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International regulator to cut down hedge fund secrecy

Date: Friday, February 26, 2010
Author: Louise Armitstead, The Telegraph

Hedge funds will have to provide international regulators with detailed information about their trading positions in a move that will lift the lid on the workings of the opaque sector.

The International Organization of Securities Commissions (IOSCO) published a template for supervisors listing 11 types of data that hedge funds will be required to provide from September. "IOSCO believes that regulators should seek to develop a comparable and consistent set of data to be collected from local hedge fund managers and advisers to monitor systemic risks and prevent gaps in regulator reporting requirements", said Kathleen Casey of IOSCO.

Although hedge funds face an increase in compliance costs, the template has been met with surprisingly little objection in London. Hedge funds on Thursday told The Daily Telegraph that they knew the IOSCO report had been heavily influenced by the Financial Services Authority (FSA) and would prefer to meet its requirements that the controversial regulations being proposed by the European Union .

One source said: "IOSCO's rules would be about providing information. Hedge funds have always agreed with the G20's view that more information about markets is needed to ensure financial stability. They are happy to provide as much data as anyone wants. They only object when regulators want to mess around with strategies and restrict activities that have been proven to have caused no harm at all."

Under IOSCO's template, each hedge fund will have to provide registered names and addresses of all employees, plus details of individual shareholders, compliance officers and overseas workers. They will also have to list prime brokers, auditors and fund valuers. Each individual fund will have to be listed, together with performance details, redemption and subscriptions.

The manager's trading activities will also have to be carefully recorded and reported. For instance, IOSCO will demand to see the value of long and short positions, including sovereign and corporate bonds, derivatives, credit default swaps and foreign exchange positions. The funds' exposures will have to be broken down geographically and graded in order of liquidity and risk.

In addition, hedge funds will have to spell out precisely where the risks lie in their portfolios.

IOSCO was mandated by the G20 to organise a radical collection of market information from players across global financial markets in the interests of stability.