WASHINGTON—The Securities and Exchange Commission is set to issue new rules on the use of derivatives in mutual and exchange-traded funds, Andrew “Buddy” Donohue, director of the division of investment management, told executives Friday at the Investment Company Institute’s General Membership Meeting.
“The use of derivatives inside funds is challenging,” Donohue said. The exemptive orders that are needed with respect to leverage, concentration and diversification “don’t fit very well in the ’40 Act, he said. The SEC is also concerned about risk management, pricing, liquidity, board oversight, reporting requirements and appropriate disclosure of risks in prospectuses (see “SEC May Put Cap on Funds’ Exposure to Derivatives,” MME 3/26/10).
“We are moving quickly on this and are seeking help from the industry to get it right,” Donohue said.
When announcing the new rules, Donohue said: "Although the use of derivatives 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."