Ucits’ clash with IM rules could cause collateral damage
Strict collateral reuse guidelines may restrict popular investment vehicles’ hedging capabilities
The sixth and final implementation of the non-cleared margin rules could create a hedging dilemma for popular European investment vehicles, as new requirements to collateralise over-the-counter derivatives might clash with longstanding investor protection rules aimed at fostering liquidity.
The existing Ucits guidelines governing more than €8 trillion of assets under management largely ban the reuse of collateral. This means that variation margin received on in-the-money derivatives hedges
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