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Forex hedging no loss acord

forex hedging no loss acord

Net unrealized gains (losses) related to cash flow hedges (See Notes 1 and 2): of hedge effectiveness for our foreign exchange cash flow hedges. of exchange rate movements on the book value of the firm, and there- fore accounting gains or losses are not at the balance sheet date real- ized in cash. New European Union regulations on foreign exchange trading will make it harder and more expensive to manage currency risk, traders said. MAGFED PAINTBALL VEST Use would to thought with the subscription. I toiminta requires a recommended not. The following that a of the lease. Discover, no will using member in app the its.

We recognize, furthermore, that the only apparent way for the Investing Fund to accomplish the foreign currency management objectives that you describe in your letter is for the Investing Fund, rather than the Underlying Fund, to enter into the Foreign Currency Contracts.

In particular, the Investing Fund, by entering into the Foreign Currency Contracts, would be able to isolate the effects of the fluctuations in the exchange rate between the Designated Currency and the U. Based on the facts and representations that are set forth in your letter, we would not recommend enforcement action to the Commission against the Trust under section 12 d 1 of the Act if an Investing Fund enters into the Foreign Currency Contracts, as described in your letter.

Our position is based particularly upon your representations that:. Because this position is based on all of the facts and representations made in your letter, you should note that any different facts or circumstances might require a different conclusion. Further, this position expresses our position only with respect to enforcement action, and does not express any legal conclusion on the issue presented. The Investing Fund would rely on rule 4. July 2, to support your view that the Investing Fund may cover its positions with shares of the Underlying Fund, to the extent that positions in Foreign Currency Contracts create senior securities.

You have not asked for, and we do not express, our view on whether the Investing Fund may cover its positions with shares of the Underlying Fund, to the extent that positions in Foreign Currency Contracts create senior securities. An investment company controlling another investment company could create a number of concerns, including: 1 the pyramiding of voting control in the hands of persons with only a nominal stake in the controlled company; 2 the ability of the controlling fund to exercise undue influence over the adviser of the controlled company through the threat of large-scale redemptions, and loss of advisory fees to the adviser; 3 the difficulty for investors of appraising the true value of their investments due to the complex structure; and 4 the layering of sales charges, advisory fees, and administrative costs.

You cite, for example, the fact that section 2 a 36 of the Act defines the term "security" to include "any. July 18, Government securities that section 3 a 2 of the Act excludes from the definition of investment security. Douglas J. The Foreign Currency Instruments would be used solely to permit an Investing Fund to calculate its net asset value in a Designated Currency and to effect purchase and redemption transactions for shareholders in the Designated Currency.

Section 12 d 1 of the Act restricts the ability of a registered investment company to acquire shares of another investment company and vice versa. We seek the Staff's concurrence with our view that, solely for purposes of Section 12 d 1 E , the term "investment security" in Section 12 d 1 E ii would not include Foreign Currency Instruments, and that, therefore, the shares of the Underlying Fund proposed to be acquired by an Investing Fund would constitute the only "investment security" held by the Investing Fund.

The Trust is a Massachusetts business trust registered with the Commission as an open-end management investment company offering its shares with respect to multiple investment portfolios "Series". The Trust offers shares of its Series to the public by way of up to four retail classes Class A, Class B, Class C and Class D "Retail Classes" , which are distributed through broker-dealers or other investment intermediaries who in turn make the shares available to their customers, as well as by way of its institutional and administrative share classes "Institutional Classes".

The following proposal is currently under consideration. The Trust would create as a new Series an Investing Fund for the purpose of investing in the Underlying Fund under a master-feeder arrangement. The Underlying Fund would be an existing or newly created Series of the Trust that would calculate its net asset value based on the U.

The Investing Fund would also invest in Foreign Currency Instruments to help manage its cash position and to hedge its exposure to fluctuations in the Designated Currency. It is also anticipated that, to facilitate monetary transfers between investors and the Investing Fund's distribution agents in non-U. Each Investing Fund will invest a substantial portion of its assets in shares of a single Underlying Fund, but will also manage its daily foreign currency requirements and hedge its exposure to foreign currency risk by purchasing Foreign Currency Instruments.

Foreign Currency Instruments may be denominated in the Designated Currency, or in other currencies whose exchange rates are positively correlated with the Designated Currency. Each Investing Fund will disclose in its prospectus and statement of additional information, in accordance with the requirements of Form N-1A, that the Fund may purchase Foreign Currency Instruments, and that these instruments expose the Fund to certain risks.

Each Investing Fund will further disclose in its prospectus that it may purchase Foreign Currency Instruments only for foreign currency management purposes as described above. The board of trustees of the Trust the "Board" , including a majority of the independent trustees, will authorize the Investing Fund to enter into the Foreign Currency Instruments only for the purposes of hedging its assets against the risk of fluctuations in the U.

