Mumbai, Feb 5: The Securities and Exchange Board of India (Sebi) has come out with guidelines for mutual funds to undertake trading in derivatives, for purposes of hedging and balancing their portfolios.The guidelines, issued on Monday, comes on the heels of the approval the markets regulator gave mutual funds to enter into derivatives transactions according to the recent amendments made in the mutual funds regulations. Incidentally, it also comes on the eve of stock exchanges preparing to undertake derivatives trading.According to the guidelines, the securities held have to be marked to market by the asset management company "to ensure full coverage of the investments made in derivatives products at all time." Offer documents by the funds should contain the AMC's intention of trading in the derivatives products, while setting out in detail the risks and returns from such transactions, risk factors and possible losses. MFs also have to lay down exposure limits for themselves, which have to be disclosedin the offer documents.Traded derivatives have to be valued at market price while untraded ones have to be valued in the same manner as untraded investments at present. AMCs have to report the transactions in both volume and value terms, along with market value of the cash and securities held to cover their exposures, any breach of exposure limits, and shortfall in assets covering investments in derivatives and manner of bridging them.As per the guidelines the funds would have to fully cover their positions in the derivatives market by holding underlying securities, cash or its equivalent or an obligation to hold such assets to honour the derivatives contract. AMCs would have to maintain separate records for holding the cash, its equivalents or securities for this purpose.NYSE, S&P, TSE plan global indexNEW YORK: The New York Stock Exchange, Standard & Poor's, the Tokyo Stock Exchange and the Deutsche Boerse are set to announce next week that they are setting up a globally traded indexfund, a source close to the deal said. Earlier on Wednesday, the Wall Street Journal reported that the exchange-traded fund would be based on a new global index of 100 stocks, marking the New York Stock Exchange's first foray into the fast-growing business of index-based securities.In recent years, the New York exchange has rebuffed complex stock-linked securities, called derivatives. The new global index product would turn up the heat with rival American Stock Exchange and its hugely successful index products, the Journal said. The new index may be the first of its kind to be traded on several exchanges, the newspaper reported one "knowledgeable person" as saying.
