SEC reviews mutual funds' use of derivatives

Mar 26, 2010 @ 9:05 am

By Associated Press

+ Zoom
(AP)

The Securities and Exchange Commission is reviewing the use of financial derivatives by mutual funds, exchange-traded funds and other investments to determine whether new protections are needed for investors.

The SEC said Thursday that while the review by its staff is ongoing, the agency won't approve any new exchange-traded funds that would make "significant investments" in derivatives. Existing ETFs and other types of funds won't be affected.

Derivatives, the complex instruments traded in a $600 trillion global market and blamed for playing a role in the financial crisis, have come under heightened scrutiny in the U.S. and Europe. Particular attention is being focused on credit default swaps, a form of insurance against loan defaults, which account for about 10 percent of the derivatives market.

SEC Chairman Mary Schapiro has called for Congress to impose new oversight on derivatives, warning that allowing risky instruments like the swaps to continue unfettered could bring further economic damage. Federal regulation of the derivatives market is included in sweeping legislation to overhaul financial regulation that passed the House in December and also is included in a new Senate bill.

"Although the use of derivatives by funds 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," Andrew Donohue, director of the SEC's investment management division, said in a statement. "This is the right time to take a step back and rethink those protections."

The SEC review will examine, among other things, whether funds' use of derivatives is consistent with rules for concentration of assets and risk management, and whether fund directors are adequately overseeing their use.

Exchange-traded funds trade like stocks but mirror other assets such as stock indexes or commodities. Unlike traditional mutual funds, ETF shares can be traded throughout the day.

Conventional ETFs track a market index such as the Standard & Poor's 500. So-called leveraged ETFs seek to deliver multiples of an index or benchmark, often in volatile areas like commodities or currencies that involve derivatives.

0
Comments

What do you think?

View comments

Recommended for you

Sponsored financial news

Featured video

Events

Inside the minds of the top financial advisers

What are top advisers doing to stay a step ahead? Laura Pierson of Carson Group offers three strategies to keep your firm a step ahead.

Video Spotlight

The Search for Income

Sponsored by PGIM Investments

Recommended Video

Path to growth

Latest news & opinion

How adviser salaries stack up to other jobs

Median compensation hovers just under $100,000 on the low end and reaches nearly $300,000 for bosses.

Finra ranking brokers in effort to crack down on industry's bad apples

All 634.403 reps have been ranked based on factors such as prior regulatory disclosures, disciplinary actions and employment history.

How to save retirement planning from tax reform

Losing big deductions, even in lieu of a larger standard deduction, may cause taxes to rise in retirement.

Advice firms in a tricky financial position

As revenue growth dips and salaries rise, nearly 90% of firms are at or near capacity.

In a turnaround, Wells Fargo Advisors sees slight bump in headcount

Racked by a scandal in its retail banking unit, Wells still managed to add 37 new advisers in the third quarter, a small number but an improvement nonetheless.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print