Asset swaps are different, in that they are linked to the purchase of an asset and the swapping of the cash flows of that asset. They are therefore used synthetically to engineer an asset structure rather than a liability structure.

The idea behind an asset swap is to enhance returns to the investor rather than hedging or lowering costs to a borrower. The objective is to find some underpriced fixed rate bond which is then purchased by an investor that would prefer a floating rate investment. The coupons are then swapped with a bank that has fixed rate liabilities at a lower cost. The bank thereby receives a fixed payment that is higher than the cost of its existing fixed rate debt. Read more »

Posted: June 8th, 2008 under Future Management, Futures Index, Futures Market, Futures Options, Futures Prices, Futures Spreads, Futures Trading System, Managed Futures, Swap Futures.
Comments: 3

In Europe, as elsewhere in the world, institutions like when possible either to deal with specialist boutique operations or with operations the same size (or at least with the same standing in their particular industry) as themselves. Thus a middle-sized fund group with, say US$ 10m or US$ 25m under management is going to find itself with a very hard sell indeed. In these circumstances it is important, from a marketing standpoint, to quote all the capital/corporate size available. Thus if the middle-sized fund group is a subsidiary of a larger brokerage or banking operation, the capital worth of the parent should be brought into play.

If no parent company exists, attention should be focused on the specialist characteristics of the fund group and its investment programmes (words like flexibility and innovative are useful here) in an attempt to portray the fund group as a niche business. (This technique is often used by consultancy groups seeking to act for investment management groups.) Read more »

Posted: February 17th, 2008 under Future Fund.
Comments: 5

Concern

The size of the markets can work against foreign investors in two ways. First, some securities and some countries may be illiquid. In such markets, any reasonably sized trades are sufficient to move the price. The price rises when one wants to buy and falls upon a sale. This is particularly painful because most foreign investors end up selling and buying around the same time.

The second concern with market size is inefficiency. Emerging markets are known to be inefficient, and prices can take several days to fully reflect new information. As a passive investor, you can lose money to more sophisticated investors who trade on the basis of the inefficiency. Read more »

Posted: February 14th, 2008 under Commodities Futures, Future Investing, Future Management.
Comments: 6

In Europe, as elsewhere in the world, institutions like when possible either to deal with specialist boutique operations or with operations the same size (or at least with the same standing in their particular industry) as themselves. Thus a middle-sized fund group with, say US$ 10m or US$ 25m under management is going to find itself with a very hard sell indeed. In these circumstances it is important, from a marketing standpoint, to quote all the capital/corporate size available. Thus if the middle-sized fund group is a subsidiary of a larger brokerage or banking operation, the capital worth of the parent should be brought into play. Read more »

Posted: February 11th, 2008 under Future Fund.
Comments: 5

Within the context of the managed futures industry in Europe, there are, looselydivided, six marketing objectives depending on the product being offered and the type of company or group which is offering it. These are:

sales of funds or management programmes to investment institutions;

• CTAs attempting to manage money within (usually) multi-manager funds or equivalent investment products;
• sales by fund management groups, to expatriate retail investors or, increasingly (with domestically registered funds) to retail investors within their own countries;
• fund management groups seeking joint venture partners for the creation and distribution of funds (usually retail) within an individual country or economic block;
• fund management groups seeking sales agents to distribute products on a commission basis in a defined area;
• consultancy groups attempting to act for investment management groups — particularly those considering multi-manager derivatives funds, to structure the fund, select CTAs and control asset allocation.

Read more »

Posted: February 11th, 2008 under Managed Futures.
Comments: 3

The regulations currently concerning the registration, promotion and sale of derivatives funds in Europe are covered in other articles of this blog. While these regulations are complex, or alternatively, ill-defined, two generalizations are possible.

The first is that European citizens may buy derivatives funds wherever these funds are registered and in whatever form they take. The second is that it is normally possible to promote derivatives funds to residents of a European country who are not its citizens and who do not naturally speak its language— in other words to the expatriate community of a country—at least as a first option.

Both generalizations require definition. Read more »

Posted: February 10th, 2008 under Future Investing, Future Management.
Comments: 5

GUERNSEY (CHANNEL ISLANDS)

Futures funds can be set up in Guernsey as unit trusts or investment companies, either closed- or open-ended. Open-ended funds are regulated by the Guernsey Financial Services Commission (FSC) under the Protection of Investors (Bailiwick of Guernsey) Law 1987.

Closed-ended funds are regulated by the Advisory and Finance Committee under the Control of Borrowing (Bailiwick of Guernsey) Ordinances 1959 to 1989, although the FSC looks after all funds on a day-to-day basis.

Guernsey’s FSC has a wide responsibility, including protecting and developing Guernsey’s shares of the lucrative financial services industry. This means that only fund management businesses with pedigree and track record will be allowed to establish funds. Read more »

Posted: February 10th, 2008 under Future Fund.
Comments: 6

This article covers the regulatory environment for managed futures funds in a selection of European offshore centers:

• Gibraltar;
• Isle of Man;
• Guernsey;
• Jersey.

GIBRALTAR

There are no specific regulations for futures funds in Gibraltar, but the Financial Services (Collective Investment Schemes) Regulations, 1991 apply to futures funds established in Gibraltar in addition to the Part III of the Financial Services Ordinance.

The regulator of the financial industry in Gibraltar is the Financial Services Commission (FSC) which may impose specific further requirements on particular funds under its discretionary powers. Read more »

Posted: February 10th, 2008 under Future Fund, Future Investing.
Comments: 6

Use of Derivatives by Investment Companies

As long as ICs comply with SEC regulations concerning asset coverage, there are no significant restrictions on their use of derivatives. However, an IC which uses derivatives more than just as a hedging strategy potentially faces the need to register with the CFTC as a CPO and may be required to comply with two different regulatory regimes.

Where an IC is registered with the SEC, its operator is not required to register with the CFTC as a CPO, if the IC enters into transactions in CFTC regulated derivatives for bona fide hedging purposes.

This exemption is dependent on the IC complying with the following conditions:

1. it commits no more than 5 per cent of its total net assets to initial margin and option premiums;

Read more »

Posted: February 9th, 2008 under Commodities Futures, Future Broker.
Comments: 5

CTA Regulation

Anyone whose business involves advising US citizens or residents on trading in CFTC-regulated contracts or who trades such contracts on a discretionary basis is required to register with the CFTC as a CTA and to become a member of the NFA. CTAs who have advised fewer than 15 people in the previous 12 months are exempt from registration if they do not publicly present themselves as CTAs.

The CFTC takes the view that if a CTA advises a fund, it advises each investor who participates in the fund and the CFTC counts each investor for purposes of its 15-person limit. If advice is only given in relation to pools for which a CPO is registered or exempt, the CFTC exempts it from the obligation to register as a CTA. CTAs must comply with CFTC and NFA membership application procedures and provide disclosure documents before soliciting clients. Read more »

Posted: February 9th, 2008 under Commodities Futures, Future Fund, Future Management.
Comments: 4