the name of, or to the order of, the trustee;
(ii) be liable for any act or omission of any agent with whom any investments are deposited as if they were the act or omission of any nominee in relation to any investment forming part of the property of the scheme; and
(iii) be liable for the acts and omissions of the lenders and its agents in relation to assets forming part of the property of the scheme and, where borrowing is undertaken for the account of the scheme, such assets may be registered in the lender's name or in that of a nominee appointed by the lender;
(b) ensure that the sale, issue, repurchase, redemption and cancellation of units effected by a scheme are carried out in accordance with the provisions of the constitutive documents;
(c) ensure that the methods adopted by the management company in calculating the value of units are adequate to ensure that the sale, issue, repurchase, redemption and cancellation prices are calculated in accordance with the provisions of the constitutive documents;
(d) carry out the instructions of the asset management company in respect of investments unless they are in conflict with the provisions of the offering or constitutive documents;
(e) ensure that the investment and borrowing limitations set out in the constitutive documents and the conditions under which the scheme was authorised are complied with;
(f) issue a report to be included in the annual report to be sent to unit holders whether, in the trustees' opinion the asset management company has in all material respects managed the scheme in accordance with the provisions of the constitutive documents, if the asset management company has not done so, the respects in which it has not done so and the steps which the trustee has taken in respect thereof;
(g) ensure that unit certificates are not issued until subscription moneys have been paid. .
Retirement of trustee.‑‑Atrustee may, subject to prior approval of the Authority, retire from his office on appointment of a new trustee and the retirement shall take effect at the same time as the new trustee is appointed.
**Trustee and the asset management company to be independent.‑‑(.1)**The trustee shall not in any way be related to the assessee management company.
(2) A director or employee of the trustee shall not be involved in the management company.
Remuneration .payable to the trustee.‑‑Atrustee shall be entitled to such fee or remuneration as may be allowed by the management company.
**Pricing, issue and redemption of units.‑‑(1)**If an initial offer is made, no investment of subscription money shall be made until the conclusion of the first issue of units at the initial price.
(2) Offer and redemption prices shall be calculated on the basis of the scheme's net asset value divided by the number of units issued and such prices may be adjusted by fees and charges, provided that the amount or method of calculating such fees and charges is clearly disclosed in the offering documents.
(3) The value of investments not listed or quoted on a stock exchange shall be determined on a regular basis by the management company with the approval of the trustee.
(4) There must be at least four regular dealing days per week.
(5) Any offer price which the management company or the distribution. company quotes or publishes must be the maximum price payable on purchase and any redemption price must be the net price receivable on redemption.
(6) The maximum interval between the receipt of a properly documented request for redemption of units and the payment of the redemption money to the holder shall not exceed six working days unless redemption has been suspended.
(7) Where a scheme deals at a known price, and based on information available, . where the price exceeds or falls short of the current value of the underlying assets by more than five per cent, the management company shall defer dealing and calculate a new price as soon as possible.
(8) A permanent change in the method of dealing shall be made after one month's notice to unit holders.
(9) A temporary change may only be made,‑
(a) in exceptional circumstances, having regard to the interests of unit holders;
(b) if the possibility of a change and the circumstances in which it can be made have been fully disclosed in the offering documents; and
(c) with the approval of the trustee.
(10) Suspension of dealings shall be provided for only in exceptional circumstances, having regard to the interests of unit holders.
(11) The management company shall immediately notify the Authority if dealing in units ceases or is suspended and the fact that dealing is suspended shall also be published immediately following such decision in the newspaper in which the scheme's prices are normally published.
(12) Where redemption requests on any one dealing day exceed ten per cent of the total number of units in issue, redemption requests in excess of ten per cent may be deferred to the next dealing day.
- Transaction with connected persons.‑‑(1) No person shall be allowed to enter on behalf of the scheme into underwriting or sub‑underwriting contracts without the prior consent of the trustee 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 shall form part of the scheme's assets.
(2) If cash forming part of the scheme's assets is deposited with the trustee, which is not a subsidiary of a banking company, return shall be receive on the deposit at a rate not lower than the Prevailing rate for a deposit of the size and term.
(3) All transactions carried out by or on behalf of the scheme shall be made as provided in the constitutive documents, and shall be disclosed in the scheme's annual report.
(4) No single connected stock‑broker shall account for thirty per cent or more of the scheme's transaction in valued in any one financial year of the scheme:
Provided that the Authority may, in each case on merits, permit the thirty per cent to be exceeded if the connected broker offers advantages to the scheme not available elsewhere.