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Concept Release on Fund Use of Derivatives

The Securities and Exchange Commission today issued a concept release requesting public comment on a wide range of issues under the Investment Company Act raised by the use of derivatives by mutual funds and other investment companies regulated under the Act.  A "concept release," which neither proposes nor adopts regulatory changes, is used to allow the agency to collect sufficient information to determine what, if any, regulatory changes should be proposed in the future. 

The 1940 Act did not contemplate use of derivatives by funds, and the use and complexity of derivatives has grown significantly since the Act was adopted.  In March 2010 the SEC launched a staff study of the use of derivatives by funds, but has not yet proposed any regulatory changes as a result of that staff study.  This release seeks public comment on funds' use of derivatives, and seeks comment on several specific issues implicated by funds' use of derivatives, including leverage restrictions, fund portfolio diversification, concentration, and valuation issues.  

The release is published on the SEC's website and commenters will have 60 days to submit their thoughts. 

The SEC has posted a press release on its website, explaining the concept release.