Derivatives use: SEC moves to enhance regulatory framework

  • Derivatives use gets new regulations
  • SEC chairman praises commission’s staff for job well done

United States Financial regulator, the Securities and Exchange Commission (SEC) has declared its intention to improve the legal framework that investment companies use derivatives for.

The Commission had gone into the meeting with the intent of changing the law guiding the derivatives or amending the existing law guiding its usage.

However, it was resolved that an amendment would be done on the existing laws. This new regulation entails registered investment company to write a risk management policy.

The new rule takes into cognizance the exchange-traded funds (ETF). According to this new law, there is more leeway for ETFs to leverage. The law would also allows funds and other commitments to be able to give loans and also investments. This is subject to certain conditions that may be attached to the transaction.

The SEC posits that this new regulation will protect the interest and concerns of investors. It would also be showing the level of development that has met the industry has a whole. 

The Commission  also affirms its commitment towards protecting the interest and investments of investors in the sector.

Derivatives to play an important role —SEC Chairman

Jay Clayton – who is the chairman of the SEC- has said derivatives will play a very major role when it comes to risk management.

In his words, the regulations guiding the use of derivatives are now obsolete and outdated. They also are not consistent with the happening current trends in the sector. 

He further highlighted how the SEC review of the regulation will help the commission better protect the investors and would also provide a level of assurance for prospective investors.

Clayton went on to commend the work done by the staff of the agency. 

The new derivative law will stop the use of derivatives that may not be compliant with Investment Company Act. 

It is expected that the law would be implemented in 60 days after it must have been published by Federal Register.

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