SEC to Vote on Requiring the Registration of Hedge Funds in Two Weeks

The Securities and Exchange Commission will vote in two weeks on requiring hedge funds to register with the watchdog agency, oversight that its chairman says is needed to head off blowups that could hurt ordinary investors.

The high-risk funds, with an estimated $750 billion to $1 trillion in assets and largely unregulated, are “in many ways ... an accident waiting to happen,” SEC Chairman William H. Donaldson said Wednesday.

The SEC is expected to propose this month a new rule mandating that all hedge funds register with the agency, a move that would open their books to SEC examiners and make them subject to an array of regulations including accounting and disclosure requirements.

The agency could, for example, conduct inspection “sweeps” of hedge funds, something it now lacks the legal authority to do, Donaldson said.

Like mutual funds, hedge funds pool investors’ money to try to earn the highest return possible.

But hedge funds can use techniques off limits to mutual fund managers, such as shorting stocks, essentially betting they will fall, and playing futures markets.