As a reminder, the compliance date for Rule 18f-4—the SEC’s new derivatives rule for registered funds—is August 19, 2022.

Rule 18f-4 reflects a wholesale replacement of the existing asset segregation-based regulatory regime for mutual funds, closed-end funds, BDCs, EFTs and other registered funds that engage in derivatives transactions. The implementation and compliance burdens associated with the rule are significant; among other things, a fund relying on the rule must adopt a derivatives risk management program (DRMP) and generally must calculate new types of risk measurements, such as daily “value-at-risk” (VaR), at least weekly VaR backtesting and at least weekly stress testing.

Because the new rule also includes an exception for "limited derivatives users," and a significant number of funds and fund complexes may be eligible to rely on this exception, thereby avoiding the rule's requirements to adopt a DRMP and comply with the VaR-based limits, as well as the related board oversight and reporting requirements, Vedder Price has prepared reference materials for use by investment managers and fund complexes when considering the availability of the limited derivatives user exception. We are also circulating a link to the webinar—Practical Implications of the New Fund Derivatives Rule—hosted by Vedder Price attorneys Juan M. Arciniegas, Deborah Bielicke Eades, W. Thomas Conner and Nathaniel Segal, members of the firm’s Investment Services group.