SEC’s Proposed Derivatives Rule Seeks to Limit Fund Use of Leverage
Mutual funds and other funds that invest in derivatives are in a new ballgame. The SECís proposed derivatives rule would place new risk management caps on the use of these financial instruments by mutual funds, ETFs, closed-end funds and business development companies. The result will be a lot of additional work for firms managing such funds, particularly if the funds are heavily invested in derivatives. Some advisers and fund managers may ask themselves if the effort required by the proposed new rule is worth it and may choose to lessen their reliance on derivatives.