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