On August 31, the U.S. Securities and Exchange Commission issued a concept release on the use of derivatives by mutual funds and other investment companies registered under the Investment Company Act of 1940. In the release, the SEC noted the "dramatic growth" in the complexity and volume of derivatives investments in recent years and, specifically, funds' increased use of such investments.
The release is ultimately intended to assist the SEC in determining whether further regulation or guidance is needed to improve the regulatory regime with respect to funds' use of derivatives. To that end, the release considers, and requests comment on, such issues as: (i) the costs, benefits and risks of funds' use of derivatives; (ii) restrictions on leverage; (iii) portfolio diversification and concentration; (iv) exposure to securities-related issuers; and (v) the valuation of derivatives.
Comments are being accepted by the SEC for 60 days after the publication of the release in the Federal Register.