Dawnay Day Quantum, the structured products division of U.K. broker Dawnay, Day, will launch a fund this fall with regulatory approval to invest in derivatives. The fund will likely be a cash fund which will buy and sell single stock options, said Bill Kolubayev, director of investments in London.
The firm is taking advantage of a European directive known as the Undertaking for Collective Investment in Transferable Securities III, which allows onshore funds to use derivatives for investment as well as hedging. Kolubayev said Dawnay has begun talking to derivative dealers but has not yet determined which counterparties it will work with for the fund. The fund's exposure to any one counterparty is fixed at 10%. "Under UCITS, we have a lot of constraints," said Kolubayev. Dawnay will also likely require its counterparties to have a minimum single A credit rating.