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
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Compliance with Rule 18f-4 by a Fund-of-Funds
By Perkins Coie 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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Assessing the Limited Derivatives User Requirements of Rule 18f-4—Notional Amounts
By Perkins Coie 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 Perkins Coie 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…
Hedging Derivatives under Rule 18f-4: Not an “All or None” Exclusion
By Perkins Coie 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 Perkins Coie 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 Perkins Coie 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 Perkins Coie 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 Perkins Coie 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 Perkins Coie 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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