A derivatives risk management program where every daily VaR test is verified, explained in plain words and signed
Every daily VaR test explained in plain words, every escalation signed, no late N-RN.
See one case, screen by screen ↓Under SEC Rule 18f-4, a registered fund whose derivatives exposure is above 10% of net assets must run a written derivatives risk management program: a board-approved derivatives risk manager, a VaR test every business day, weekly backtests and stress tests, escalation, and reports to the board. Derivatives Risk Management Program puts eight agents on that work — they run and verify each daily test, explain every breach and exception, count the cure clock and draft the filings and board reports, while an analyst prepares and the derivatives risk manager signs.
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Under SEC Rule 18f-4, every registered fund with derivatives exposure above 10% of net assets runs a derivatives risk management program: a VaR test every business day at 99% over 20 trading days with at least three years of data, against 200% of a designated reference portfolio's VaR or 20% of net assets, weekly backtests and stress tests, escalation to portfolio managers, a five-business-day cure window and written reports to the board. Today the risk engine prints the numbers and market risk analysts do the rest: ratios copied into a limit workbook, the derivatives risk manager emailed about any fund near its limit, breach days counted in a calendar.
The risk sits in what nobody had time to do. A test run on a price patched by hand, a ratio miscopied, a breach day miscounted across a holiday, a backtest exception never explained, a reference portfolio that no longer reflects what the fund holds, a board told "within limits" without the why, and Form N-RN facts that do not match the engine. The board reports are then written from scratch every quarter, from the workbook, the email and the engine output.
Estimated split for a fund complex with about 45 full-program funds over one quarter, by hand and with the solution.
Eight agents test, verify, explain and escalate every fund every night; an analyst prepares, the derivatives risk manager signs, the CCO files.
Quillfield Capital runs Rule 18f-4 for the 45 full-program funds and 118 limited derivatives users of Quillfield Funds Trust. On Thursday, October 15, 2026, the Quillfield Macro Fund is on its third business day over its VaR limit. Here is what happens next, screen by screen, in the working solution.
Victor opens Today: 45 funds tested last night, 44 within their limit, 1 over — the Quillfield Macro Fund, day 3 of 5 — 3 near their limit and 3 reviews waiting. Under "Needs you" are five decisions, each prepared by an analyst with its deadline: first, the Macro Fund's remediation plan, due 12:00 pm today. Beside them, the agents report what they did overnight.
“Every decision here is prepared by one person and approved by another; agents never act unseen.”
The Data agent froze 18,412 positions at the 4:00 pm close and priced 31,904 instruments over 756 business days of history. Fourteen option prices were missing for the Options Income ETF, so it held that fund's test and re-ran it at 6:19 pm, after the vendor re-delivered. The Verifier agent recomputed every ratio from the component VaRs and index weights, held the Inflation-Linked Bond Fund because the engine used Sep 30 index weights, and agreed with the re-run on Oct 1 weights: 121%.
Data agent: “14 option prices for the Options Income ETF were missing, so I held its test rather than carry prices forward.”
The Macro Fund's tape shows its relative VaR test for a year: 214% of the QMF Reference Blend's VaR, fund VaR 7.92% of net assets ($270.9M) against 3.70% for the reference portfolio. The dots climb after the central bank meeting on Oct 8 — 188% on Oct 12, near the limit, then 203%, 209% and 214% — and the bracket reads "3 of 5 business days over". Backtest exceptions sit on a lane beneath: 4 in 250 days.
Test agent: “Relative VaR test: 214% of the reference portfolio VaR (fund 7.92%, reference 3.70%) against a 200% limit. Third business day over.”
Victor clicks Oct 15. The Explainer says the euro rate futures now carry 3.41% of the fund's 7.92% VaR, up from 1.69% on Oct 9; without that increase the ratio would be about 168%, and the reference blend did not move. Daniel Okoro had doubled the 3-month euro rate futures from 2,400 to 4,850 contracts on Oct 12 and 13. Every figure links to its source in the order management system or the engine run, and the Verifier agrees to 0.1 point: 214.1%.
The Explainer never guesses a cause without a cited source, and states its confidence: 91% here. Below 80% it hands the question to the analyst.
Victor asks whether the reference portfolio could change instead. The Reference agent says no: the blend still fits, with 92% asset-class overlap and 0.81 correlation. He then asks, "What if we cut 1,450 contracts?" The Test agent has the risk engine re-price the fund without 725 Dec 26 and 725 Mar 27 euro rate futures: fund VaR 7.07%, ratio 191%, 9 points under the limit.
Reference agent: “A change whose only effect is to pass the test is not a reason I can propose.”
