The Securities and Exchange Commission proposed measures Friday to restrict the growing use of derivatives by mutual funds, exchange-traded funds, closed-end funds and business development companies.

The release of the proposals was approved along party lines, with Democrats Kara Stein, Luis Aguilar and Chair Mary Jo White voting for and Republican Michael Piwowar voting against.

Citing the need for the curb, White warned inadequate controls on the use of derivatives, particularly on the potential for excess leverage, can create significant risks for funds themselves and investors.

“Funds can experience substantial and rapid loses from investments in derivatives and can be forced to sell investments under adverse conditions and take other measures to meet derivatives obligations, which can harm investors,” she explained.

Commissioner Aguilar said risks of derivatives for retail investors will rise as more buy alternative mutual funds to chase higher returns.

Under the rules, a fund would have to limit its notional value exposure of derivatives to 150 percent to 300 percent of the fund’s net assets.

Some registered investment funds have notional exposure up to 950 percent. Funds with high derivatives use are among the fastest-growing funds in the mutual fund industry.

In another requirement, liquid assets would have to be set side in an amount equal to the money a fund would have to pay to end each derivative holding under regular and stressed market conditions.

There were no estimates on how much the collateral requirement could reduce the returns of heavily leveraged alternative mutual funds and ETFs.

In addition, a fund that use derivatives extensively would be required to have a derivatives risk management program and a derivatives risk manager approved by its board of directors.

Risky, excessive use of derivatives throughout the financial services industry has been widely cited as one of the major causes of the financial crisis.