The investment manager may have a number of bond-like assets in the portfolio, and corporate treasurers may have issued similar liabilities which have options embedded within them by virtue of the contract terms under which the bonds were issued. Common examples of such bonds are as follows.

• Bonds with call provisions allow the issuer to call the issue at a date earlier than the redemption date, at a price different from par but specified when the bond is issued. Bonds with sinking funds attached also have an embedded option.

• Putable bonds give the holder the option to put the bond back to the issuer at a predetermined price.

• Convertible bonds give the holder the option of converting the bond into the equity of the issuer. The rate of conversion and the time is specified when the bonds are issued. Some convertible bonds have been issued that provide for conversion into other bonds.

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Posted: June 15th, 2008 under Futures Options, Swap Futures.
Comments: 6

Direct Participation Programs

The next level up in size and complexity is direct participation programs, or DPPs. You may think of them as tax shelters or limited partnerships (LPs). They are constructed to pass through all of their income, gains, losses, and tax benefits to their owners. The partnership itself pays no taxes because the partners accept liability. Gas-oil exploration and real estate development are common LPs.

Unlike those big sisters, the commodity trading limited partnership is not a tax shelter. It is structured to provide limited liability to investors. The syndicator is the CTA or a CPO, and usually the general partner as well. These can be public or private. Private LPs are usually formed by a small group of wealthy investors, while public LPs attract large numbers of small ($2,000 to $5,000 minimum) investors. The latter requires a full-fledged prospectus and is more stringently watched by federal regulators. Both must be registered with the SEC. Read more »

Posted: March 2nd, 2008 under Corn Futures, Crude Oil Futures, Future Fund, Future Management, Future Trading, Futures, Futures Contracts, Futures Market, Futures Prices, Interest Rate Futures, Managed Futures, S&P Futures, Stock Market Futures, market.
Comments: 4

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

Costs and Taxes

Concern

The cost of investing internationally is significantly higher than investing domestically because of many factors. First, gathering information about foreign stocks is more expensive. Foreign companies reveal much less information about their operations than their American counterparts because they do not have the same kind of disclosure requirements. Moreover, the information that is available in the public domain is more difficult to obtain and more expensive. Investors must subscribe to foreign database subscription services, fax services, and foreign newspapers and pay for expedited delivery to obtain the information in a timely manner. And differences in accounting practices mean that financial statements are not easily comparable. These difficulties make research required to value foreign company more expensive and more uncertain. Read more »

Posted: February 14th, 2008 under Future Exchange.
Comments: 3

Key Points

• When currencies are exchanged for delivery more than two business days later, the governing exchange rate is the forward rate. The forward rate is given by an inviolable interest rate parity that ensures that two riskless investments generate the same total return. Under normal circumstances, the forward rate should be an unbiased predictor of the future spot rate. However, the actual future spot rate is significantly different from the forward rate. This phenomenon is referred to as the forward rate bias.
• In order to satisfy the requirement of the same return generated by two riskless assets given by interest rate parity, the currency with the higher interest rate must depreciate relative to a currency with a lower interest rate as given by the forward rate. Evidence indicates that the currency with the higher interest rate actually appreciates instead of depreciating. This pattern is confirmed for a variety of currency pairs not including high-interest-rate currencies, for many different observation periods, and many different holding periods. It seems that the bias decreased a little during the 1990s and it disappears when the holding period becomes about ten years. However, the bias at short holding periods of about one month is of most interest to investors.

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Posted: February 14th, 2008 under Currency Futures.
Comments: 4

Marketing Offshore Funds in Switzerland

Under the current law, a license to market shares in an offshore fund to the public in Switzerland can only be granted to a Swiss bank or a Swiss branch of a foreign bank, although not in respect of an offshore futures fund. Under the new law a license may be granted to any person, but only if an offshore futures fund is subject to home country control and its structure and investment policies are equivalent to those of Swiss funds.

Under the new law, offshore futures funds will be able to obtain a license to promote themselves in Switzerland whether they are contractual or corporate. They will be exempt from the requirement to redeem shares at any time.

