overview

On October 28, 2020, the Securities and Exchange Commission (SEC) announced registered investment companies, including mutual funds (other than money market funds), exchange-traded funds (ETFs), closed-end funds, and business development companies with derivatives exposure greater than 10% of net assets must comply with rule 18f-4, an enhanced regulatory framework for derivative use - by August 19, 2022. 

Rule 18f-4 will mandate funds to adopt and implement a written derivatives risk management program that includes risk guidelines, stress testing, backtesting, internal reporting and escalation, and program review elements. The rule will also require funds to limit the amount of leverage they obtain through derivatives, based on Value-at-Risk (VaR) calculations and adopt new reporting and record-keeping requirements.

With the deadline fast approaching, many funds are discovering that the 18f-4 compliance effort is significantly more complex than imagined and are realizing that they are running out of time for implementation. 

capabilities

Comprehensive SEC Rule 18f-4 Solution

CrossAsset SEC Rule18f-4 provides registered investment companies and business development companies with a complete solution to prepare and comply with the requirements of Rule 18f-4 and help funds strengthen their risk management approach for their derivatives operations. 

Flexible Scenario and VaR Configuration  Easily configure/adjust risk parameters and inputs such as the horizon date, confidence level, desired volatility shock (%), worst case correlation, and the number of lookback years. CrossAsset for SEC Rule 18f-4 also includes an out-of-the-box SEC 18f-4 set-up.
Comprehensive Instrument Coverage  Coverage of Securities and Derivatives across FX, Rates, Equity, Fixed Income and Structured Finance.
Multiple VaR Calculation Models Multiple approaches to model for VaR: Historical simulation, Monte Carlo simulation, and parametric models. 
Daily Value at Risk Portfolio Calculations and Stress Testing Perform daily VaR calculations across all asset classes and their derivatives in your portfolios and run as many reports as you need. 
Continuous Model Evaluation
 
Daily VaR calculations are evaluated against the actual realized loss when the horizon date is met – fulfilling the rule’s requirement for funds to backtest their VaR models on a daily basis.
Archive VaR Calculations Continuously and Recalibrate VaR Models as Needed Results for VaR tests and stress tests are automatically saved under the default portfolio in a secure archive as per the record-keeping requirements of 18f-4. Users can also review prior forecasts to monitor and calibrate the VaR model when required. 
Benefits & Features

Comply With SEC Rule 18f-4

How it works:

Connect Portfolio Positions
Automate updates of portfolio positions with custodians or fund servicing companies, or submit excel sheets or text files.
Select Run Configuration
Set horizon, confidence interval, volatility shocks and correlation model.
Generate and View Report
Report is ready in a few seconds and is archived automatically if you wish.

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