SEC to Probe Use of Derivatives by Mutual Funds, Closed-End Funds, ETFs

The SEC voted unanimously Wednesday 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—including exchange-traded funds (ETFs) and closed-end funds. 

The SEC says it is seeking public input through a concept release, and that it will use the comments it receives 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.” Among the issues the SEC said it is concerned about are the potential implications for fund leverage, diversification, exposure to certain securities-related issuers, portfolio concentration and valuation.

“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 Schapiro in announcing the call for comments.