A fund may avoid these requirements by marketing strictly on a private placement basis. In this case, no licences are required by the fund itself or the broking intermediary. However, a fairly restrictive stance on the number and type of investors that can be approached must be employed. The following criteria are applied: Read more »

Posted: February 8th, 2008 under Future Fund, Future Investing.
Comments: 5

Offshore Futures Funds

If the IML gives its approval, shares in offshore futures funds can be sold in Luxembourg, as long as they comply with domestic marketing rules on consumer protection and canvassing market practices. Approval will only be given if the offshore fund concerned is regulated, in the jurisdiction in which it is established, by a supervisory authority set up by law to ensure the protection of investors.

A private offering of an offshore fund can be made in Luxembourg without registering the fund or seeking a listing in Luxembourg. To qualify as a private placement, there must be no public solicitation or advertising in Luxembourg.

Offers may only be made to a limited number of institutional investors including banks, non-banking financial institutions, brokers, mutual fund agents and professionals engaged in the marketing of mutual funds and authorised as such in Luxembourg. There is no specific limit as to the number of investors to whom such a private placement can be made, although offers should not be made to other funds otherwise the offering will be deemed to be a public offering (that is, to all the investors of the fund). There are no unsolicited calls or similar rules. Read more »

Posted: February 8th, 2008 under Future Fund, Future Investing.
Comments: 4

Marketing Offshore Funds in Italy

To market offshore funds to the public, an application must be made to the Ministry of Treasury and the Ministry of Foreign Trade for authorisation. This will only be granted if these ministries are satisfied that the laws of the jurisdiction in which the offshore futures fund is incorporated are compatible with Italian law. The fund will have to open a representative office in Italy and will also have to either appoint an Italian bank or use a bank from another EC member state that has a branch in Italy that can act as custodian of its assets. Authorisation is deemed to have been granted if not refused within 60 days of the date on which the application was made to the Ministry of Foreign Trade.

1. banks and credit institutions;
2. insurance companies;
3. companies managing mutual funds;
4. stock exchange brokerage companies;
5. financial companies.

Subsequent to any placement, Consob must be notified of the names of purchasing investors, the type of fund and the amounts involved. Read more »

Posted: February 8th, 2008 under Future Fund, Future Investing, Futures Contracts.
Comments: 3

Listing a FCIMT’s Shares

In theory a FCIMT’s shares can be listed on the Paris stock exchange but so far the decree needed to set out the conditions with which an application must comply has not been issued.

Advertising and the FCIMT

The rules on advertising FCIMTs are particularly strict. Article 23 of the 1988 law specifically prohibits advertising of any kind designed to raise subscriptions for shares in a FCIMT which invests in futures and options.

Financial canvassing, as defined in Law 72-6 of 3 January 1972, is also forbidden. The term includes going to visit people at their homes, businesses or in a public place on a regular basis to recommend, that they subscribe, purchase, exchange or sell shares or take part in share transactions. Writing or telephoning them or sending them circulars is also forbidden. Read more »

Posted: February 7th, 2008 under Future Fund.
Comments: 5

The Rules for Intermediaries

There are no requirements for an intermediary selling an offshore futures fund in Denmark to have a licence or other approval.

Legislation

There are no regulations for domestic managed futures funds in Finland and under the Investment Funds Act of 1987, Finnish funds generally are not allowed to invest in futures or options contracts. A revision of the Investment Funds Act is being worked on at the moment which would allow investment funds to invest in futures and options for efficient portfolio management purposes.

Selling Offshore Managed Futures Funds

The Investment Funds Act does not apply to offshore funds and consequently not to offshore managed futures funds and so the sale of such funds is subject only to compliance with the provisions of the Securities Market Act of 1989.

This regulates the marketing of shares; it prohibits, in particular, the giving of false or misleading information and requires that investors be given enough information for them to be able to judge the merits of an investment in a fund. Read more »

Posted: February 7th, 2008 under Future Fund, Future Investing.
Comments: 5