Three ways back under the limit were priced: A, cut 1,450 euro rate futures, 191% for about $0.21M in trading cost; B, cut 900 euro rate and 400 German bond futures, 193%; C, buy euro rate put options, 197% for about $1.9M in premium. Daniel chose A and Priya Raman prepared plan RP-2026-014. Victor signs with reason code ESC-02, "PM remediation within the cure window", and the Escalation agent tells Daniel and Rosa Delgado.
Escalation agent: “Signed and sealed. I told Daniel Okoro (trade by 11:00 am) and Rosa Delgado. Tonight’s 6:00 pm test confirms; the N-RN draft and the board report stay held unless day 5 is still over.”
The Escalation agent opened ESC-2026-014 on day 1, set day 5 to Mon Oct 19 and told Daniel; on day 2 it asked him for remediation, and his answer met the 2-hour response SLA. If the 6:00 pm test on day 5 is still over 200%, Form N-RN is due Tue Oct 20. The same screen runs the Short Duration Income Fund's own clock as a limited derivatives user at 10.8% of net assets, day 2 of 5, with Nov 13 as its 30-day date.
The Escalation agent never trades and never contacts the board or the SEC.
Two funds are in the review zone. The Emerging Markets Debt Fund has 6 exceptions in 250 days, against about 2.5 expected at 99%. On Sep 24 it lost 1.88% against a one-day VaR of 1.21%: the Explainer cites a central bank notice, kept in its Spanish original beside the English reading, that suspended onshore FX settlement for non-residents for one day. The model has no onshore/offshore basis factor, so Oliver Brandt prepared model review MR-2026-006 for Victor.
The Backtest agent never removes an exception; a model change needs the derivatives risk manager's approval.
Form N-RN for the Macro Fund is pre-filled from the run log — registrant, series, the relative VaR test, the designated reference portfolio and each day out of compliance — and the Verifier matched every number to the risk engine. It files only if the fund is still over at the Mon Oct 19 test: Victor approves, then Rosa Delgado submits. The September N-PORT VaR items for all 45 funds are drafted the same way.
The Reporting agent never submits; a filing needs the derivatives risk manager's approval and the CCO.
The Q3 2026 report to the Board of Trustees is drafted for the Oct 27 meeting: 2,880 daily VaR tests for 45 funds, every one by 6:44 pm ET; one fund out of compliance, Currency Alpha on August 5 and 6, back inside the window so no Form N-RN; 23 backtest exceptions against about 29 expected. Every sentence carries a citation, Priya checked every figure, and Victor releases it to the board book.
Trustees read the released report and can ask it questions; answers cite the run log.
The same night's tests, seen by five of the people who carry Rule 18f-4 — what their week looked like, and what it looks like now.
Eight agents test, verify, explain and escalate every fund every night; an analyst prepares, the derivatives risk manager signs, the CCO files.
Pulls positions, trades, net assets, prices and three years of history from the order management system, portfolio accounting, the fund administrator, the custodian and the market data vendor, and checks they are complete.
Runs the daily relative or absolute VaR test on the risk engine — historical simulation, 99%, 20 days, three years — and the 10% exposure check for limited derivatives users, and prices what-ifs on request.
Recomputes every ratio from the component VaRs and the index provider's weights, and second-checks backtests and filing values, before anyone sees a number.
Compares each business day's actual result with that day's one-day 99% VaR every week, counts exceptions over 250 days and places each fund in its zone.
Says in plain words what drove an exceedance or a backtest exception, citing the trades, the engine's attribution and the market event — in any language the source is written in.
Tests every designated reference portfolio for fit every night — asset-class overlap, correlation, the tracking-index rule — and proposes better-fitting unleveraged indexes.
Opens and counts the five-business-day cure clock, asks the portfolio manager for remediation, has the risk engine price each option and drafts the plan for signature.
Drafts the quarterly and annual board reports, Form N-RN, the N-PORT VaR items and N-CEN reliance from the run log, every sentence cited.
Maker, checker, filer, oversight. The agents propose; a named person decides.
Ask about any fund, test, backtest, filing or board report — or ask for a what-if. Answers come from the run log, with their sources, and the agents say so when they cannot find one.
Which funds need me today?
Five decisions. The one that matters most: Quillfield Macro Fund is at 214% of its reference portfolio VaR, day 3 of 5, and its remediation plan needs your signature by 12:00 pm. Then the EM Debt model review, the Global Allocation reference change, the Short Duration Income plan and the Q3 board report.
Why is Quillfield Macro Fund over its limit?
Its 3-month euro rate futures doubled, from 2,400 to 4,850 contracts on Oct 12 and 13, after the central bank meeting on Oct 8. That position is now 3.41% of the fund's 7.92% VaR; without the increase the ratio would be about 168%.
What if we cut 1,450 contracts?
I asked the risk engine to re-price the fund without 725 Dec 26 and 725 Mar 27 euro rate futures. Fund VaR falls to 7.07% of net assets and the ratio to 191%, 9 points under the limit. German bond futures unchanged.
