Donaldson Adamant on Hedge Fund Regulation As SEC Prepares To Vote

by Phillip Morton, Investors Offshore.com

25 October 2004

As the Securities and Exchange Commission prepares to vote on controversial plans compelling US hedge funds to register with the regulator, SEC chairman William Donaldson last week repeated his argument that the measure is a necessary step to protect investors.

In an address to an Independent Directors Council conference, Donaldson reportedly accused hedge funds of being “central figures” in the recent late trading and market timing abuses, suggesting that more needs to be done to prevent a repeat of such episodes.

“I believe we need to know more about the activities of hedge fund managers and the impact their trades have on what I call the 'other side of the transaction,’” Donaldson argued.

Brushing aside concerns that his planned regulation will place an onerous burden on hedge funds, Donaldson told delegates:

“We are seeking to create an enhanced oversight regime that will equip the commission to better anticipate, find and mitigate areas of financial risk, potential fraud and malfeasance.”

The SEC is scheduled to vote tomorrow on the proposals that will oblige hedge fund managers to register as investment advisors.

A vote earlier this year putting the plans to public consultation resulted in an unusual 3-2 split, and recent reports suggest opinion remains deeply divided within the SEC’s leadership regarding the proposals.

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