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
Investment Company Act of 1940
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…
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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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.…