The SEC announced Thursday, March 25, that it was reviewing the use of derivatives by mutual funds, exchange-traded funds (ETFs) and other investment companies. During its review, the SEC said that it would suspend any new or pending approvals of exemptions under the Investment Company Act of 1940 by ETFs that “particularly rely on swaps and other derivative instruments” to attain its revenue goals.

Andrew Donohue, the director of the SEC’s Division of Investment Management, said, “Although the use of derivatives by funds is not a new phenomenon, we want to be sure our regulatory protections keep up with the increasing complexity of these instruments and how they are used by fund managers.”

The SEC plans to look at several areas in the use of derivatives, like assuring that funds maintain and implement adequate risk management, and a fund’s prospectus adequately discloses the potential risks.

To read the full text of the SEC news release, please click here.