This post will bring to a close, for now, our survey of the requirements of new Rule 18f-4, which investment companies must comply with by August 19, 2022. This post considers whether a Chief Compliance or Risk Officer should seek to treat some or all of their funds as Limited Derivatives Users and
18F-4
Compliance with Rule 18f-4 by a Fund-of-Funds
By Stephen A. Keen & Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
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:
- Does not invest in any derivatives
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Compliance with Rule 18f-4 by a Sub-Advised Fund
By Stephen A. Keen & Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
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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Assessing the Limited Derivatives User Requirements of Rule 18f-4—Notional Amounts
By Stephen A. Keen & Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
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…
Assessing the Limited Derivatives User Requirements of Rule 18f-4—Costs
By Stephen A. Keen & Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
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…
Compliance Checklist for Limited Derivatives Users
By Stephen A. Keen & Andrew P. Cross on
Posted in Mutual Funds and Investment Advisers
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…
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 Changes in Hedged Investments
By Andrew P. Cross on
Posted in Uncategorized
By Stephen A. Keen and Andrew P. Cross
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 of hedged equity investments, par amount of hedged fixed-income investments or principal amount of hedged borrowings. In…
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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