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US SEC proposes to strengthen private fund disclosures on leverage and crypto

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US SEC proposes to strengthen private fund disclosures on leverage and crypto

The seal of the U.S. Securities and Exchange Commission (SEC) is seen at its headquarters in Washington, DC, U.S., May 12, 2021. REUTERS/Andrew Kelly/File Photo

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  • The rule aims to improve information on leverage and investment strategy
  • The proposal will be in collaboration with the CFTC

WASHINGTON, Aug 10 (Reuters) – The U.S. Securities and Exchange Commission (SEC) on Wednesday proposed a rule aimed at improving the quality of information it receives from large hedge funds about their investment strategies and trading effect. the sink.

The rule, which was proposed in conjunction with the Commodity Futures Trading Commission (CFTC), is part of a broader regulatory effort to increase transparency in private funds amid concerns that the industry is a growing source of systemic risk. Read more

The proposal confirmed a Reuters report on Tuesday. Read more

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It would expand reporting requirements for advisers and large hedge funds with a net asset value of at least $500 million when filing so-called Form PF with the SEC.

Introduced in the wake of the 2007-2009 global financial crisis, Form PF is the primary method used by private funds to confidentially disclose purchases and sales of securities to the SEC.

The new rule would require funds to provide more details about their investment strategy and exposure, including borrowing and financing agreements, open positions and certain large positions. It would also require large hedge funds to report their exposure to cryptocurrency, said Democratic SEC Chairman Gary Gensler.

“We’ve tried to take a measured approach, but add detail in the context of systemic risk,” he told reporters.

The securities regulator — made up of five voting members including Gensler — voted 3-2 to propose the measure, which is subject to public comment before it can be passed.

SECTOR AUDIT

The proposal follows a draft rule from January aimed at improving the other information to be provided on the PF form.

Regulators raised concerns about risk in the private fund industry after hedge fund deleveraging contributed to turmoil in the US Treasuries market in March 2020. Hedge funds also played a role in the saga meme actions from last year involving GameStop Corp. (GME.N) and other companies. Read more

Critics say that while the industry boomed after the 2007-09 financial crisis, regulatory scrutiny of private funds – which are heavy users of borrowed finance – has not followed.

The International Organization of Securities Commissions, which includes regulators around the world, said in a January report that some private equity leverage was hidden.

SEC Commissioner Hester Peirce, a Republican, criticized the proposal on Wednesday, saying the information was unnecessary and that private fund investors – insurance companies, endowments, pension funds and high net worth individuals – were able to assess their own risks.

“Why do we need new information and what we plan to do with it are questions left to the reader’s imagination,” Peirce said in a statement prepared for the public meeting.

Industry groups including the Alternative Investment Management Association and the Managed Funds Association (MFA) said the proposed changes were onerous and could duplicate existing reports.

“The SEC should focus on making better use of (existing) information rather than imposing new burdens on fund managers,” MFA Chief Executive Bryan Corbett said in a statement released Wednesday.

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Reporting by Katanga Johnson in Washington; Editing by Michelle Price and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Washington-based journalist covering U.S. regulation at the Securities and Exchange Commission and the Consumer Financial Protection Bureau, previously in Ecuador, an alumnus of Morehouse College and the Medill School of Journalism at Northwestern University.

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