Wall Street Watchdog Unveils Rule To Improve Quality Of Private, Hedge Fund Disclosures
The U.S. Securities and Exchange Commission (SEC) will vote to propose a rule that seeks to elevate the quality of disclosures it receives from large private and hedge funds, the agency said on Wednesday, confirming what a source previously told Reuters.
The rule, aimed to boost disclosures around leverage and investment strategies, will be proposed in conjunction with the Commodity Futures Trading Commission (CFTC), and forms part of ongoing scrutiny of the fund industry.
The measure would expand reporting requirements for advisors and large hedge funds with a net asset value of at least $500 million, the SEC said.
It would also see such funds and their advisors spell out their investment strategy and exposure, including details around borrowing and financing arrangements with counterparties, open positions and certain large positions, among other details.
"Such concentration or exposure may increase the risk of amplified losses for investors and gathering additional data ... would help regulators to protect investors and monitor systemic risk," SEC Chair Gary Gensler said in a statement.
The proposal is part of a broader effort by the SEC to boost transparency of the private fund industry amid worries the industry is a growing source of systemic risk, and follows a January draft rule that boosted other Form PF disclosures.
Form PF, which was introduced following the 2007-2009 global financial crisis, is the primary way private funds disclose purchases and sales of securities to the SEC.
Regulators have grown concerned over risk in the private industry after hedge fund de-leveraging contributed toward turmoil in the U.S. Treasuries market in March 2020. Hedge funds were again at the center of last year's GameStop "meme-stock" saga, analysts say.
Critics argue that while the sector has ballooned following the 2007-2009 financial crisis, regulatory scrutiny of private funds - which are heavy users of leverage - has not kept up.
The International Organization of Securities Commissions, which comprises regulators across the world, said in a January report that some private fund leverage is being hidden from view.
The SEC's proposal is subject to public consultation before it can be adopted.
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