The issue arises from the dual-pricing mechanism used by most unit trusts, whereby the product will quote the price at which it will issue units and the price at which it will cancel them. The difference between the two is meant to capture any sales charge – less of an issue post-RDR – plus the cost of executing any trades needed to create or cancel units.
However, asset managers are often able to net out buy and sell requests against each other so that no trading is required to fill these orders, meaning that no costs are incurred. Yet in these cases, they still collect the ‘spread’ and pocket it as profit.
This is plainly ludicrous. Firms that use a dilution levy to compensate investors for the liquidity impact of trading in fund units are specifically banned from keeping the money as profit; as per the FCA Handbook, Coll 184.108.40.206, all such levies become the property of the fund. Because the spread on a dual-priced fund is not technically a dilution levy, it is not subject to these rules and so the unit trust managers are permitted to keep the money.
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