U.S. securities regulator proposes new rules on use of derivatives in exchange traded funds
The U.S. securities regulator on Monday proposed new regulations for the use of derivatives by investment funds. This aimed to introduce some safeguards for more risky products and increase competition.
The proposal from the Securities and Exchange Commission (SEC), which is subject to public consultation, would address concerns over the risks posed by so-called inverse and leveraged exchange traded funds (ETF). This came after some products experienced heavy losses during a spike in volatility in February 2018 subsequently dubbed "volmageddon."
Monday's proposal partly reissues an earlier 2015 proposal meant to replace the current ad hoc product approvals system, allowing firms such as ProShares and Direxion to gain approval for their leveraged and inverse products.
Industry players have long complained that a lack of consistent rules has effectively barred new players in these products from entering the market to compete.
"By standardizing the framework for funds' derivatives risk management, the proposal would benefit investors, funds and our markets," said SEC Chairman Jay Clayton.
ETFs track baskets of stocks and have become popular due to their lower fees, but some have grown to include derivatives to amplify returns.
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