ABA Task Force Report and SEC Letter Regarding Investment Company Use of Derivatives and Leverage

August 16, 2010
In response to a challenge by the Director of the SEC’s Division of Investment Management to address concerns about investment company use of derivatives and leverage, an American Bar Association Task Force recently submitted a Report (the “ABA Paper”) to the Division of Investment Management. The ABA Paper identifies, among other matters, potential improvements to the existing regulatory framework regarding fund use of derivatives (e.g., forwards, futures, options, and swaps) and leverage. In addition, the SEC staff publicly issued a letter regarding derivatives-related disclosures by investment companies in registration statements, shareholder reports, and financial statements. This update examines the ABA Paper and the guidance provided in the SEC letter.