Position Limits: Creating Hedge Exemptions

Breaching a hard position limit when trading derivatives is strongly discouraged. Breaches can result in both penalties and fines for offenders. However, under special circumstances, firms can secure an agreement with exchanges and regulators to override these limits, following exemption rules that are set out by exchanges and regulators.

Once exemptions are secured, the monitoring of these new limits can then become manual and error-prone. That is why FundApps decided to introduce a feature in our Position Limits service: Exemptions. This feature allows users to override and customise their limit values, provides visibility of active and/or deactivated exemptions in the system, and organises all the information that refers to specific exemptions in one place. Having all this information readily accessible is paramount to remaining compliant. Follow the below instructions to set up hedge exemptions.

Step 1: Go to the Position Limits dashboard and select ‘Exemptions’

Step 2: Click ‘Add new’ to start creating a hedge exemption

Step 3: Create the hedge exemption by filling in the required fields

Step 4: After creating the exemption, rerun your file in order for the exemption to apply

Step 5: Check that the exemption is now applied to the result

We can see the exemption has been applied to the result as the Current Limit is now highlighted in blue. If you hover over the current limit, it will say ‘Hedge Exemption’.

Important: The exemption will apply to future results. Please re-run the file to apply the exemption results that were already generated. After the exemption is used to generate results, it can only be deactivated.

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