On Friday, December 11, as previously announced, the SEC voted to propose a new rule regarding the use of derivatives by mutual funds, closed-end funds, ETFs, and business development companies. Since as far back as the 1990s under Chairman Aurthur Levitt, the SEC has been concerned about the multitude of risks derivatives can raise for funds, including risks related to leverage and liquidity. But, with the dramatic growth in the volume and complexity of the derivatives markets over the past two decades and the increased use of derivatives by certain funds, the risks to funds and the associated investor protection concerns are now significantly greater. The 420-page proposal is a recognition that the existing framework under the Investment Company Act (the “Act”) is outdated, and with this proposal the SEC is seeking to bring regulation of funds’ use of derivatives into the 21st Century. According to Chairman Mary Jo White, the “proposal is designed to modernize the regulation of funds’ use of derivatives and safeguard both investors and our financial system.” This new rule is intended to address those concerns at least in part by requiring funds to monitor and manage derivatives-related risks and to provide limits on their use.