Gross wagered in his Janus Global Unconstrained Bond Fund that sovereign debt from countries including Mexico and Brazil, as well as corporate bonds, would outperform. He structured his positions by entering into swaps contracts in which he agreed to insure against default almost $1.7 billion of bonds as of the end of June, the most recent data available show. While most funds limit their exposure to just a small percent of assets, Gross’s use exceeded the market value of his fund’s holdings, which were $1.46 billion at the time.

In order to write this much insurance, Gross took advantage of a gray area under U.S. securities rules in determining how much collateral to set aside to cover potential losses on the swaps contracts. It’s an approach that runs counter to what has been directed -- but not legally required -- by the U.S.Securities and Exchange Commission. The swaps positions also go beyond what was initially permitted in the fund’s disclosure documents after Gross joined Janus in September 2014. Those documents have since been updated to allow him to have unlimited swaps exposure.

“We believe that our procedures are consistent with existing SEC guidelines,”said Erin Passan, a spokeswoman for Denver-based Janus. […]