File No. S7-24-15

U.S. Securities and Exchange Commission. Does the information you get from mutual funds or other funds really work for you?



    We are proposing a new regulatory approach for funds’ use of derivatives. This includes proposed rule 18f-4 under the Investment Company Act of 1940, a new exemptive rule designed to address the investor protection purposes and concerns underlying section 18 of the Act and to provide an updated and more comprehensive approach to the regulation of funds’ use of derivatives. The proposal also includes certain new proposed reporting requirements relating to funds’ derivatives use. More information about our proposal is available at https://www.sec.gov/rules/proposed/2019/34-87607.pdf.

    We are particularly interested in learning what small funds think about the requirements of proposed new rule 18f-4 and the proposed new reporting requirements. Hearing from small funds could help us learn how the proposed rule and new reporting requirements would affect these entities, and evaluate how we could address any unintended consequences resulting from the cost and effort of regulatory compliance while still promoting investor protection. We would appreciate your feedback on any or all of the following questions.

     All of the following questions are optional, including any questions that ask about identifying information. Please note that responses to these questions – including any other general identifying information you provide – will be made public.


Questions


Item 1: General Identifying Information

Instructions: At your option, you may include general identifying information that would help us contextualize your other feedback on the proposal. This information could include responses to the following questions, as well as any other general identifying information you would like to provide. Responses to these items—like responses to the other items on this Feedback Flier—will be made public.



c. Does the fund use derivatives transactions (as defined in the proposed rule) to pursue the fund’s principal investment strategy/strategies?  


d. Is the fund part of a fund complex?  



Item 2: Derivatives Risk Management Program

Instructions: If you believe the fund would be required to adopt and implement a derivatives risk management program under the proposed rules, please answer the following questions. If you do not believe so, please proceed to Item 4.

a. The proposed derivatives risk management program requirement would include the following seven elements. In the following chart, please indicate which of the proposed program elements you think would be the most expensive for the fund to implement and which would be least expensive to implement, by ranking the following elements from one (1) – most expensive – through seven (7) – least expensive – using each number only once. If you have any comments about the factors informing your analysis, please include.
Derivatives Risk Management Program Elements Rank by Cost
(1 - most expensive; 7 - least expensive)
Use each number once
Comments
a) Risk identification and assessment
b) Risk guidelines
c) Stress testing
d) Backtesting
e) Internal reporting and escalation
f) Periodic review of the program
g) Board reporting and oversight

1.) How many months do you think it would take the fund to adopt and implement a derivatives risk management program (check one box)?
6 months - 12 months
12 months - 18 months
18 months - 24 months
Greater than 24 months


1.) Approximately how much do you think it would cost the fund to implement a derivatives risk management program (in terms of combined internal and external costs) (check one box)?
Estimated cost ($)
$0 - $150,000
$150,001 - $350,000
$350,001 - $500,000
Greater than $500,000


Item 3: Limit on Fund Leverage Risk

Instructions: The proposed rule would require certain funds to comply with a limit on fund leverage risk based on value at risk (“VaR”). The following questions relate to this proposed requirement.

a. Does the fund currently use VaR testing?  


1.) If you anticipate that, if the proposed rules were adopted, the fund would have to comply with the VaR testing requirement, approximately how much do you think it would cost the fund to implement the proposed VaR test requirements (in terms of combined internal and external costs) (check one box)?
Estimated cost ($)
$0 - $25,000
$25,001 - $50,000
$50,001 - $75,000
Greater than $75,000

1.) Would the fund anticipate that it would use the proposed relative VaR test or the proposed absolute VaR test (check one box)?  


2.) If you anticipate that you would use the proposed relative VaR test, and you already disclose a benchmark index for performance disclosure, do you anticipate that the index would also qualify as a designated reference index under the proposed rule?  


Item 4: Limited Derivatives Users

Instructions: If you believe the fund would qualify as a limited derivatives user under the proposed rule, please answer the following questions. If you do not believe so, please proceed to Item 5.

a. Please state which basis for the proposed limited derivatives user exception you think the fund would seek to rely on (check one box):  



1.) Approximately how much do you think it would cost the fund to adopt and implement policies and procedures reasonably designed to manage its derivatives risks (in terms of combined internal and external costs) (check one box)?
Estimated cost ($)
$0 - $25,000
$25,001 - $50,000
$50,001 - $75,000
$75,001 - $100,000
Greater than $100,000

Item 5: Recordkeeping


Item 6: Reporting Requirements



Item 7: Other Feedback on Proposed Rule 18f-4 and Proposed New Reporting Requirements


We will post your feedback on our website. Your submission will be posted without change; we do not redact or edit personal identifying information from submissions. You should only make submissions that you wish to make available publicly.

If you are interested in more information on the proposal, or want to provide feedback on additional questions, click here. Comments should be received on or before [insert date 60 days after publication in the Federal Register].

Thank You!

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Other Ways to Submit Your Feedback

You also can send us feedback in the following ways (include the file number S7-24-15 in your response):
Print Your Responses and Mail Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Print a PDF of Your Responses and Email Use the printer friendly page and select a PDF
printer to create a file you can email to: rule-comments@sec.gov
Print a Blank Copy of this Flier, Fill it Out, and Mail Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090


File No. S7-24-15