September 1, 2011
To whom it may concern,
You are trying to best serve mutual fund investors. It is unclear to me if you are saying the problem lies in disclosure to investors of the use of derivatives or the derivatives themselves.
If it is the disclosure of them then it should be easy to explain what each is in simple terms. Americans insure their house, health, car, life and more. Those contracts have deductibles and maxes, quid pro quos and fine print just as derivatives do. They will understand insuring their financial assets through the use of derivatives if explained properly.
If it is the use of them then again you cannot deny mututal funds the right to insure their investments. Do not allow naked bets, only accept trades against a currently held underlying asset up to 100 delta. Since the majority of funds assets are in publicly traded equity allowing only listed equity options might be a simple solution. The need for bespoke OTC derivatives are often imagined.