Monitoring of Derivative Trading, etc.
Investment trusts offered and managed by the Company may use derivative transactions (as prescribed in Article 2, Paragraph 20, of the Financial Instruments and Exchange Act, including transactions involving share option certificates, investment option certificates, securities or certificates indicating options, and bond trading with options) in order to pursue efficient investment or for the purpose of hedging risks.
BVAM manages the risks of derivative trading through the following measures for publicly offered investment trusts in order to limit losses that may occur due to derivative transactions within a precise range.
Specifically, we ensure that the risk equivalent amount calculated with the standardized approach*2 among the calculation methods of market risk equivalent amount as prescribed in the notification by the Financial Services Agency*1 is within 80 percent of the total net assets of the fund.
- *1 Refers to the Financial Services Agency Notification No. 59, the Notice of the Establishment of Criteria for the Calculation of Financial Instruments Business Operators’ Market Risk Equivalent, Counterparty Risk Equivalent, and Basic Risk Equivalent and prescribing the specific method of calculation of the risk equivalent amounts under the capital adequacy requirements for financial instruments business operators.
- *2 The market risk equivalent based on the standardized approach is the sum of the amounts equivalent to equity risks (including derivative transactions), interest risks, foreign exchange risks, and commodity risks. In the abovementioned FSA Notification, the multiplying factor for each investment target is prescribed, and as a general rule, the sum of the amounts calculated by multiplying these respective factors by the net positions of the investment targets becomes the market risk equivalent amount. (For example, the multiplying factor for equities is generally 8 percent; however, it would be higher for certain issues that account for a significant portion of the overall investment targets.) BVAM considers the market risk equivalent amount based on the standardized approach as referring to the risk equivalent amount of the derivative transaction concerned and the total market risk equivalent amount of the fund as a whole (subject assets in trust such as publicly offered investment trusts).