SEC Rule 18f-4
Use of derivatives for registered Investment companies
Funds must either be classified as Limited Derivatives Users or adopt a formal derivatives risk management program that includes:
| Designating a derivatives risk manager that reports to the board at least annually on program implementation and effectiveness and other matters |
| Calculating portfolio VaR and ensuring it is either below 200% of its designated reference portfolio (relative VaR test) or, if unavailable, below 20% of NAV (absolute VaR test) |
| Running at least weekly stress-testing that considers all market risk factors and their interdependencies, and |
| At least weekly backtesting the VaR model against actual realized PNL |
Benefits of our service
Perform Limited Derivatives User test cost effectively
- Calculate notionals for all derivatives
- FX adjust non-USD positions
- Scale down options and swaptions by their deltas
- Factor all IR futures, swaps and swaptions to their 10-year equivalent
- Allow for IR and FX hedged positions to be excluded
Calculate portfolio VaR daily
- Use historical simulation methodology to calculate portfolio VaR daily
- Run relative VaR tests against both the securities-only portfolio and a benchmark or weighted-basket of benchmarks
- Calculate absolute VaR test
- Provide evidentiary support for all calculations
Run weekly stress tests and back tests
- Prepacked scenarios with a mix of historical-based and pre-defined risk-factors scenarios
- Comparison of mark-to-market PNL to 1-day VaR and count the number of breaches for the weekly backtests
Perform Limited Derivatives User test cost effectively
- Calculate notionals for all derivatives
- FX adjust non-USD positions
- Scale down options and swaptions by their deltas
- Factor all IR futures, swaps and swaptions to their 10-year equivalent
- Allow for IR and FX hedged positions to be excluded
Calculate portfolio VaR daily
- Use historical simulation methodology to calculate portfolio VaR daily
- Run relative VaR tests against both the securities-only portfolio and a benchmark or weighted-basket of benchmarks
- Calculate absolute VaR test
- Provide evidentiary support for all calculations
Run weekly stress tests and back tests
- Prepacked scenarios with a mix of historical-based and pre-defined risk-factors scenarios
- Comparison of mark-to-market PNL to 1-day VaR and count the number of breaches for the weekly backtests
Why ICE?
- Workflow portable from existing connectivity with fund families and their service providers (e.g. ICE Liquidity Indicators and N-PORT)
- Historical VaR calculations that leverage ICE’s expertise in both Fixed Income and Derivatives
- Quality derivatives analytics and market data including an already existing HVAR model within ICE Portfolio Analytics (IPA)
- Robust and flexible methodology for structured assets utilizing indices administered by ICE Data Indices. A client can choose from over 6,000 indices for the security-mapping and beta calculations
Screenshot of HVAR in ICE Portfolio Analytics (IPA) - Derivatives
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