ARTICLE
24 December 2015

SEC Votes To Propose Limits On Derivatives Use By Mutual Funds, ETFs

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SEC members voted to propose limits on derivatives use by mutual funds and ETFs in a bid to protect investors in funds that rely on the high-risk transactions.
United States Finance and Banking

SEC members voted to propose limits on derivatives use by mutual funds and ETFs in a bid to protect investors in funds that rely on the high-risk transactions. The proposal is open for public comment for 90 days, and could be formally adopted by the SEC sometime after that. SEC Chair Mary Jo White said insufficient controls on derivatives use can create "significant risks for funds themselves and investors, as well as raise questions about the potential impacts on the broader financial system." Under the proposal, mutual funds and ETFs would also be required to adopt new measures to control financial risks. They would choose one of two ways to limit their use of derivatives: by limiting the amount of derivatives transactions in the fund's portfolio to 150% of total fund assets, or by allowing that amount to reach up to 300% as long as the fund passed a test showing its portfolio is less risky with derivatives transactions included than if it had none. The SEC also voted to propose rules that would require resource extraction issuers to disclose payments made to the U.S. or foreign governments for the commercial development of oil, natural gas or minerals, as mandated under Dodd-Frank.

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