use of derivatives by mutual fund

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

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

By Stephen A. Keen and Andrew P. Cross

This post continues our examination of how a fund must treat hedges when calculating its derivatives exposure to qualify as a limited derivatives user. Commenters on proposed Rule 18f-4 suggested several types of derivatives hedges, in addition to currency derivatives, that the Commission might exclude from

By Stephen A. Keen and Andrew P. Cross

Our post on the derivatives exposure equation began with a separate equation concerning interest rate and currency hedges. This post explains the significance of this equation and what hedges should be excluded from a fund’s derivatives exposure. Our next post will address hedges included in derivatives exposures

By Stephen A. Keen and Andrew P. Cross

Having provided two “big pictures” of the calculation of a fund’s “derivatives exposure,” we resume with an in-depth examination. We begin by considering how to determine the “gross notional amount” of a derivatives transaction. This post may contain our only categorical conclusion regarding derivatives exposure: 

By Stephen A. Keen & Andrew P. Cross

Our last post outlined the essential differences between VaR Funds and Limited Derivatives Users: primarily that the former must adopt a derivatives risk management program (a “DRM Program”) while the latter need only have policies and procedures. Our post observed that the less prescriptive regulatory requirements may