Tag: derivatives

Release 10666 and the Problem of Swaps

 In an earlier post, I noted that Release No. IC-10666 was issued before interest rate swaps were invented. This may have been unfortunate, because swaps present unique challenges to Release 10666’s approach to asset segregation. I believe that difficulty with applying Release 10666 to swaps has contributed to inconsistency in the segregation requirements for different derivatives. Swaps: … Continue Reading

Should Asset Segregation Do Double Duty?

I’ve been discussing comments on the SEC’s proposed Rule 18f-4 in light of the SEC’s initial regulation of derivatives in Release No. IC-10666 (“Release 10666”). As explained in my first post, the objectives of the proposed rule include limiting the “speculative character” of funds that use derivatives and assuring they have sufficient assets to cover … Continue Reading

10666 and All That

[Click here for the obscure title reference.] Release No. IC-10666 (“Release 10666”), issued in 1979 under the direction of my partner Marty Lybecker, was the starting point for the SEC’s regulation of derivatives under Section 18 of the Investment Company Act. This release would provide the basis for proposed Rule 18f‑4’s regulation of “financial commitment transactions.” Many … Continue Reading

Could the Use of Derivatives Create a “Toxic Brew?”

This post continues my consideration of some conceptual questions underlying the SEC’s proposed Rule 18f-4. The following comment on the proposal caught my attention: Congress is stating [in Section 1(b) of the Investment Company Act] that there is a problem when leverage unduly increases the “speculative character” (what we now call risk) of the investments. This … Continue Reading

Limitations on the Limitation of Leverage in Investment Companies

A CLE presentation gave me an excuse to read many of the comment letters regarding the SEC’s proposed Rule 18f-4, which would regulate the amount of “senior security transactions” in which an investment company could engage. I filed a personal comment letter responding to the SEC’s initial concept release in 2011. The proposed rule and … Continue Reading
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