Mutual fund trading to face scrutiny from CFTC

| 26/04/2011

(WSJ): The Commodity Futures Trading Commission is moving to increase oversight of the growing number of mutual funds that make speculative bets on gold, oil and other commodities and currencies through offshore subsidiaries. Officials at the federal agency are concerned that a proliferation of non-U.S. subsidiaries set up by mutual funds beyond the reach of current regulations could expose investors to volatile swings in commodities prices and potentially huge losses. A proposed rule by the CFTC would essentially preclude mutual funds from using subsidiaries to invest in commodities, but the mutual-fund industry is fighting the move.

At the center of the battle are mutual funds offering exposure to commodities, mainly through futures contracts and derivatives tied to their prices. Similar funds allow investors to bet on the direction of currencies. Many of the mutual funds have set up foreign subsidiaries, typically in theCayman Islands,that invest as much as 25% of a mutual fund’s assets in commodities.

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