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 “Adopting Release”) refers to “notional amount” 63 times, the release never directly addresses what the term means. We think…

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: gross notional amounts must be absolute values expressed in U.S. dollars. Continue Reading at The Asset Management ADVocate…

Kari Larsen, Partner in Perkins’ New York Office, talks to Cameron Prell, Head of Government Policy & Legal at Xpansiv CBL Holding Group, an environmental data and trading platform, about recent activity in the environmental commodities and derivatives markets. Kari and Cam discuss the market history, a Report titled Managing Climate Risk in the U.S. Financial System issued recently by the Commodity Futures Trading Commission’s Climate-Related Market Risk Subcommittee and its potential impact, and…

By Keith Miller, Kari Larsen and Sarah Howland The Commodity Futures Trading Commission (CFTC) Settlements Timeline serves as an interactive compilation of select CFTC guidance, enforcement actions, and speeches relating to the application of the federal securities laws to digital assets. Beginning with the Order filed in September, 2015 by the CFTC requiring Coinflip and its chief executive officer Francisco Riordan to cease… Continue Reading… at The Virtual Currency Report.…

By Stephen A. Keen and Andrew P. Cross Our last post provided a big picture summary of the steps required to calculate a Fund’s “derivatives exposure” for purposes of new Rule 18f-4. The post may have left an impression that this process should not be that difficult. To provide additional perspective, we offer the following equation for calculating derivatives exposure. If interest rate and currency hedges satisfy the following condition: Then a Fund will…

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 make operating as a Limited Derivative User an attractive alternative for many management investment companies (including business development companies but…

By Stephen A. Keen and Andrew P. Cross Our last post explained the two basic alternatives for managing derivatives risks under new Rule 18f-4 by qualifying either as a Limited Derivatives User or a VaR Fund. This post outlines 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. Elements of a DRM…