U.S. SEC to propose new rule boosting hedge, private fund leverage disclosures – source

By Katanga Johnson

WASHINGTON (Reuters) -The U.S. Securities and Alternate Fee (SEC) will suggest a brand new rule on Wednesday aimed toward boosting hedge and personal fund leverage disclosures, amongst different particulars, based on a supply accustomed to the company’s pondering.

The proposal by the Wall Avenue regulator would require funds to supply extra data on leverage as a part of their confidential “Kind-PF” disclosures, the particular person mentioned, including that the measure would additionally apply to fund advisers who function as commodity traders and merchants beneath Commodity Futures Buying and selling Fee guidelines, the particular person mentioned. The proposal is a part of a broader effort by the SEC to spice up transparency of the non-public fund business amid worries the business is a rising supply of systemic danger, and follows a January draft rule that boosted different Kind PF disclosures.

Kind PF, which was launched following the 2007-2009 world monetary disaster, is the first manner non-public funds disclose purchases and gross sales of securities to the SEC.

Regulators have grown involved over danger within the non-public business after hedge fund de-leveraging contributed towards turmoil within the U.S. Treasuries market in March 2020 and hedge funds have been once more on the middle of final 12 months’s GameStop “meme-stock” saga, analysts say.

Critics argue that whereas the sector has ballooned following the 2007-2009 monetary disaster, regulatory scrutiny of personal funds — that are heavy customers of leverage — has not saved up.

Wednesday’s rule is anticipated to spice up the extent of element giant private-fund and hedge advisors should spell out round their use of leverage, the identical supply mentioned.

The SEC declined to remark. Reuters couldn’t instantly decide what additional adjustments the SEC rule would come with.

Leverage is a monetary method usually used to extend funding publicity and ramp up returns, however it could additionally exacerbate losses.

The Worldwide Group of Securities Commissions, which includes regulators the world over, mentioned in a January report that some non-public fund leverage is being hidden from view.

(Reporting by Katanga Johnson in Washington; modifying by Jonathan Oatis and Alistair Bell)