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IM Director on Fund Asset Coverage and Leverage Limits

Eileen Rominger, the Director of the SEC Division of Investment Management, stated in a recent speech that the Division is closely examining whether funds should be allowed to essentially set their own asset coverage and leverage limits in using derivatives.  This concept was suggested by several comment letters submitted in response to the SEC's concept release on derivatives issued last August.  She stated that in analyzing the proposal the Division is considering several questions, including whether fund directors and CCOs are in a position to guard against abuses in this area and, if so, what tools they have at their disposal to do so.

Although Ms. Rominger did not say when the SEC may take any formal action with respect to derivative use, she stressed the SEC's ongoing efforts to monitor and improve funds' disclosure about leverage generally and about the implications of using derivatives in particular.  She stated that the Division is "continuously on the look-out, for example, for funds that appear to have significant derivatives exposure in their financial statements, but have limited or no discussion in their annual reports of the effect of those derivatives on the funds' performance."

A copy of the Forum's comment letter on the derivative concept release can be found here.