SEC May Seek Hedge Fund Registration

Securities and Exchange Commission chairwoman Mary Schapiro on Thursday told the Senate Committee on Banking, Housing and Urban Affairs that the SEC may soon push for the registration of hedge funds. “Among other things, we are considering asking for legislation that would require registration of investment advisers who advise hedge funds, and possibly the hedge funds themselves,” she said at a hearing on regulating securities markets. Schapiro also said the SEC has also considered pushing for greater regulatory oversight on credit default swaps and municipal bonds. “It is time for those who buy the municipal securities that are critical to state and local funding initiatives to have access to the same quality and quantity of information as those who buy corporate securities,” she said. She expressed her support for a system-wide regulatory reform, so long as it can “be accomplished without compromising the quality of our capital markets or the protection of investors.” She recommended toward that end a capital markets regulator that is independent, focused on investor protection, and that operates in concert with any systemic risk regulator created to police non-banks on behalf of the government. A major goal Schapiro urged was the maintained independence of the SEC. “The SEC, as a strong independent regulator with market expertise, can perform its critical capital markets and investor protection functions without compromising the oversight of systemic risk,” she said. “Even as attention focuses on reconsidering the management of systemic risk, investor protection and capital formation — both of which are fundamental to economic growth — cannot be compromised as a product of any reform effort.” She touted the SEC’s role in bringing enforcement action against market manipulation, insider trading, Ponzi schemes and other types of fraud during the past year. “The Commission agrees that our goal is to improve the financial regulatory system,” she said. “…In light of the economic events of the past year and their impact on the American people, I believe this Committee’s focus on investor protection and securities regulation as part of a reconsideration of the financial regulatory regime is timely and critically important.” Read Schapiro’s testimony. The fight against systemic risk The Obama Administration, Treasury Department and Federal Reserve are in the process of implementing a plan to increase the government’s power to step in and unwind large non-banks. “As we have seen with [American International Group Inc. (AIG), distress at large, interconnected, non-depository financial institutions can pose systemic risks just as distress at banks can,” Treasury secretary Tim Geithner said earlier this week. Proposed legislation sent to Congress this week would allow the government to put a firm — considered by the Treasury and Federal Deposit Insurance Corp. as requiring emergency measures — into conservatorship or receivership and then to administer its reorganization or wind-down. The Treasury said the bill would also reduce the need for taxpayer funds by enabling the federal agency as a conservator or receiver to sell or transfer the assets or liabilities of the institution in question, renegotiate institution’s contracts and address the company’s derivatives portfolio, hopefully reducing the potential for further disruption. Write to Diana Golobay at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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