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Forum Comments on the SEC’s Derivatives Proposal

Last week, the Forum filed a comment letter on the SEC’s derivatives proposal.  The proposal would require funds to comply with one of two portfolio limitations on the use of derivatives; segregate assets to cover derivatives transactions; and establish derivatives risk programs for any fund that uses complex derivatives or engages in “more than limited derivatives transactions.”

The Forum’s letter focuses on the fund board’s role under the proposal.  The letter recognizes “the value of adding certainty and consistency to the treatment of fund investments in derivatives under the Investment Company Act.”  While the Forum’s letter also acknowledges that boards have a role in overseeing a fund’s use of derivatives, it questions the approach taken in the proposal.  In particular, the Forum’s letter expresses concern that the proposal would require directors to be involved directly in risk management functions, “and, when viewed together with other regulatory initiatives, risks both overburdening boards and changing the boardroom dynamic in an unhelpful way.”  In addition, the letter questions whether the Commission’s proposal would limit innovation in the fund industry.


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