A stringent plan to regulate hedge funds leverage, capital and risk management that is backed by Obama adviser Paul Volcker won the support today of an influential Democratic senator.
Sen. Jack Reed, D-R.I., chairman of the Senate Banking subcommittee on securities, said hedge fund oversight should go beyond proposals to register the pools with regulators.
Registration would provide a little more visibility into the hedge fund world, but nothing comprehensive, Mr. Reed told a Brookings Institution conference in Washington.
New Securities and Exchange Chairman Mary Schapiro called for hedge fund registration at her Senate confirmation hearing last month.
A bill introduced last month by Sens. Charles Grassley, R-Iowa, and Carl Levin, D-Mich., would require hedge funds with more than $50 million in assets to register with the SEC and file annual disclosure forms.
The plan backed today by Mr. Reed who has not introduced a bill was released last month by the Group of 30, an international collection of individuals from the private and public sectors headed by Mr. Volcker. Mr. Volcker, a former Federal Reserve chairman, is chairman of the Presidents Economic Recovery Advisory Board.
Also part of the G30 were Treasury Secretary Timothy Geithner and Obama economic adviser Lawrence Summers.
James Chanos, the head of a hedge fund lobby, today predicted the Volcker-backed proposal would become law.
Something along the G30 lines is what were going to see, Mr. Chanos, president of the Coalition of Private Investment Companies, said in an interview after Mr. Reeds speech.
Mr. Chanos group represents dozens of hedge funds with assets of more than $100 million apiece.
Nasdaq OMX Group Chief Executive Officer Robert Greifeld said that hedge funds leverage would end up being overseen by a systemic risk regulator created by Congress.
If I were to make a prediction, I think there will be a regulator on (leverage) in years to come, Mr. Greifeld told the Brookings conference. He avoided comment on whether there would also be regulation of hedge funds capital and risk management.
Nasdaq OMX is a stock exchange company with 3,900 listed companies that have $5.5 trillion in market value.
Mr. Volcker said last month he would make the recommendations to President Barack Obama, and the G30 report on financial reform is a reasonable indication of the direction in which we might go.
It called for a regulator to oversee hedge funds that are potentially systemically significant. This regulator should be able to require registration, periodic reports and public disclosure, the report said.
The regulator also should establish appropriate standards for capital, liquidity and risk management, the report backed by Mr. Volcker said.