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
mutual fund cpo compliance
Compliance with Rule 18f-4 by a Fund-of-Funds
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
…
Compliance with Rule 18f-4 by a Sub-Advised Fund
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
…
Assessing the Limited Derivatives User Requirements of Rule 18f-4—Notional Amounts
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
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…
Hedging Derivatives under Rule 18f-4: Not an “All or None” Exclusion
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…
Limited Derivatives Users—Applying the Currency Hedging Exclusion
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…
Derivatives Exposure: Adjusting for Multipliers
…
Derivatives Exposure: Adjusting Notional Amounts
By Stephen A. Keen and Andrew P. Cross
Our previous post gave the best account we could of what the SEC staff has said about calculating the “gross notional amount” of derivatives transactions. In this post, we examine three adjustments that a fund may (but is not required to) make when calculating its “derivatives exposure.”…
Derivatives Exposure: A Circuitous Path to “Gross Notional Amounts”
By Stephen A. Keen and Andrew P. Cross
In this post, we tackle the question of how to calculate the “gross notional amount” of a derivatives transaction for purposes of the limited derivatives user provision of Rule 18f-4. This is a surprisingly difficult question because, although the adopting release for Rule 18f-4 (the “…