Structured Thoughts - Volume 2, Issue 13 - October 5, 2011


In this issue: SEC Tackles Fund Use of Derivatives; Watch the CDS Spreads; Back-Testing; and Rule 206(3)-3T; and Principal Transactions.

Excerpt from 'SEC Tackles...':

On August 31, 2011, the Securities and Exchange Commission (the “SEC”) published a Concept Release and requested comments on issues concerning the use of derivatives by investment companies, including mutual funds, closed-end funds, exchange-traded funds and business development companies. Although the Concept Release makes few specific proposals, it lays the groundwork for future action that could change the regulatory landscape affecting funds that use derivatives. At this stage, it is unclear whether the SEC will focus solely on derivatives, or whether the SEC will consider the use of structured products by funds.

The Concept Release appears to be motivated by a belief that the time is ripe for a comprehensive SEC review of how funds use derivatives. The Concept Release states that the SEC seeks to evaluate whether the existing regulatory framework, as it applies to funds’ use of derivatives, continues to fulfill the purposes and policies underlying the Investment Company Act of 1940 (the “1940 Act”) and is consistent with investor protection.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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