In an effort to enhance market oversight and surveillance for systemic risks, the U.S. Securities and Exchange Commission (SEC) and the U.S. Commodity Futures Trading Commission (CFTC) are jointly proposing to expand large hedge funds’ regulatory reporting requirements.
The SEC and the CFTC proposed amendments to filing requirements for private fund advisers that were initially adopted in the wake of the global financial crisis to improve transparency and the regulators’ ability to monitor systemic risk.
Since then, the private fund industry has grown significantly — up from about US$2 trillion in assets in the wake of the financial crisis to US$20 trillion at the end of 2021 — and become increasingly complex.
In response, earlier this year, the SEC proposed to enhance its reporting requirements for large private equity funds and advisers.
Now, the SEC and the CFTC are seeking to expand their joint requirements for hedge funds (specifically large funds with at least US$500 million in assets).
The proposal would demand more information about large hedge funds’ investment exposure, including their holdings of crypto assets, and their borrowing and financing arrangements.
These changes are intended to give regulators greater insight into portfolio concentration risks, leverage risks, and connectedness with other firms, including central counterparties.
“I believe that these proposed amendments would bring greater visibility for regulators into an important part of our capital markets. That will help protect investors and maintain fair, orderly, and efficient markets,” said SEC chair Gary Gensler in a statement.