Regulation and Compliance Federal Regulation SEC

SEC to Consider Rule to Limit Funds' Use of Derivatives

December 04, 2015 at 11:16 AM
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The Securities and Exchange Commission is set to consider proposing a new rule and amendments to some proposed forms related to the use of derivatives by registered investment companies–like exchange-traded funds–and business development companies on Dec. 11.

SEC Chairwoman Mary Jo White said Sept. 29 at the SEC's event to celebrate the 75th anniversaries of the Investment Adviser and Investment Company Acts that the rules are part of the agency's "ambitious agenda" to address evolving risks for funds and advisors.

White also noted the recently proposed rule to enhance data reporting by investment companies and advisors, as well as the rule proposed on Sept. 22 to require open-end funds to enhance their liquidity risk management. 

"As we speak," White said at the Sept. 29 meeting, staffers are also developing recommendations she hopes to advance for the Commission's consideration by the end of this year related to the use of "derivatives by funds, including measures to appropriately limit the leverage these instruments may create, as well as enhancing risk management programs for such activities."

While asset management pioneers as well as former SEC chairmen concurred at the event that the Acts have stood the test of time — with the Investment Company Act helping to spur growth in the $90 trillion fund industry — they nonetheless noted ongoing challenges the agency faces in crafting regulations, namely for exchanged-traded funds.

David Tittsworth, the former president and CEO of the Investment Adviser Association in Washington who's now counsel with Ropes & Gray, told ThinkAdvisor in a previous interview that rules by the SEC's Division of Investment Management are taking precedence over other rules, such as a uniform fiduciary rulemaking. Those rules include the agency asking for information from advisors on their Forms ADV as well as anticipated proposals on liquidity and derivatives management by mutual funds and ETFs.

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