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    Question

    Which of the following statement regarding SEBI’s

    guidelines for Alternate Investment Funds (AIFs) related to participation in Credit Default Swaps (CDS) is not true?
    A Category I AIFs and Category II AIFs may buy CDS on underlying investment in debt securities, only for the purpose of hedging. Correct Answer Incorrect Answer
    B Category I and Category II AIFs which transact in CDS, shall maintain sixty days cooling off period between the two periods of borrowing or engaging in leverage. Correct Answer Incorrect Answer
    C Category III AIFs may buy CDS for the purpose of hedging or otherwise, within permissible leverage as specified by SEBI Correct Answer Incorrect Answer
    D Only a and c are false Correct Answer Incorrect Answer
    E All are false Correct Answer Incorrect Answer

    Solution

    SEBI (Alternative Investment Funds) Regulations, 2012 (‘AIF Regulations’), have been amended and notified on January 09, 2023 to allow AIFs to participate in Credit Default Swaps (‘CDS’) as protection buyers and sellers. Category I AIFs and Category II AIFs may buy CDS on underlying investments in debt securities, only for the purpose of hedging. Category III AIFs may buy CDS for the purpose of hedging or otherwise, within permissible leverage as specified by SEBI. Category I and Category II AIFs which transact in CDS, shall maintain thirty days cooling off period between the two periods of borrowing or engaging in leverage.

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