SEC to Tighten Rules for Mutual Funds

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New SEC regulations for mutual funds


SEC to Tighten Rules for Mutual Funds

Shauna O'Brien Sep 09, 2014

The asset management industry is the next industry that may face tighter regulations from the SEC. This will include mutual funds, hedge funds and private equity funds.

These new rules proposed by the SEC would require funds to offer more information about their holdings. Funds would also be subject to stress tests.

Inside the Proposed Changes

According to the Wall Street Journal, the new regulations would be similar to the changes made in the banking industry after the 2008 collapse.

The changes were triggered by the practice of highly controversial alternative mutual funds. Alternative mutual funds often use derivatives to boost profitability.

These funds have been popular among clients, but could soon be limited. The SEC plans on limiting the amount of derivatives that can be sold by asset managers to small investors. There would also be limitations put on alternative mutual funds and leveraged ETFs.

In addition, funds would be required to submit documentation to the SEC regarding the data on their holdings.

The SEC also plans to require these funds to outline how their businesses could be sold in the case that it was forced to dissolve.

Mutual Funds Most Affected

The new SEC regulations would have the largest effect on the firms mentioned above. However, if the new rules are approved, it would have an effect on all funds. The proposed changes have been criticized by Fidelity as the firm claims the current business practices present little risk for the financial industry.

The Bottom Line

The changes proposed by the SEC are still in the beginning stages of being approved, but it is something that mutual fund investors should keep a close eye on. Investors who currently utilize alternative mutual funds may soon face limitations.

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