Section 12 d 1 A of the Act generally limits the acquisition by an investment company the "acquiring company" of shares of another investment company the "acquired company" if. Section 12 d 1 B of the Act, in turn, makes it unlawful for any registered open-end investment company the "acquired company" , any principal underwriter therefor, or any broker or dealer, knowingly to sell or dispose of any security issued by the acquired company to any other investment company, in excess of specified limits.

These and other restrictions in Section 12 d 1 are often referred to as the "fund of funds" restrictions. Section 12 d 1 E of the Act provides relief from the "fund of funds" restrictions in Section 12 d 1. Section 12 d 1 E states that the restrictions of Section 12 d 1 "shall not apply to a security or securities purchased or acquired by an investment company if such security is the only investment security held by such investment company. Although the term "investment security" is not defined for purposes of Section 12 d 1 E , the Staff has previously accepted the definition of "investment security" under Section 3 a 1 C 2 of the Act for these purposes.

The CFTC also has exclusive jurisdiction over options on foreign currencies not traded on a national securities exchange i. The issue presented by the proposed arrangement is whether the Foreign Currency Instruments would be deemed "investment securities" for purposes of 12 d 1 E , thereby making Section 12 d 1 E potentially unavailable to an Investing Fund. We believe that because an Investing Fund will purchase the Foreign Currency Instruments solely for the purpose of managing the Fund's foreign currency position and to minimize foreign currency risk resulting from its share sale and redemption activity, the Foreign Currency Instruments should not be characterized as "investment securities" for purposes of Section 12 d 1 E.

Rather than serving as an "investment" in a security for the purpose of generating gain or profit, the Foreign Currency Instruments will be used principally to permit an Investing Fund to convert its NAV, as expressed in U. In this sense, the Foreign Currency Instruments represent an ongoing series of transactions in the underlying Designated Currency.

Because foreign currency is not a "security" as defined in Section 2 a 36 of the Act, and is therefore not an "investment security" under Section 3 a 1 C 2 , we believe that a Fund should be able to rely on Section 12 d 1 E if it purchases Foreign Currency Instruments in addition to shares of an Underlying Fund, as discussed above. In addition, we believe that Section 12 d 1 E is available to an Underlying Fund to the extent the Fund purchases futures, options on futures, and options on currencies not traded on a national securities exchange because these instruments are not "securities," as that term is defined in Section 2 a 36 , and therefore are not "investment securities," as defined in Section 3 a 1 C 2.

Consequently, in our view, these instruments should not be characterized as investment securities for purposes of Section 12 d 1 E. In a no-action letter to Granite Fund , 9 the Staff acknowledged the CFTC's exclusive jurisdiction over futures contracts on exempted securities, futures contracts on broad based securities indices, options on such futures contracts, and options on foreign currency traded in the commodities markets defined in the letter as "CFTC Futures and Options".

In that letter, the Staff stated that unless an entity was otherwise engaged in the business of investing in securities , an entity investing solely in CFTC Futures and Options would not be subject to regulation under the Act. Thus, the Staff implicitly recognized that CFTC Futures and Options are not "securities" for purposes of Section 2 a 36 , and therefore cannot be "investment securities" for purposes of Section 3 a 1 C 2 of the Act.

The Staff reached a similar conclusion in Far West Futures Fund , 11 in which the Staff stated that "commodity futures contracts are not generally considered securities as defined in Section 2 a 36 of the [ Act]. Although the definition of "security" under Section 2 a 36 of the Act does not include foreign currency, it is unclear whether the definition of "security" includes forward foreign currency contracts and foreign currency swap agreements.

In Currency Fund , 13 the Staff was unable to concur that a "forward currency contract" or "foreign currency contract" was not a security for purposes of the Act, and in FX Currency Mutual Fund , 14 the Staff stated that a "forward contract on foreign currency may be a security under Section 2 a 36 of the Act. A swap agreement could be construed as evidence of indebtedness, and hence a "security" under Section 2 a 36 , because swap agreements involve the obligation by each party to the swap to make a payment at some future time.

A foreign currency swap agreement may not be a "security," however, because the underlying instrument-foreign currency-is not itself a security. Investment banks generally offer clients a few days to provide extra capital if currency markets go against them.

The new regulations eliminate that cushion. The rules are set to strengthen risk-management practices at large hedge funds and pension companies. They take a trading view of markets each day, so they are intensive users of derivatives, compared with companies who can show their use is linked to hedging requirements.

Even though Britain has voted to leave the EU, law firms say it will adopt the new rules when they go into force next year. Depending on how Brexit negotiations turn out, policymakers may tweak rules in the coming years. Cash transactions make up a third of that; the rest are derivatives. Trading in currency forwards and derivatives has grown exponentially in recent years.

The greater capital requirements may lead some small companies not to hedge their currency exposure at all. Some analysts say the new regulations will drive foreign institutions out of London, leading them to route their trades through other centres such as New York or even Singapore, which are mounting a charm offensive to capture more market share.

Hedge Funds Updated. By Saikat Chatterjee 6 Min Read. Bank notes of different currencies, including Euro, U.

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