The Managed Funds Association ("MFA") and the Alternative Investment Management Association ("AIMA") recommended modifications to the SEC's proposal to enhance regulation on the use of derivatives by registered investment companies and business development companies.
As previously covered, Investment Company Act Rule 18f-4 ("Exemption from the requirements of section 18 and section 61 for certain senior securities transactions") would provide certain exemptions for mutual funds, exchange-traded funds, registered closed-end funds and business development companies (collectively, "funds") when entering into derivatives transactions, subject to certain conditions.
In their comment letter, the MFA and AIMA stated that they support the proposal's objective of limiting excessive speculation. The associations criticized the proposal's relative value-at-risk ("VaR") test as the default limit on funds' use of derivatives, asserting that the proposed method fails to (i) consider the diversity of funds and (ii) take account of other means of risk management. The MFA and AIMA made several recommendations, including:
The SEC reproposed a rule designed to "enhance" regulations on the use of derivatives by registered investment companies and business development companies.
The SEC "re-proposal" of ICA Rule 18f-4 was published in the Federal Register.
The Investment Company Institute offered recommendations on the SEC's "re-proposed" rule to provide a comprehensive approach to the regulation of funds’ use of derivatives and other senior securities transactions.
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