The biggest regulator on Wall Street has proposed new rules that would force hedge funds to report immediately when they suffer extreme losses or large investor withdrawals, in a bid to fill gaps that were exposed to market unrest last year.
The rules, proposed Wednesday by the Securities and Exchange Commission, are part of a set of new standards designed to boost the stability of U.S. financial markets. The commissioners will also vote on plans for greater transparency in the $ 23 billion U.S. government debt market, which supports global finance.
The collapse of Archegos, the so-called family office that managed Bill Hwang’s fortune, forced banks across Wall Street last year to report losses of more than $ 10 billion after a series of highly concentrated bets that used derivatives reverse. Although Archegos would not be subject to the proposed rules, hedge funds and private equity funds following a similar strategy would be under the new guidelines, officials said.
Gary Gensler, president of the SEC, said an analysis by U.S. authorities of hedge fund reporting requirements over the past decade had identified “significant information gaps.” “For example, we would benefit from more timely information during fast-paced market events such as March 2020. dysfunction in the treasury market, ”he said.
Many hedge funds and private equity firms have historically made only limited disclosures about their activities despite significant growth over the past 10 years. Assets of private funds under management more than doubled from approximately $ 5 billion in 2013 to $ 11 billion by the end of 2020, according to the SEC. The number of funds jumped 70 percent in the same period.
The SEC wants to speed up the publication of data in just one business day if the hedge fund suffers extraordinary losses, significant margin calls, events leading to large client withdrawals, large declines in its cash position or any material changes in its relationships with major brokers. provide funding.
Hedge funds often face margin calls – demands to give more cash or US Treasury bonds as collateral for borrowed money – from their banks during periods of market volatility or when they suffer heavy losses.
The proposed changes also include lowering the reporting threshold for private equity managers from $ 2 billion to $ 1.5 billion in assets under management. This would ensure that the same share of the private equity industry is covered as when the reporting standard was first adopted in 2013, SEC officials said.
In the last 15 years, the market has shifted from a market primarily conducted between banks and intermediaries to a market dominated by fast traders on electronic platforms. Corporate bonds are also increasingly being traded electronically rather than by telephone.
The amended rules are intended to cover platforms for trading in corporate or government securities that do not fall within the scope of the SEC, so that they comply with existing standards that protect investors, promote fair and orderly markets, and maintain technology infrastructure that supports the US financial market.
The new regulation would put approximately 20 companies from different classes of security assets within the SEC’s scope, officials said. If the rules change, those companies would either register with the SEC as stock exchanges or act as alternative trading systems, meaning they would register as broker dealers, SEC officials said.
Some platform functionalities such as Tradeweb or MarketAxess could fall under the new definition of “exchange” proposed by the SEC, officials said.
“Together, I believe these steps would promote resilience and greater access to the treasury market, which forms the basis for most of our other capital markets,” Gensler commented.