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ARTICLE · 04 JUNE 2021

Derivatives Exposure Under Rule 18f-4: Notional Apples And Oranges

Perkins Coie LLP
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Having provided two "big pictures" of the calculation of a fund's "derivatives exposure," we resume with an in-depth examination

United StatesWealth Management
Stephen Keen
Stephen Keen
Andrew P. Cross
Andrew P. Cross

Having provided two "big pictures" of the calculation of a fund's "derivatives exposure," we resume with an in-depth examination. We begin by considering how to determine the "gross notional amount" of a derivatives transaction. This post may contain our only categorical conclusion regarding derivatives exposure: gross notional amounts must be absolute values expressed in U.S. dollars.

Absolute Values

With a limited exception that we will explain in a subsequent post, a fund cannot net the notional amounts of short positions against the notional amounts of long positions in the same underlying asset when calculating its derivatives exposure. In other words:

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