SEC Proposes Limits On Fund Use Of Derivatives And Leverage

The SEC today voted, by a three-to-one margin, to propose rules that would limit the amount of leverage that mutual funds may obtain through derivatives. Rule 18f-4 would require funds to comply with an "exposure-based portfolio limit" or an alternative risk-based portfolio limit." The proposals also require funds and business development companies (BDCs) to manage the risks of investing in derivatives by clarifying requirements to segregate liquid assets to "cover" their potential exposure to derivatives. Finally, the proposal would require funds that make extensive use of derivatives to establish derivatives risk policies.

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