Hedge funds worry emerging market regulators |
Date: Friday, April 13, 2007
Author: Moneycontrol.com
At
the 32nd annual meeting of the International Organization of Securities
Commissions in Mumbai, one constant theme is hedge funds regulations.
Emerging market regulators are worried that hedge funds may once again
exit suddenly, and force a replay of the 1997 Asian crisis reports
CNBC-TV18.
When
stock market regulators of countries like Thailand, Malaysia, Indonesia
and India meet, exchanging notes on hedge funds will be natural.
Natural because, the popular belief is that the Asian crisis of 1997
was caused by hedge funds suddenly rushing out, and natural also
because once again all these countries are flooded with a surfeit of
FII flows.
How
to regulate and monitor hedge funds was hence a dominant theme at the
32nd meet of the IOSCO in Mumbai this week. Developed market regulators
say they keep track of the systemic impact of hedge funds by regulating
the loans they borrow from banks
"We
look at the broader impact of Hedge fund trading on the broader
financial system we do that by looking at lending to hedge funds done
by investment banks and prime brokerages who provide funding for the
leveraged investment as their aggregate investment can be significant
and they have a significant impact in terms of trading" says Dan
Walters FSA, UK
But can Emerging markets like India take the same approach?
Experts
estimate that 30% of the foreign flows in the stock markets are through
Participatory notes and hedge funds. So how do emerging markets protect
themselves from sudden exits of hedge funds? Regulators say that
emerging markets need to deepen their domestic institutional base
"Risk
of capital moving out is there when there is no solid institution
domestic base where there is no long term investors like you have in
the US or UK you have pension funds insurance companies who invest in
the market" feels Peter Douglas Asia Head, AIMA
SEBI
chief M Damodaran echoed this need for depth in the markets before
hedge funds are allowed. "The problem is not with hedge funds but the
lack of depth in these markets" adds M Damodaran, Chairman, SEBI.
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