SEC Studies Mutual Funds' Use Of Derivatives
Friday, September 02, 2011

The United States Securities and Exchange Commission (SEC) has voted unanimously to seek public comment on a wide range of issues raised by the use of derivatives by mutual funds and other investment companies regulated under the Investment Company Act.

The SEC is seeking public input through a 'concept release,' which is a Commission-approved document that poses an idea or ideas to the public to get their views. The Commission will use the comments received in response to this concept release to help determine whether regulatory initiatives or guidance is needed that would continue to protect investors and fulfill the purposes underlying the Investment Company Act.

“The derivatives markets have undergone significant changes in recent years, and the Commission is taking this opportunity to seek public comment and ensure that our regulatory approach and interpretations under the Investment Company Act remain current, relevant, and consistent with investor protection,” said SEC Chairman Mary L. Schapiro.

The concept release is a continuation of the SEC’s ongoing review of mutual funds’ use of derivatives announced last year. The concept release requests public input on the issues that the SEC staff has been examining for potential ways to improve the regulation of mutual funds’ use of derivatives.

The concept release asks for information on how different types of funds use various types of derivatives as well as the benefits, risks and costs of using derivatives, among other things. Additionally, it asks for comment on several specific issues under the Investment Company Act implicated by funds’ use of derivatives, such as restrictions on leverage, fund portfolio diversification, investment in certain securities-related issuers, the concentration of a portfolio in a particular indusry, and valuation of fund assets.