AMF: Calculation of global exposure for collective investment schemes

02 February 2012

AMF published its guidelines on the calculations for the global exposure for collective investment schemes (CIS).

The present instruction applies to collective investment schemes (CIS) approved by the AMF, except:

1. Futures funds created prior to 1st July 2011;
2. CIS benefiting from the streamlined procedure and governed by Article L. 214-35 of the Monetary and Financial Code in its wording prior to Law n° 2003-706 of 1st August 2003.

Compliance with the provisions of the present instruction does not exempt CIS from their obligations under Article L. 533-10-1 of the Monetary and Financial Code.

Perimeter and definition

Calculation of the global exposure of a CIS takes the following into consideration:

1. financial derivative instruments, including financial derivatives incorporated into other financial securities in accordance with Article R. 214-15-2 of the Monetary and Financial Code, referred to hereafter as embedded derivatives. To calculate global exposure, these financial derivatives are separated from the host cash instrument;
2. techniques and instruments including repurchase agreements or securities lending operations in order to generate additional leverage or exposure to market risk;
3. for CIS with streamlined investment rules, cash borrowing.

CIS global exposure

In accordance with Article R. 214-30, clause 1 of the Monetary and Financial Code, a CIS should ensure that its global exposure to financial derivative instruments does not exceed the net asset value of its portfolio.

In accordance with Article R. 214-85, paragraph II of the Monetary and Financial Code, the limit referred to in R. 214-30 is increased to three times net asset value for CIS with streamlined investment rules.

In accordance with Article 411-72 of the AMF General Regulation, the global exposure calculation must be carried out at least daily and the limits on global exposure must be complied with on an ongoing basis.

Depending on the investment strategy being pursued and where necessary, intra-day global exposure calculations must also be carried out.

Full paper

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