ECB Urges Intíl Hedge Fund Registry

Date: Wednesday, December 13, 2006

The European Central Bank is urging the establishment of an international hedge fund registry to help thwart any possible market meltdowns brought on by the ever-growing HF industry. With the release of the ECBís semiannual stability report, bank V.P. Lucas Papademos praised the marketís ability to emerge basically unscathed by the $6 billion losses by Amaranth Advisors, but he warned that the market may not be so lucky next time under less "benign" conditions. Papademos pointed to a new "triangle of vulnerability," involving the hedge fund sector, credit derivatives and the credit cycles. Deterioration of corporate credit in European Union member states and the growing HF stakes in the credit-risk transfer, Papademos may set the stage for a catastrophic market event, and he agrees with German Finance Minister Peer Steinbruck, who calls for more transparency, and says the international registry is "theoretically...the best solution." Papademos parts company, however, with Callum McCarthy, chairman of the U.K.ís Financial Services Authority, who just this week said greater disclosure of open HF positions, "could easily prove destabilizing to markets, for which no practical benefit has been identified."