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Hedge Funds’ Potential Threat Is Unclear, SEC’s Schapiro Says


Date: Wednesday, July 21, 2010
Author: Jesse Westbrook, Bloomberg

Federal regulators may find it difficult to determine whether hedge funds pose risks that could threaten the U.S. economy and what the government should do to rein in industry trading practices, Securities and Exchange Commission Chairman Mary Schapiro told lawmakers today.

“It’s really not clear” whether the hedge-fund industry presents “systemic risks,” Schapiro said at a House Financial Services subcommittee hearing. “It will be very important” for regulators “to decide where the lines are drawn.”

Legislation approved by Congress last week establishes the Financial Stability Oversight Council, a super-regulator including officials from the SEC, Federal Reserve and Treasury Department that will monitor market participants with potential to roil the economy. The council, which would have authority over hedge funds it deems systemically risky, could direct the Fed to halt lines of business.

The bill overhauling financial-industry regulation also requires hedge-fund managers to register with the SEC, making them subject to disclosure requirements and agency inspections. The SEC will need to hire more employees to examine all the hedge funds that will come under its purview, Schapiro said.

--Editors: Gregory Mott, Dan Kraut

To contact the reporter on this story: Jesse Westbrook in Washington at jwestbrook1@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net.