The SEC on Wednesday is expected to vote to seek public input for potential rules on the use of derivatives by mutual funds, ETFs and other investments regulated by the Investment Company Act of 1940.
The first concept release issued by the SEC in 2011 will solicit public input on whether rules are needed.
The concept release “is an indication to all of our constituencies that we'd like to get their best thinking on this subject,” Eileen Rominger, director of the SEC's Division of Investment Management said in an interview. “The goal is to get it right.”
The SEC began its review of derivatives use by mutual funds, ETFs and leveraged ETFs in March 2010 to make sure regulations were keeping up with industry practices. That review was appropriate “given the questions surrounding the risks associated with the derivative instruments underlying many funds,” SEC Chairwoman Mary Schapiro said in a statement at the time.
SEC officials have been considering whether more understandable disclosures or special reporting requirements are needed, and whether funds that rely on derivatives maintain adequate risk management strategies and their boards of directors provide appropriate oversight.