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Let's take structured products as an example. Example: A UCITS fund is not allowed to invest in commodities directly, but it wants exposure to gold. The head of

by osrec 9y ago

Let's take structured products as an example. Example: A UCITS fund is not allowed to invest in commodities directly, but it wants exposure to gold. The head of structuring knows the fund manager, so offers him a structured index for an under the table fee. The index contains only one item: a gold future! The fund gets the ability to speculate on commodities, the head of structuring gets a nice little payoff, and everyone's happy. When compliance asks why are you in commodities, the guys say "it's only an index" - and compliance goes away satisfied. Silly, but true story.

mynameishere 9y ago
I'm not sure where the illegality in your story lies. You perhaps intentionally left that out to make it seem more complex. I don't know. But if someone wants exposure to gold (for whatever reason) why wouldn't they just buy GLD or futures directly?
- osrec 9y ago
  UCITS regulation prevents direct exposure to commodities. It's mentioned near the start of my example.
  - mynameishere 9y ago
    Okay. I guess my confusion is with respect to the word "direct" and whether an index containing futures is "direct" or not. I guess it is. To me, "direct exposure" would be actually owning the commodities rather than two levels of indirection that an index containing futures would imply. But whatever. So I guess it's incumbent upon the person who understands such things to report them to the appropriate regulatory authorities rather than downvoting random people just hearing about them for the first time.
    - osrec 9y ago
      That is precisely the point of my argument. You as a non experienced finance professional can see the fallacy in their methods (ie, they may as well have bought the gold in the first place, which is illegal), but they found a little loop hole to circumvent the rules and do whatever the hell they want with their fund, all while marketing it as UCITS compliant.

by osrec 9y ago

mynameishere 9y ago

I'm not sure where the illegality in your story lies. You perhaps intentionally left that out to make it seem more complex. I don't know. But if someone wants exposure to gold (for whatever reason) why wouldn't they just buy GLD or futures directly?

osrec 9y ago
UCITS regulation prevents direct exposure to commodities. It's mentioned near the start of my example.
- mynameishere 9y ago
  Okay. I guess my confusion is with respect to the word "direct" and whether an index containing futures is "direct" or not. I guess it is. To me, "direct exposure" would be actually owning the commodities rather than two levels of indirection that an index containing futures would imply. But whatever. So I guess it's incumbent upon the person who understands such things to report them to the appropriate regulatory authorities rather than downvoting random people just hearing about them for the first time.
  - osrec 9y ago
    That is precisely the point of my argument. You as a non experienced finance professional can see the fallacy in their methods (ie, they may as well have bought the gold in the first place, which is illegal), but they found a little loop hole to circumvent the rules and do whatever the hell they want with their fund, all while marketing it as UCITS compliant.