Large hedge funds and private-equity firms may soon have to start reporting steep losses, major redemptions and other extraordinary events in near real-time to the U.S. Securities and Exchange Commission -- a change that the regulator says will help it protect the financial system during meltdowns and wild swings like the meme stock mania that roiled markets a year ago.
The commission plans to propose on Wednesday that big funds submit confidential forms to the SEC within one business day when there are significant changes to their prime-brokerage relationships, available cash or counter-party defaults. The push to change the now quarterly filings is driven by the market turmoil after the onset of Covid-19 in March 2020 and when retail investors plowed money into stocks such as GameStop Corp.
The proposal would be one of the SEC’s most significant steps to increase oversight of hedge funds and private equity firms since Chair Gary Gensler took over. The changes are also a long-time policy goal of Democratic lawmakers, including Massachusetts Senator Elizabeth Warren. The filings would remain non-public, the agency said.
“It would help federal regulators to assess systemic risk,” Gensler said in a statement ahead of a vote to propose the rule changes, adding that the move would also bolster “protection of investors in those funds.”
Concerns over how one investor could impact the broader market were highlighted last year following the implosion of Bill Hwang’s Archegos Capital Management, an event that sent shares of companies including ViacomCBS Inc. and Baidu Inc. tumbling. As a family office, Archegos won’t be impacted by Wednesday’s proposal, but regulators including Gensler have pointed to the episode as an example of why there needs to be more visibility into these investment firms too.
Hedge funds and private equity firms have consistently pushed back against any efforts by the SEC to expand the type of data they must privately disclose, arguing that it’s proprietary information that could fall into the hands of unauthorized users through a data breach.
According to the SEC, the proposal under consideration would also:
- Require buyout funds with $1.5 billion and above in assets under management to file the paperwork, known as Form PF. Currently the rule applies to funds with more than $2 billion.
- Require private equity firms to report partner clawbacks or termination of a fund within one business day.
- Add other reporting requirements for private equity to help the Financial Stability Oversight Counsel assess the extent to which advisers or funds “may pose systemic risk.”
Trading Platforms
The SEC also plans to consider on Wednesday imposing more regulations on various types of trading venues that aren’t registered as exchanges or alternative trading systems, according to the regulator. A registered firm that trades Treasuries would also face the kinds of cybersecurity requirements that platforms involved in equities transactions do.
The parent company of Bloomberg News offers a fixed-income trading platform, as well as derivatives execution management systems.
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Read more articles by Ben Bain, Robert Schmidt
