The SEC held an open meeting today as a first step towards the modernization of its regulation of the Investment Company Act of 1940 (Act) in light of the financial crisis and passage of the Dodd-Frank Act. Much in these proposals would significantly restructure MMFs and ETFs, reflecting growing worry about systemic risk in these arenas (see Client Reports in the MMF and ETF series). As stated by Chairman Schapiro, the Investment Company Act was written in a world of stocks and bonds, not complex financial derivatives, and SEC regulation of derivatives has been, until now, performed on an ad-hoc basis. Now, the SEC is adopting a more holistic view of its derivatives regulatory regime, and is seeking industry and investor input on the path it should take to carry out the investor protection provisions of the Act.

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