Thursday, August 25, 2016

The Long Reach of the SEC

Globalization is Giving the SEC a Cross-border Focus

Author: David Schwartz

n a June 28, 2016 address in London, Andrew J. Donohue, Chief of Staff at the U.S. Securities and Exchange Commission, gave his perspective on the expanding intersection between U.S. securities regulation and the global securities community. The past few decades have seen a significant increase in foreign entities subject to SEC regulations as well as increases in cross-border holdings, resulting in a need for greater cooperation among regulators of different countries. Given the SEC’s greater cooperation and coordination with its foreign counterparts, Mr. Donohue took the opportunity to discuss the the SEC’s global reach within the securities industry, the importance of international cooperation on the major issues facing in today’s markets, as well as providing an overview of the significant work the Commission and its staff have done to address the globalization of the securities markets.

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Friday, April 15, 2016

SEC Chair White and the Evolving Role of Fund Directors

Author: David Schwartz

In her March 29, 2016 keynote address before the Mutual Fund Directors Forum’s annual policy conference, SEC Chair Mary Jo White laid out some of her thoughts on the role of mutual fund directors in assessing risks and exercising their oversight responsibilities.  In addition, she highlighted recent changes in markets and regulation affecting the role of fund directors, as well as some of the potential challenges ahead. 

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Tuesday, January 19, 2016

Pushback on SEC Liquidity Proposals

Author: David Schwartz

The Securities and Exchange Commission’s September 2015 rule proposals addressing mutual fund liquidity issues have not been received with great enthusiasm by the fund industry.  Some major players have made it quite clear in their comment letters that they feel the SEC has missed the mark with this proposal.  

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Wednesday, January 6, 2016

Just How do Mutual Funds Use Derivatives Anyway?

Author: David Schwartz

As a companion to the SEC’s recent proposed rules on the use of derivatives by registered investment companies, the SEC’s Office of Risk Analysis has published a white paper studying just how funds use derivatives.  Based on data from Forms N-CSR and N-SAR supplemented with information from Morningstar, the study’s authors assembled data on derivatives positions held by 10 percent of funds registered in 2014.  Because section 18 of the Investment Company Act restricts the ability of a fund to issue “senior securities,” the study focuses on those derivatives (and certain financial commitment transactions) that implicate section 18. These kinds of derivative positions can potentially present “senior security” issues because a fund that enters into these transactions is or may be required to make a payment or deliver cash or other assets during the life of the instrument or at maturity or early termination. 

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Tuesday, December 15, 2015

SEC Proposes Derivatives Regime for Mutual Funds, ETFs, and BDCs

Author: David Schwartz

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. 

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