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.
You can find additional analysis and initial impressions in our Client Alert, available here.
Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.
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