In a May 11, 2022 speech before the International Swaps and Derivatives Association's annual meeting, SEC Chair Gary Gensler called attention to the use of derivatives within structured and complex products.2

Chair Gensler gave examples of derivatives being used in different products, some available to retail investors, mixing and matching in his remarks 1940 Act instruments, as well as more traditional debt securities registered under the Securities Act of 1933 (the "Securities Act"): bitcoin futures exchange-traded funds ("ETFs"), "SEC-registered funds wrapping these products in publicly offered strategies," exchange-traded products, ETFs (including leveraged and inverse ETFs), and exchange-traded notes. He said these products "can pose risks even to sophisticated investors, and can potentially create system-wide risks by operating in unanticipated ways when markets experience volatility or stress conditions."3

Chair Gensler also noted that although some of these products are listed and traded in accordance with federal securities laws, they may not be right for every investor.

Significantly, Chair Gensler asked the SEC's Division of Investment Management and the Division of Examinations to "take a renewed and focused look at the use of derivatives by registered investment companies so that they're compliant with our rules."4


2 Chair Gensler's remarks are available at: | "A 'New' New Era:" Prepared Remarks Before the International Swaps and Derivatives Association Annual Meeting.

3 Id.

4 Id.

Originally published in REVERSEinquiries: Volume 5, Issue 2.
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