Hedge Fund Trading Reaching Critical Mass

There is a growing recognition that hedge funds, these opaque and often illiquid vehicles, have become significant components of the financial markets. In a recent speech, Martin Wheatly, chair of the Hong Kong Securities and Futures Commission, noted that hedge funds provide a major source of market liquidity. Rather incredibly, it is estimated that in New York and London about 40-50 percent of securities trading comes from hedge funds. In Hong Kong, about 30 percent of the daily turnover on the stock market comes from hedge funds. These numbers, in my view, increase the pressure for regulation of these investment vehicles. Even the appeals court panel in the Goldstein opinion mentioned that hedge funds remain secretive about their positions even to their own investors. Given the above numbers, is that state of affairs appropriate or safe?