Derivatives
ARC employs derivatives as part of our prudent portfolio management strategies to improve investor outcomes by hedging risk, managing cash flows, and minimizing transaction costs. Regulated derivatives markets effectively serve investment needs, and ARC has worked closely with regulatory bodies around the world to encourage prudent, workable rules to enhance the resiliency of the derivatives markets.
The Basics Of Derivatives
Derivatives are typically contracts to exchange payments based on the changing value of the underlying security, asset, or index. Because of global regulatory reform, the most liquid, standardized derivatives are cleared through an exchange or execution venue, with the risk managed by a central clearinghouse, which mitigates default risk by mandating that appropriate margin is held to address market and volatility risk. The three basic types of derivatives are futures, options, and swaps.
How Derivatives Can Improve Investor Outcomes
The use of derivatives by most wealth management firms, including ARC,” notes Eugene Milvio, head of the capital markets team in ARC’s Office of the General Counsel and Chief Investment Officer, “falls into three buckets: hedging exposures, managing cash, or synthetically investing when derivatives markets are more liquid, less volatile, or price-competitive relative to the cash markets for the underlying security.
