The Hindu : Business : Hedge funds: indirect regulation is the rule of the game

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Friday, Apr 13, 2007
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Hedge funds: indirect regulation is the rule of the game

Special Correspondent

IOSCO to hold next annual conference in Paris in May 2008

— PHOTO: PTI

CAPITAL CONCERN: (from left) Peter Douglas, Chairman, GFA, John Gaine, President, MFA, Panel Chairman, Martin Wheatley, CEO, SFS, Hong Kong, Alain Reinhold, Executive Vice-President, and Dan Waters, Director, FSA, U.K., during the public panel discussion at the annual conference of IOSCO, hosted by SEBI in Mumbai on Thursday.

MUMBAI: Hedge funds are difficult to regulate as they are a complex one, Michel Prada, Chairman of technical committee of the International Organization of Securities Commissions (IOSCO), said here on Thrusday.

"We believe indirect regulation is the rule of the game,'' for hedge funds, Mr. Prada said while addressing a press conference on the conclusion of IOSCO's four-day conference here. He said that in the case of hedge funds, many regulators are involved, Ministry of Finance, the central banks and other financial regulators. However, "all regulators may not regulate hedge funds in the same manner,'' Mr. Prada said, adding that banking regulators were having a major role to play in regulating the hedge funds.

IOSCO has published a consultation paper which examines the issues related to hedge funds valuation and administration. It is anticipated that following a period of consultation with the financial services community a Final Report on these issues will be published in due course, said Mr. Prada.

In a separate project IOSCO has recently decided to initiate a survey on funds of hedge funds, which have become the most common vehicle in some markets for the industry to promote retail investment into alternative assets on a domestic as well as on a cross-border basis. This project will help to clarify potential issues of concern and to consider developing elements of international regulatory standards based on best market practices.

Ownership of stock exchanges is the another issue that the IOSCO discussed. According to Mr. Prada, the restructuring of the trading venue "is a fact of life'' today. However, how it would affect or how it influences price formation and how price is discovered in such an environment are the key issues.

IOSCO believes that the role of credit rating agencies globally is witnessing a major change. Earlier credit rating agencies rated only corporates. Rating of structured financial products is a new role of credit rating agencies.

IOSCO will hold its next annual conference in Paris from May 26-29, 2008.

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