The Financial Services Commission of Ontario has developed draft guidance for pension plans investing in derivatives and similar instruments.
National law firm Osler, Hoskin & Harcourt says in its Pensions and Benefits Law bulletin that the guidelines are “in response to perceived concerns about the lack of understanding of the risks associated with investments in derivatives.”
The guidelines are framed as a set of explicit expectations for documentation, risk management and risk monitoring for those investing in derivatives.
“[The guidance] contemplates a system for internal oversight of derivatives practices that is extremely broad in scope and will increase the costs to pension plans that invest directly in derivatives or that invest in pooled funds that use derivatives,” write Osler lawyers Anna Zalewski, Anthony Devir and Louise Grieg. “The suggestion in the Note is that prudence might require more, but not less, rigorous practices.”
Most notable, perhaps, is a new 10% limit…
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