SEC Modernizes Regulatory Framework for Use of Derivatives

The SEC has issued a final rule, Use of Derivatives by Registered Investment Companies and Business Development Companies, “to address the investor protection purposes and concerns underlying section 18 of the Investment Company Act of 1940 (the “Act”). The final rule adds Rule 18f-4 to the Act, which “permits mutual funds (other than money market funds), exchange-traded funds (‘ETFs’), registered closed-end funds, and business development companies (collectively, ‘funds’) to enter into derivatives transactions and certain other transactions notwithstanding the restrictions under section 18 of the Act.” In addition, the final rule amends Rule 6c-11 of the Act to allow “leveraged or inverse ETFs to operate without obtaining an exemptive order.” The final rule is effective 60 days after its publication in the Federal Register.

For more information, see the press release and statements from SEC Chairman Jay Clayton and Commissioners Hester M. Peirce, Elad L. Roisman, Caroline A. Crenshaw, and Allison H. Lee on the SEC’s Web site.