WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission needs authority to require hedge fund advisers to register with the agency plus the power to examine funds’ books, the agency’s chairman said on Tuesday.
U.S. lawmakers are working to give the SEC the power to require hedge fund managers to register with the agency after a federal court overturned the SEC’s previous effort to oversee the $1.3 trillion industry.
Speaking at the Reuters Global Financial Regulation Summit in Washington, SEC Chairman Mary Schapiro said registration without any further authority “would not be sufficient.”
“We need the ability to inspect and examine, we need the ability to require the maintenance of books and records and some further rulemaking authority,” Schapiro said.
“It would be good to have rulemaking authority,” she said. “It’s good to have flexibility to respond to crises as they emerge.”
Schapiro said she had discussed hedge fund regulation with U.S. Treasury Secretary Timothy Geithner, who supports requiring advisers of big hedge funds, private equity funds and venture capital funds to register with the SEC.
Geithner also wants funds to disclose their counterparties and information needed to assess whether a fund is so large or highly leveraged that it poses a threat to U.S. financial stability. Schapiro said she had no view yet on counterparty disclosure.
To properly oversee hedge funds, the SEC would need additional budget and staff, she said.
“With over 30,000 regulated entities and a staff of 3,600 people, we cannot add a couple thousand more hedge funds and get the job done under any circumstance,” she said.
The chairman of the House Financial Services Committee, Barney Frank, separately told the Reuters summit that Congress would give the SEC the power to require hedge fund registration. The measure will be part of a broad package of financial regulatory reforms that Frank said he plans to introduce later this year.
The SEC also plans to consider in May or June a final rule requiring big investors and hedge funds to disclose their short positions to the agency, Schapiro said. The rule expires at the end of July.
“I don’t know whether we will extend that rule or whether we might fine-tune it some,” Schapiro said, adding she did not yet know if short positions should be disclosed publicly.
Short selling, where investors seek to profit from the fall in the price of a stock, has been blamed by some lawmakers and executives for deepening the financial crisis and driving down share prices.
But traders and asset managers say short sellers are being unfairly blamed for a plunge in stock prices that occurred as the housing market bubble burst and exposed risky bets by financial institutions.
In a related action, the SEC will also address in May or June another short sale rule requiring investors to deliver their shares within three days of shorting a stock. That rule also expires in late July.
Short-sellers borrow shares and then sell them, waiting for the stock to fall so they can buy the shares back at the lower price, return them to the lender and pocket the difference.
The SEC is considering other short sale price restrictions, including a modified uptick rule that only allows shorting if the last sale price is higher than the last. Those proposals are currently out for public comment.
For summit blog: blogs.reuters.com/summits/