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While working out the possible impact of the SEC’s proposal to require central clearing of triparty repurchase agreements, we realized that we short-changed the analysis of multilateral netting in our last post. Our explanation of the SEC’s example focused on just the cash side of the trades, which is to say the amounts to be paid. To appreciate multilateral netting fully, we need to consider the security side of the trades, what is to be delivered, as well. This post seeks to rectify our oversight.…

Continue Reading Treasury Clearing Proposal:  More on Multilateral Netting

Our previous post explained the SEC’s proposal (the Proposal) to require central clearing of all “eligible secondary market transactions” with a participant in the Fixed Income Clearing Corporation (FICC). In this post we review the benefits of central clearing cited by the SEC to justify its Proposal. We also discuss “hybrid clearing” and “multilateral netting.”…
Continue Reading Central Clearing of Treasury Trades—What the SEC Hopes to Accomplish

On September 14, 2022, the SEC proposed amendments (the Proposal) to regulations for clearing agencies under the Securities Exchange Act of 1934 (the Exchange Act). The Proposal would increase the central clearing of U.S. Treasury securities, to be defined as “any security issued by the U.S. Department of the Treasury.” According to the…

The release adopting Rule 18f-4 (the “Adopting Release”) devotes an entire section to discussing how “a fund that invests in other registered investment companies (‘underlying funds’)” should comply with the value-at-risk (“VaR”) requirements of the rule. This post considers three circumstances in which a fund investing in underlying funds:

  1. Does not invest in any derivatives

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As with Fund-of-Funds, the release adopting Rule 18f-4 (the “Adopting Release”) devotes a section to sub-advised funds. We again consider three types of funds:

  • VaR Funds in which a sub-adviser manages their entire portfolio (“Single Sub-Adviser Funds”);
  • VaR Funds in which one or more sub-advisers manage a portion or “sleeve” of their portfolio (“Sleeve

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This post continues our assessment of whether the Limited Derivatives User requirements of Rule 18f-4(c)(4) effectively and efficiently accomplish the SEC’s aim of providing “an objective standard to identify funds that use derivatives in a limited manner.” Here we question whether the “gross notional amount” of a derivatives transaction measures the…

The financial press is awash this morning with reports that the launch of a bitcoin futures exchange-traded fund (a “BTC Futures ETF“) may be imminent.

Before recommending that clients invest directly in bitcoin or in a BTC Futures ETF, a registered investment adviser (RIA) should analyze:…
Continue Reading RIAs and Bitcoin Futures ETFs: Forget Not Thy CPO and CTA Analysis

Our last series of posts on Rule 18f-4 have struggled to understand how its Limited Derivatives User requirements are supposed to work. We have done the best we could to explain the process for calculating a fund’s derivatives exposure, including determining the gross notional amount of derivatives transactions and adjustments thereto, excluding closed-out positions…