Attorneys with the U.S. Securities and Exchange Commission started
to place calls to registered investment companies such as mutual
funds and exchange-traded funds more than a week ago, the sources
The calls are a routine part of how the SEC monitors asset managers
through its Division of Investment Management, and are not related
to any investigation.
But they come during a period of turbulence for Russian stocks,
which have been volatile since March 3 when mounting tensions with
Ukraine over the Crimean Peninsula sent Russia's benchmark stock
index tumbling 12 percent.
Russian stocks fell 14 percent between February 28 and March 14, but
have recovered 6.6 percent this week.
They are now down 12.3 percent so far in 2014.
The ruble hit a two-week high on Wednesday after dropping to record
lows on Monday.
The people familiar with the calls say SEC lawyers are not trying to
tell funds how to invest, advice which would not be in the SEC's
Rather, the regulators are focused on whether funds are being open
with investors, and whether the funds are thinking and preparing
about how they might respond to different scenarios or outcomes.
"We want to be proactive, so we are making sure the firms are
thinking about it," SEC Investment Management Division Director Norm
Champ told Reuters.
The SEC's routine reviews include making sure funds are not omitting
or misrepresenting material information to the marketplace.
In at least one case, a source said, the SEC did not question the
fund's existing disclosures, but urged the fund to consider updating
its disclosures in the future to address the events in Crimea.
The contacts by the SEC began well before White House spokesman Jay
Carney warned U.S. investors away from Russian stocks at a news
briefing on Tuesday.
In an unusual statement, he said those stocks could lose value
because of sanctions that the United States and European Union have
put in place and others that they could add. The United States and
the EU imposed travel bans and asset freezes on a number of
officials from Russia and Ukraine after Moscow declared the Crimean
Peninsula a part of Russia.
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The SEC has been particularly interested in speaking with funds that
have more than 10 percent exposure to Russian securities, including
stocks and bonds, one person familiar with the agency's activities
Fund companies that have received calls from the SEC told the
regulator they believe their disclosures are sound and adequate, two
Funds with at least 10 percent exposure to Russian stocks include
the ING Russian Fund, T Rowe Price Emerging Europe Fund, Fidelity
Emerging Europe Middle East Africa Fund, Goldman Sachs BRIC Fund and
the Templeton BRIC Fund, according to a list compiled by Lipper, a
unit of Thomson Reuters.
The SEC regularly contacts fund companies when international unrest
For example, it has made similar calls in connection with concerns
about mutual funds' exposure to Puerto Rico, which had its debt
downgraded earlier this year.
The SEC also reached out to funds when there was an uprising in
Egypt in 2011 that led the country to close down its stock market.
A unit in the SEC's Investment Management Division that specializes
in disclosure has historically been in charge of reviewing fund
holdings and public statements to investors in times of civil
However, in the recent calls to funds with Russian investments,
another group of SEC employees who specialize in risk examinations
have joined those disclosure experts, one person said.
(Additional reporting by Ross Kerber in Boston and Ashley Lau in New
York; editing by Linda Stern, Mohammad Zargham and Bernard Orr)
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