As has been our practice in this series on new Rule 18f-4, we end our survey of its Limited Derivatives User requirements with a compliance checklist. This checklist reiterates much of our earlier post on Derivatives Exposure: Why It Matters And How To Calculate It, but provides more details and includes required
Mutual Funds and Investment Advisers
Hedging Derivatives under Rule 18f-4: Not an “All or None” Exclusion
By Stephen A. Keen & Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
This post will address another ambiguity in the “10% buffer” Rule 18f-4 provides for excluding the notional amount of derivative transactions that hedge currency or interest rate risks (“Hedging Derivatives”) when calculating the Derivatives Exposure of a Limited Derivatives User. The ambiguity is whether, once the notional amount of a Hedging Derivative…
Rule 18f-4: One 10% Buffer or Many?
By Stephen A. Keen & Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
This post continues our examination of the “10% buffer” for Hedging Derivatives, which refers to the amount by which the notional amounts of Hedging Derivatives can exceed the value, par or principal amount of the hedged equity and fixed-income investments. In this post we consider whether funds should apply the 10% buffer to Hedging…
Rule 18f-4: The 10% Buffer and Adjusting Notional Amounts of Hedges
By Stephen A. Keen & Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
We promised a few posts back to discuss how a Limited Derivatives User should apply what we termed the “10% buffer” to determine whether currency and interest-rate derivatives may be excluded from its derivatives exposure. This post begins to tackle the question What is the 10% Buffer? and explain how it might work.
What
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Limited Derivatives Users—Applying the Interest Rate Hedging Exclusion
By Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
By Stephen A. Keen and Andrew P. Cross
Our last post examined examples of currency hedges that we believe Rule 18f‑4(c)(4)(i)(B) should allow a fund seeking to comply with the Limited Derivatives User requirements to exclude from its derivatives exposure. This post struggles with examples of interest-rate hedges that may, or may not, be excluded.…
Dealing with the New Derivatives Rule: A Guide for Legal and Compliance Professionals (IAA Newsletter September 2021)
By Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
Today, the Investment Adviser Association published the attached article (Link to Article Dealing with the New Derivatives Rule) in its September 2021 IAA Newsletter.
At a high level, the article:
- Provides a background on the limitations on senior securities under the Investment Company Act of 1940 (the “1940 Act“);
- Affords readers with
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Limited Derivatives Users—Applying the Currency Hedging Exclusion
By Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
By Stephen A. Keen and Andrew P. Cross
Our last two posts surveyed what Rule 18f-4 and its adopting release (the “Release”) tell us about excluding currency and interest-rate derivatives from the derivatives exposure of a fund seeking to comply with the Limited Derivatives User requirements of Rule 18f-4(c)(4). The Release indicates that…
Rule 18f-4: Trimming Hedges—Hedges Included in Derivatives Exposure
By Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
By Stephen A. Keen and Andrew P. Cross
This post continues our examination of how a fund must treat hedges when calculating its derivatives exposure to qualify as a limited derivatives user. Commenters on proposed Rule 18f-4 suggested several types of derivatives hedges, in addition to currency derivatives, that the Commission might exclude from…
Rule 18f-4: Trimming Hedges—Hedges Excluded from Derivatives Exposure
By Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
By Stephen A. Keen and Andrew P. Cross
Our post on the derivatives exposure equation began with a separate equation concerning interest rate and currency hedges. This post explains the significance of this equation and what hedges should be excluded from a fund’s derivatives exposure. Our next post will address hedges included in derivatives exposures…
Derivatives Exposure: Adjusting for Multipliers
By Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
By Stephen A. Keen & Andrew P. Cross on June 24, 2021
This post continues our discussion of the calculation of “gross notional amounts” included in a fund’s “derivatives exposure” under Rule 18f-4. Previously, we identified the best guidance we could find on how to calculate a derivatives transaction’s gross notional amount, and three
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