# kaal:claim:2811729-014

**Claim.** The SEC's interpretation of Section 18 leaves a mutual fund subject to no statutory limitation or cap on its ability to borrow through the use of derivative instruments, provided the fund adheres to its asset segregation obligations.

**Type.** failure  **Support.** argued

**Holds when.**

- mutual funds using derivatives under SEC Section 18 guidance as of 2016

**Source quote.**

> In sum, the SEC's position has meant that a mutual fund is not subject to a statutory limitation or cap on its ability to borrow through the use of derivative instruments, if the fund adheres to its asset segregation obligations.

**From.** Wulf A. Kaal, *Unconstrained Mutual Funds and Retail Investor Protection* (2016), III.A. Mutual Fund Regulation, page 24

**Cite as.** Wulf A. Kaal, Unconstrained Mutual Funds and Retail Investor Protection (2016). SSRN: https://ssrn.com/abstract=2811729

**Verify.** sha256 of source PDF `0877b0a076f2614559cb0b1a736f73401cecbee7cfe014da6e36709208e92a74` at https://raw.githubusercontent.com/wulfkaal/Academic-Papers/main/papers/pdf/Kaal%20and%20Anderson%20-%202016%20-%20Unconstrained%20Mutual%20Funds%20and%20Retail%20Investor%20Protection.pdf

**Failure mode.** Uncapped synthetic leverage  (family: enforcement-gap)

**Topics.** institutional-design

**Keywords.** section-18, leverage, derivatives, asset-segregation, regulatory-gap

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