SEC derivatives rule could push up risk

Author: Edward Price | Published: 5 Apr 2016

The Securities and Exchange Commission's (SEC) proposed rule on the use of derivatives by registered investment companies signals a fundamental change in the regulator's attitude to both funds and derivatives, according to US counsel.

The SEC proposed the rule in December to limit funds’ use of derivatives and to compel them to introduce risk management measures. According to the regulator's website, the affected funds would include mutual funds, exchange-traded funds (ETFs) and closed-end funds, as well as business development companies.

Jay Baris 
Morrison & Foerster

As such, the proposed rule has been strongly criticised by industry. Arguments against the proposal focus on how it would drive up compliance costs, as well as how some funds might struggle to continue with existing investment strategies or diversify portfolios.

The Securities Industry and Financial Markets Association (Sifma) has also made specific critiques of the SEC proposal. In a comment letter...