Subject: File No. S7-24-15
From: John Wahh

December 29, 2015


I disagreed with the SEC's derivatives proposal and believe it to be bad for investors.

1. On its face the board monitoring seems like a well-reasoned solution. However, this is likely going to turn out like every other board approval process. The Board (particularly of very large series trusts) and going to rubber stamp any monitoring of derivatives usage (just like they rubber-stamp their review of investment advisory contacts.
2. There has not been a derivatives crisis with respect to funds, nor is there any reason to believe derivatives cannot be explained with disclosure.
3. Derivatives play important roles in a portfolio. I realize the SEC wants to cut down on excessive leverage and speculation, but should not discourage the use of derivatives used for hedging, protection, or as an alternative to holding underlying securities.
4. This proposal will kill commodity funds and managed futures funds. At the same time the SEC is warning investors about bond fund risks and equity market risks, it wants to kill funds that may be an alternative (and uncorrelated) to these asset classes. Even worse, the SEC is going to drive these products into areas, such as '33-Act only funds, that include no substantive regulation. That cannot be the better answer for investors. Let these products exist under the '40 Act so investors get benefit from the Act's protections and provide a valuable investment option for a diversified portfolio.
5. Even leveraged funds have a place, they give certain exposures that funds or other investment professionals may want to use for retail clients. While these funds can be dangerous, such dangers can be resolved with disclosures and sales practice and suitability regulations.

If the SEC wants to go forward with a proposal on derivatives, they should generate a list for the public stating the type of derivatives and the appropriate asset coverage. It is my understanding that the SEC has such a list internally. Publicizing this list would be a better approach then putting it on the board and manager to make such determinations and to comply with the SEC's secret list.

There are more prudent options available to deal with fund use of derivatives. For example:
1. Push for improved disclosure. Current derivatives disclosure is generic and not all the useful. Force fund to give more specific disclosure regarding the types of derivatives it intends to use and the purpose.
a. One way to force better disclosure on funds is to make rule 485 unavailable for funds every third year so that funds will be forced to request acceleration.
2. Do not permit funds to have fundamental policies that say something akin to "We can do whatever the law allows." Fundamental policies are the only registration statement disclosures required by statute and let you let registrants get away with saying nothing. After all, you do not need disclosure to say you will comply with the law. Force fund to disclose their intended policies so we can hold them to it.
3. Force funds to file current report upon the happening of certain events (akin to Form N-CR or 8-K). When funds are heading into trouble with derivatives, leverage, liquidity or some other trouble, force them to disclose it in real-time. Funds (other than BDCs) currently have no such requirements.

Thank you.
John Wahh