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ARTICLE · 30 OCTOBER 2020

SEC Adopts Modernized Regulatory Framework For Derivatives Use By Registered Funds And Business Development Companies

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Today, the Securities and Exchange Commission adopted final rules relating to the use of derivatives by registered investment companies and business development companies.

United StatesFinance and Banking
Anna T. Pinedo
Anna T. Pinedo
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Today, the Securities and Exchange Commission adopted final rules relating to the use of derivatives by registered investment companies and business development companies.

The use of derivatives by funds has been the subject of consideration for some time now. The current regulatory framework is outdated and depends on an SEC statement from 1979 and various no-action letters and guidance.

The SEC fact sheet notes that the Investment Company Act limits the ability of registered funds and business development companies to engage in transactions that involve potential future payment obligations, including obligations under derivatives such as forwards, futures, swaps and written options. The new rule permits funds to enter into these transactions if they comply with certain conditions designed to protect investors. These conditions include adopting a derivatives risk management program and complying with a limit on the amount of leverage-related risk that the fund

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