The concept release is out. And the Securities and Exchange Commission wants to know: Just how much leverage should a mutual fund have?
The question is central to the regulation of uses of derivative securities by mutual funds that the SEC on Aug. 31 opened to public comment. Many investors do not realize, Chairman Mary L. Schapiro points out, that mutual fund managers, like other asset managers, use options, futures and debt-based instruments-not just as ways to hedge risks but to amplify returns. That is, gain leverage.