U.S. regulators are considering restrictions on how mutual, exchange-traded and other funds can use derivatives, with the Securities and Exchange Commission head saying she is concerned that investors are exposed to too much risk, Reuters reported on Friday. "Funds can experience substantial and rapid losses from investments in derivatives, and can be forced to sell investments under adverse conditions and take other measures to meet derivatives-related obligations, which can harm investors," SEC Chair Mary Jo White said on Friday at a commission meeting on the proposal. The proposal, White said, would "modernize the regulation of funds' use of derivatives and safeguard both investors and our financial system." Three out of four SEC commissioners voted to take the proposed rule to the next step on the path to approval, a 90-day public comment period. Commissioner Michael Piwowar, a Republican, voted against advancing it. The proposed rule would require funds to segregate assets for covering mark-to-market liability and set aside an amount for future losses on derivatives. Funds would need to use cash and cash equivalents for covering derivatives transactions, White said.
