can be used, which markets are acceptable and sometimes how the
products can be used?
Some funds like hedge funds are registered offshore and so may be
exempt from some regulation that applies to onshore funds thereby
allowing much greater and unrestricted use of derivatives.
Needless to say, some rules are based on Conduct of Business
Rules (can be found at www.fsa.gov.uk) and refer to the protection of
clients’ assets, type and accuracy of communication, etc; and in fact
to most of the issues we have highlighted in this chapter and the rest
of the book.
Summary
The growth in the use of derivatives and the use of OTC derivatives
is certainly a challenge for operations teams in fund management
companies and custodians.
In general terms it is the issues surrounding margin verification, col-
lateral, OTC position valuation, sometimes accounting and exercise/
assignment that cause the major problems.
As the growth in the use of derivatives will undoubtedly continue
and as the products used will become greater in terms of volume
and maybe complexity, fund management companies, fund admin-
istrators and custodians need to have greater product knowledge and
technology resource.
Using derivatives in investment management 123
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