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SEC examines derivatives

The Securities and Exchange Commission is weighing new limits and disclosure requirements on the use of derivatives in mutual funds and exchange-traded funds, and the fund industry is pushing back.

Investment companies and industry groups this past week submitted formal comments to the SEC in response to a request from the agency. Many of the firms defended the use of derivatives as necessary tools to manage risk in their funds, though some are amenable to broader disclosure.

Derivatives are contracts whose prices are dependent on those of other assets. Some, such as commodities futures, are traded on exchanges, but many are privately negotiated.

Some types of derivatives have been criticized for letting investors take on huge amounts of debt or exposing them to huge risks.