SEC examining mutual funds’ use of derivatives

(Reuters) – U.S. securities regulators voted to seek public comment on whether to write new rules to better address the risks posed by mutual funds, exchange-traded funds and other investment companies that use derivatives.

The unanimous decision on Wednesday to solicit input marks an initial step by the Securities and Exchange Commission as it examines the effectiveness of current disclosure and leverage rules as they relate to derivatives.

The fear is that funds can use derivatives to potentially exceed borrowing rules and risk limits, while technically complying with the letter of the law.

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