COLL 5.3 Derivative exposure

This section applies to an authorised fund manager of a UCITS scheme and to an ICVC which is a UCITS scheme.

1. (1)

   A transaction in derivatives or forward transaction may be entered into only if the maximum exposure, in terms of the principal or notional principal created by the transaction to which the scheme is or may be committed by another person, is covered globally under (2).

2. (2)

   Exposure is covered globally if adequate cover from within the scheme property is available to meet the scheme's total exposure, taking into account the value of the underlying assets, any reasonably foreseeable market movement, counterparty risk, and the time available to liquidate any positions.

3. (3)

   Cash not yet received into the scheme property but due to be received within one month is available as cover for the purposes of (2).

4. (4)

   Property the subject of a transaction under COLL 5.4 (Stock lending) is only available for cover if the authorised fund manager has taken reasonable care to determine that it is obtainable (by return or re-acquisition) in time to meet the obligation for which cover is required.

5. (5)

   The global 1exposure relating to derivatives held in a UCITS scheme may not exceed the net value of the scheme property (Article 2(1) of the Commission Recommendation 2004/383/EC)1.

   1

1. (1)

   Cash obtained from borrowing, and borrowing which the authorised fund manager reasonably regards an eligible institution or an approved bank to be committed to provide, is not available for cover under COLL 5.3.3 R (Cover for transactions in derivatives and forward transactions), except if (2) applies.

2. (2)

   Where, for the purposes of this section, the ICVC or the trustee for the account of the AUT on the instructions of the manager:

   1. (a)

      borrows an amount of currency from an eligible institution or an approved bank; and

   2. (b)

      keeps an amount in another currency, at least equal to the borrowing for the time being in (a), on deposit with the lender (or his agent or nominee);

   then this section applies as if the borrowed currency, and not the deposited currency, were part of the scheme property.

1. (1)

   An authorised fund manager must, (as frequently as necessary), re-calculate the amount of cover required in respect of derivatives and forward positions already in existence under this section.

2. (2)

   Derivatives and rights under forward transactions may be retained in the scheme property only so long as they remain covered globally under COLL 5.3.3 R.