Obama Bill Seeks To Shine Spotlight On Hedge Funds

Obama Bill Seeks To Shine Spotlight On Hedge Funds - 7/15/2009

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HEADLINE NEWS:

Obama Bill Seeks To Shine Spotlight On Hedge Funds
David Lawder

Reuters. July 15, 2009
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EXCERPT: The Obama administration on Wednesday sent Congress legislation that would pry open hedge funds to wider scrutiny, requiring those with more than $30 million under management to register with the government and greatly boost disclosure. The bill language, released by the Treasury, calls for registered funds to submit regular reports detailing their assets, their use of leverage, off-balance sheet and counterparty risk exposures as well as trading and investment positions and practices. If approved by Congress, the bill would give regulators a powerful microscope to peer into the secretive hedge fund industry to identify potential threats to the financial system. The bill aims to discourage excessive risk-taking among the biggest financial concerns, said Michael Barr, U.S. Treasury assistant secretary for financial institutions. Hedge funds found by regulators to be "so large, leveraged or interconnected that they pose a threat to financial stability" will be regulated as "Tier 1" financial holding companies and will be subject to more stringent requirements for capital, liquidity and risk management, Barr said. "Our proposal would require more exacting forms of prudential supervision, including higher capital requirements for those firms and higher capital still for conduct within those firms that poses the most risk to the system," he said. The plan aims to "counteract any incentive for the largest firms gambling with their size," he added. However, there is no size-threshold for a firm to be classified as a Tier 1 institution, Barr said, adding that leverage, interconnections to the financial system and risk profiles will all be factors in making such determinations. The bill would require all registered hedge funds to establish a compliance program for conflicts of interest and anti-fraud prohibitions and record keeping requirements.

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