The Securities and Exchange Commission said in late March that it is looking into whether more protections are needed surrounding the use of derivatives—such as swaps—by mutual funds, ETFs and other investment companies in a move that’s likely to slow the launching of some ETFs.
The SEC decision affects new and existing “exemptive relief” filings that investment companies make when they are planning to launch ETFs. The commission said it would defer consideration of such filings until it completes the review. Specifically, the review will apply to actively managed and leveraged ETFs, particularly those that plan to use swaps and other derivative instruments to achieve investment objectives. It will not affect existing ETFs or any other types of fund applications, the SEC said.
The SEC said its inquiry would focus on a number of issues, including whether funds that rely heavily on derivatives—particularly those that seek to provide leveraged returns—maintain and implement risk management measures that reflect the nature and volume of their derivatives use.
It’s also examining whether existing prospectus disclosures adequately address the particular risks created by derivatives. There is no indication as to how long the review process may last. |
