39Derivatives and securities lending arrangements—global exposure limit

39 Derivatives and securities lending arrangements—global exposure limit

(1) The global exposure of a passport fund to derivatives, securities referred to in paragraph 23(1)(e), securities permitted under subsection 23(2) under which liability could arise from holding of the securities under the terms of the securities as well as securities lending arrangements must not be more than: (a) 100% of the value of the assets of a passport fund that: (i) is an index fund; and (ii) uses derivatives traded on a financial market for the purposes of index replication, where derivatives are used predominantly to reflect the returns on the index; or (b) 20% of the value of the assets of the passport fund otherwise. (2) For this section, the global exposure of a passport fund to derivatives, securities referred to in paragraph 23(1)(e), securities under which liability could arise from holding of the securities under the terms of the securities and securities lending arrangements is the sum of the following amounts: (a) the sum of the absolute values (calculated according to Appendix B to these rules) of the exposures of each derivative or transferable security referred to in paragraph 23(1)(e) held by the passport fund that is not involved in relevant netting arrangements or relevant hedging arrangements; (b) the sum of the absolute values (calculated according to Appendix B to these rules) of the net exposures of each derivative entered into by the passport fund that is involved in relevant netting arrangements or relevant hedging arrangements, after taking into account those arrangements; (c) the fair value of collateral for obligations to the passport fund under derivatives and securities lending arrangements which are reinvested other than in a deposit account that can be withdrawn without prior notice during business hours of the entity taking the deposit; (d) if the passport fund holds any transferable security or money market instrument that embeds a derivative, the sum of the values of the exposures of the embedded derivatives calculated as if the derivative were held as a separate asset; (e) for securities under which liability could arise from holding of the securities under the terms of the securities, the amount of the liability under the terms of the security.