The IRS has provided welcome relief to U.S. investors from the Foreign Bank Account Reporting (”FBAR”) requirement to report large holdings in offshore private funds held in 2009.
Specifically, in a notice issued on February 26, 2010, the IRS said that investors in offshore hedge funds, private equity funds and venture capital funds do not have to file FBAR reports for foreign accounts held during 2009.
Last week the International Organization of Securities Commissions’ (IOSCO) Technical Committee published the details of an agreed template for the global collection of hedge fund information, which it believes will assist in assessing possible systemic risks arising from the hedge fund sector.
The template (a copy of which is attached for your reference) was designed to create a comparable and consistent set of data to be collected by regulators from local hedge fund managers to monitor systemic risks and prevent gaps in regulatory reporting requirements. The data can then be exchanged amongst regulators and other competent authorities for the purpose of facilitating international supervisory cooperation in identifying possible systemic risks in the hedge fund sector.
The template, which was developed by the Task Force on Unregulated Financial Entities, contains eleven proposed categories of information. The proposed categories incorporate both supervisory and systemic data, and build on the data collection recommendations set out in the IOSCO Technical Committee’s Final Report on Hedge Fund Oversight, which was released in June 2009.
The list of data includes basic information such as the manager’s name, number of funds and equity owners; as well as the names of auditors, custodians, recent performance, redemptions, total assets under management and the value of long and short positions in different assets. Geographic spread, liquidity of a fund’s assets, the value of borrowings, net credit counterparty risk and the top 10 positions are also included.
The IOSCO Task Force has recommended that the first data gathering exercise should be carried out on a best efforts basis (given pending legislation in many jurisdictions) in September 2010.
Although the IOSCO Technical Committee recognizes that the legislative process is currently ongoing in many jurisdictions, it is publishing the template now to help inform any planned legislative changes currently being considered. As stated by IOSCO Technical Committee Chairman Kathleen Casey (who is also a U.S. SEC Commissioner):
“We recognize that the legislative process is ongoing in many jurisdictions and their outcomes could further influence the information needed to monitor systemic risk in the hedge fund sector, as well as who collects the data. Nonetheless, setting out these categories of information may help regulators in the assessment of systemic risk and help to inform the relevant legislative debates.”
It is unclear at this time whether or how the IOSCO disclosure template will inform or affect the ongoing Congressional debate on financial and regulatory reform, including whether it will impact the proposed hedge fund adviser legislation that was passed by the House in December and is currently pending in the Senate.
According to Reuters today, the SEC is planning on beefing up its New York office staff by about 8% this year, partly to focus more efforts on regulating the NY hedge fund industry:
The agency plans to hire 18 people on the enforcement side, where it currently employs about 150 people in New York, and add 15 people to its examinations staff, which currently numbers about 210 in New York, Mr. Canellos said at the Reuters Private Equity and Hedge Funds Summit in New York.
The push to hire more lawyers, accountants and even former traders comes at a time that the agency is seeking to become more aggressive in going after the bad guys on Wall Street.
This comes on the heels of comments made by Bruce Karpati, the co-chief of the SEC’s asset management unit, pushing for hedge fund registration. Mr. Karpati is hoping for more disclosures by hedge fund managers and stated at a recent conference:
“When you have more (hedge fund advisers) that are registered, we will have more access to information,”
As congress makes slow progress on its regulatory reform bill, the SEC is clearly gearing up for the expected registration of hedge fund managers.
News from other other side of the globe …
Not to long after the SEC announced its new regulations on short sales, we have learned that the Securities and Futures Commission of Hong Kong (the “SFC”) that it will be introducing a short-position reporting regime to enhance transparency of short selling activities in Hong Kong. There is little doubt that this stems from industry feedback and the SFC’s view of the current domestic market situation.
The SFC’s CEO, Mr. Martin Wheatley, claims that the “build-up of large short positions may be potentially disruptive to market stability” and that this “short-position reporting regime will not only complement Hong Kong’s robust short-selling regulatory framework but will also provide a more complete picture of short-selling activities in our market.”
Under the proposed regime, the reporting obligation will be triggered if a short position is equal to or exceeds, 0.02% of the issued share capital of a listed company, or a market value of $30 million, whichever is lower. Weekly reports must be submitted to the SFC until the short position falls below both trigger levels. The SFC will publish aggregated short positions of each stock on an anonymous basis a week later.
Managers should particulary note that only the constituent stocks of the Hang Seng Index, the H-shares Index, financial stocks and other stocks specified by the SFC will come under this new reporting regime. Derivatives will not be included.
On February 24, 2010, the SEC announced the adoption of a new short selling price restriction rule, and the final text of the new rule was officially released on February 26. The rule will amend Regulation SHO under the Securities Exchange Act of 1934 by adopting a short sale “circuit breaker” that will be triggered any time a stock experiences a price decline of at least 10% in one day. Once triggered, short selling in the stock will only be permitted at prices above the current national best bid.
This post summarizes the basic elements of the new rule, which represents the first short sale price restriction adopted by the SEC since it eliminated the former “uptick rule” in 2007.
According to the Associated Press, lawmakers in Connecticut, may be gearing up to pass hedge fund legislation in their state. Last year, the state legislature failed to pass a bill which would have required hedge funds and private equity firms to disclose certain conflicts of interest. Some state lawmakers are looking to use that bill as a starting point for new hedge fund legislation.
Hedge fund regulation on the federal seems to be stuck in the Senate right now. Although the house has already passed their financial reform bill (which includes hedge fund registration), the Senate version seems to be stuck. It looks like some Connecticut legislators have gotten fed up with the slow progress and may take their own steps towards regulation for hedge funds in the state.
The Massachusetts Office of Consumer Affairs and Business Regulation has issued Regulations, effective March 1, 2010, that will apply to any businesses (including advisory and asset management firms) who own or license personal information about a resident of the Commonwealth of Massachusetts (i.e, your customers or your employees). The focus of the Regulations is to ensure better protection of that personal information. You can view the Regulations here.
As SEC chairman, Schapiro pledged to quickly pursue new limits on short selling. In April, just two months after she took the job, the agency unveiled a proposal to crack down on the practice.
But more than a year after Schapiro took office, the SEC has not yet written into the Wall Street rulebook the short-selling limits — or most of the other measures that the agency has proposed to more tightly regulate the financial system. According to the Washington Post, whether Schapiro can achieve more of her reform agenda will be a test of how much she can change the SEC, which gained a reputation as a weak Wall Street regulator in the years leading up to the financial crisis………
According to a report from the Financial Times, Paulson & Co, a hedge fund that made billions of dollars betting against subprime mortgages, has received a request for information from the Securities and Exchange Commission in connection with an investigation into complex securities at the heart of the financial crisis, according to people familiar with the matter. In the months prior to the real estate crash, which pre-empted the global economic volatility, the company made $15 billion from investments in subprime deals.
As discussed on Dealbreaker, reports say that Boston-based Loch Capital Management has been “hit hard” by redemptions since the friend, Steven Fortuna, of founders (and bros) Timothy and Todd McSweeney pleaded guilty to insider trading, and agreed to cooperate with the government. Reuters is reporting that neither brother has been implicated in the Galleon investigation, in the clubby world of Boston’s hedge fund community, speculation has been swirling around the firm.
