EU Consultation Paper on Hedge Funds

SIFMA’s Prime Brokerage Committee provides comments to the European Commission on the The Internal Market and Services Directorate General (DG MARKT) Consultation Paper on Hedge Funds.  SIFMA believes there are a number of issues to consider in a proposal that seeks to rely upon “indirect regulation” of hedge funds by prime brokers. Specifically, prime brokers in virtually all cases will have access only to a limited picture of the exposures of their customer hedge funds; hedge funds may take on risks through means other than traditional margin accounts; and for this form of “indirect regulation” to work it would seem to require that the interests of prime brokers and the goals of the regulatory community be perfectly aligned.