Summarize the Q3 board report
2,880 daily tests for 45 funds, one exceedance (Currency Alpha, Aug 5–6, back on day 3, no filing), 23 backtest exceptions against about 29 expected, and no stress guideline breached. It is drafted and waiting for your release.
13 screens from the working solution, on its sample data. Pick one to see it large.
What Rule 18f-4 sets is locked. What Quillfield sets is a setting, versioned, proposed by the administrator and approved by the derivatives risk manager.
| Setting | Default | Choose from |
|---|---|---|
| Relative VaR limit | 200% · closed-end with preferred 250% | Set by Rule 18f-4 · locked |
| Absolute VaR limit | 20% · closed-end with preferred 25% | Set by Rule 18f-4 · locked |
| Limited derivatives user | 10% of net assets, allowed hedges excluded | Set by Rule 18f-4 · locked |
| Near-limit warning | 90% of the limit | Version 15, waiting for the derivatives risk manager: 85% from the Mon Oct 19 test |
| Test time | 6:00 pm ET, as of the 4:00 pm close | Set by the firm |
| VaR method | Historical simulation · 756 days | 99% · 20 trading days · at least 3 years, by rule |
| Backtest zones | 0–4 expected · 5–9 review · 10+ model review | Set by the firm; backtests and stress tests on Thursday |
| Cure-clock calendar | NYSE business days | Twice-daily test from day 2 of a cure window |
Every figure is labelled: a target the solution is built to, an estimate, a typical published result, or a proven one.
“demo” = seen in the working solution, on its sample fund data · “target” = the design goal, measured in the live solution · “estimated” = our estimate · “typical” = published figures (17 CFR 270.18f-4 — five business days out of compliance, then Form N-RN within one business day; SEC Paperwork Reduction Act notice, Sept 2023 — about 66 Form N-RN reports a year). People, funds, firms and trades named on this page are fictional — characters and sample data in the working solution.
Under SEC Rule 18f-4, a registered fund whose derivatives exposure is above 10% of net assets must run a written derivatives risk management program: a board-approved derivatives risk manager, a VaR test every business day, weekly backtests and stress tests, escalation, and reports to the board. Derivatives Risk Management Program puts eight agents on that work — they run and verify each daily test, explain every breach and exception, count the cure clock and draft the filings and board reports, while an analyst prepares and the derivatives risk manager signs.
A fund whose derivatives exposure stays at or under 10% of net assets, with allowed hedges excluded, does not run the full program. The solution checks every limited derivatives user each night — 118 in the demo — and puts any fund over the 10% line on its own five-business-day clock, with the date by which it must be back under 10% or run the full program.
Each business day the fund's VaR — 99% confidence, 20 trading days, at least three years of data — must stay within 200% of its designated reference portfolio's VaR, or 250% for a closed-end fund with preferred shares. A fund with no fitting reference portfolio runs the absolute VaR test instead, at 20% of net assets. The Test agent runs the test on your risk engine and the Verifier agent recomputes every ratio before anyone sees it.
When a fund is out of compliance with its VaR test for more than five business days, Form N-RN is due within one business day, and the derivatives risk manager reports to the board. The Escalation agent counts the days on the NYSE calendar from day 1, and the Reporting agent pre-fills the N-RN from the run log and holds it, so it is ready on time and never filed early.
Every week the Backtest agent compares each day's actual result with that day's one-day 99% VaR and counts exceptions over 250 days — about 2.5 are expected. The Explainer agent says in plain words what drove each one, citing the trades, the engine's attribution and the market event, including notices in their original language, and states its confidence.
No. The Reference agent tests every designated reference portfolio for fit and will not propose a change whose only effect is to pass the test; any change needs the derivatives risk manager and goes in the board report with its basis. No agent changes a limit or a model parameter, trades, or fills a missing price.
Yes. An analyst prepares every remediation plan, model review, reference change and board report; the derivatives risk manager approves it with a reason code; the CCO submits filings after his approval. Portfolio managers propose trades for their own funds but cannot approve, and the board and auditors are read-only.
The Agentic Solution Engine builds and deploys it from your requirements and documents — your program, limits, reference portfolios and a sample of past tests and board reports — and it goes live once every quality gate has passed. In the working solution, setup ends with a five-day parallel run beside the current workbook: 225 of 225 tests matched to 0.1 point.
Every holding bucketed monthly, every override explained, no filing trigger missed.
1-min demoLiquidity Stress TestingEach fund's breach day found and evidenced, and the quarterly pack signed in a day.
1-min demoStress Testing and Scenario AnalysisNew scenarios drafted in hours, every portfolio run weekly, every loss explained.
1-min demoWe'll run Derivatives Risk Management Program on a sample of your own funds' past tests, backtests and board reports.