Overview

On August 31, 2011, the U.S. Securities and Exchange Commission issued a concept release to seek public comment on a wide range of issues (include mutual funds, closed-end funds and exchange-traded funds) raised by the use of derivatives by investment companies. The release is intended to assist the SEC and its staff in their ongoing review of how the regulatory regime surrounding the use of derivatives can be improved. The SEC's chairman Mary Shapiro states that the underlying purpose of the project is that "fund investments in derivatives are not always wholly captured by the statutory limitations and requirements" contained in the Investment Company Act 1940 and that "the controls in place to address fund investments in traditional securities can lose their effectiveness when applied to derivatives." The release seeks broad public comment on a variety of issues relevant to the use of derivatives by funds, including the senior securities restrictions imposed by Section 18 of the Investment Company Act, diversification requirements, concentration limitations, restrictions on investments in securities-related businesses and valuation. This briefing provides a general background on the SEC's request for comment and analyses how the release addresses key sections of the Investment Company Act. Click 'View Briefing' for full details.