The Securities and Exchange Commission (SEC) approved a rule on Wednesday that will require big hedge funds to report losses in near real-time.
Bloomberg says this marks a significant shift for an industry that tends to prize its secrecy.
“It also promises to add to businesses’ administrative headaches.
Until now, funds have generally had to report positions in quarterly public filings.”
Large hedge funds will have no more than 72 hours, or “as soon as practicable,” to tell the agency about extraordinary investment losses and major margin events.
The rule is part of a campaign by SEC Chair Gary Gensler to scrutinize private investments funds, whose wagers — both winning and losing — can reverberate through financial markets.
The SEC says the stepped-up reporting by hedge funds that oversee at least $1.5 billion in assets will let Wall Street’s main regulator, as well as the Treasury Department and other agencies in Washington, get a handle on swift-moving events that may pose systemic risks.
“Private funds have evolved significantly in their business practices, complexity and investment strategies,” Gensler said.
“Private funds today are ever more interconnected with our broader capital market.”
Wall Street Pushes Back
Wall Street is fighting back and it’s no surprise.
Recently, a Citadel spokesperson deemed retail advocacy group “We The Investor” alongside founder Dave Lauer conspiracists.
Industry groups are already flagging concerns that the requirement to quickly report major events will pose its own operational challenges and could result in a deadline even shorter than the 1-day period initially proposed, says Bloomberg.
“While alternative asset managers do not pose systemic risk, we are sympathetic to efforts seeking to monitor risk throughout the financial system,” Bryan Corbett, president and chief executive officer of the Managed Funds Association, a trade group representing hedge funds, said in a statement.
He added that the group is concerned the new rules may “exacerbate stress on funds, harm investors, and increase market volatility without commensurate benefit.”
Hedge funds and private equity firms have consistently pushed back against any efforts by the SEC to expand the type of data they must confidentially disclose, arguing that it’s proprietary information that could fall into the hands of unauthorized users through a data breach or other slip-ups.
The forms contain some of the private fund industry’s most closely guarded secrets and are handled by a very small number of agency staff.
“The SEC has handled confidential market information since its founding,” Gensler told reporters after the commission’s vote, adding that the SEC’s leadership is focused on cybersecurity.
Related: Virtu Faces New Enforcement Action by the SEC
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