Rule on funds' derivatives use unlikely this year: U.S. SEC commissioner

WASHINGTON/NEW YORK (Reuters) - The top U.S. securities regulator is unlikely to approve rules this year that would restrict fund managers’ use of derivatives and require additional planning to prevent service disruptions, one of the agency’s members said on Wednesday.

Michael Piwowar, Commissioner of the U.S. Secuirites and Exchange Commission, speaks at the Milken Institute Global Conference in Beverly Hills, California, U.S., May 2, 2016. REUTERS/Lucy Nicholson

Michael Piwowar, the sole Republican member of the Securities and Exchange Commission, told a conference at Georgetown University he did not foresee the regulator voting on the final rules for derivatives and transition planning before a change in the presidential administration after Nov. 8 elections.

The timeline could be a fatal setback for two pillars in the SEC’s effort to boost oversight over asset managers and the funds they offer as fears their lending and investing activities could pose broader risks to the marketplace have led to heightened scrutiny by regulators.

The commission’s current chair, Mary Jo White, originally identified finalizing the derivatives rule among her priorities for the year. But the proposal, revealed last December, drew fire from fund managers.

Industry representatives said the restrictions could curtail techniques used to reduce risk and manage bond funds, “leveraged” exchange-traded funds (ETFs) and other products.

The transition planning proposal, meanwhile, would require fund managers and other investment advisers put plans in place laying out how they would minimize disruptions during catastrophes such as natural disasters, cyber-attacks, technology failures or the departure of key personnel. Industry groups have also pushed back on elements of that policy.

The next U.S. president, who will be inaugurated in January, could choose to replace White, which may further delay some of its rule changes. At the same time, a new chair may have a different agenda and decide to put some SEC proposals on the back burner.

Piwowar voted against releasing the derivatives proposal, which had been years in the making, saying the SEC should wait until after it gathered data on the issues.

Speaking to reporters while attending the Washington D.C. conference, Piwowar said there are still questions about how hard caps on derivatives use would affect leveraged funds and the ability of funds to “hedge,” or cut risk.

On Thursday, the commission will vote on a data-gathering proposal for funds as well as another proposal governing how funds manage the risk of having to offload hard-to-sell assets to meet redemptions.

Reporting by Lisa Lambert in Washington D.C. and Trevor Hunnicutt in New York; Editing by Alan Crosby