The Center for Financial Policy and the Mutual Fund Directors Forum co-hosted the Oversight of Derivatives Roundtable on September 9, 2011 at the Ronald Reagan Building in downtown Washington DC. The program explored the current issues facing fund directors in their oversight of derivatives. This event was made possible by the generous support of Ropes & Gray LLP.
The roundtable was held just over a week after the SEC posted the concept release, “Use of Derivatives by Investment Companies under the Investment Company Act of 1940.” Through this release, the Commission seeks comments on a wide range of issues concerning the use of derivatives by funds, including the potential implications for fund leverage, diversification, exposure to certain securities-related issuers, portfolio concentration, valuation, and related matters. The release states that “the Commission intends to consider the comments to help determine whether regulatory initiatives or guidance are needed to improve the current regulatory regime for funds and, if so, the nature of any such initiatives or guidance.”
Nobel Laureate Myron Scholes, the co-originator of the Black-Scholes options pricing model, highlighted the event with his luncheon keynote address “Lessons from Lehman”, a look at risk and leverage in the derivatives market. Bart Chilton, Commissioner of the Commodity Futures Trading Commission, opened the day with a speech titled “Expect the Unexpected.” Eileen Rominger, Director of Investment Management at the SEC, discussed the recent SEC concept release in her speech, urging the fund managers in attendance to “express your opinions, views and concerns about your funds' experiences with derivatives and about your responsibilities in this area.” Stephen Figlewski, Professor of Finance and Director of the NASDAQ OMX Derivatives Research Project at New York University Leonard N. Stern School of Business, rounded out the morning addresses with his presentation, A Professor's View on the Regulation of Derivatives.
The morning panel session, Practical Issues with Board Oversight of Derivatives, explored key risks presented by derivatives, the proper role of a fund’s directors or trustees in the oversight process, and possible approaches to board reporting on a fund’s use of derivatives. The afternoon panel session, Regulatory Uncertainties, discussed the new provisions in Dodd-Frank, focusing on their anticipated impact on mutual funds and the risks of funds using derivatives. During this discussion, the panelists touched on the impact of SIFIs, Systemically Important Financial Institutions, a topic that will be explored further at the Center for Financial Policy’s Conference on Systemic Risk and Data Issues on October 5-6, 2011.
Additional roundtable presentations include:
Timothy Diggins, Partner at Ropes & Gray LLP, opened the first panel session with his presentation, Practical Issues with Board Oversight of Derivatives.
Maryanne Roepke, Senior Vice President and Chief Compliance Officer at American Century Investments, provided insight into Oversight of Investments in Complex Securities during the first panel session.
Leigh Fraser, Partner at Ropes & Gray LLP, opened the second panel session with a talk on Regulatory Uncertainty.
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