Into the onshore world - UCITS III: The basics

Tue Oct 27, 2009

Although the investment freedoms introduced by UCITS III are extensive, the rules do not allow managers to take naked short positions, specifying instead that exposure to derivatives should be via instruments such as contracts for difference (CFDs) and stock-specific futures.

Managers themselves express some mystification as to why naked shorting is prohibited under the regulations. After all, they would deliver precisely the same strategic results via CFDs. "The final P&L is exactly the same as you would generate through a physical short," says Mondani at Akros. "The only difference is that you can’t sell or generate cash that you could then use for an alternative purpose. Theoretically, if you entered into a physical short you could use the cash generated to leverage up your fund more materially. However, as we typically run funds with low leverage, most of our strategies do not need such additional tools."

Not that...

ISSN: 2151-1845 / CDC10004H

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