Securities Regulators Agree to International Template for Hedge Fund Disclosure

With pending legislation in the US and EU to regulate hedge funds, securities regulators have agreed to an IOSCO-vetted template for hedge fund disclosure to assist in determining systemic risks in the sector. The template was developed by the Task Force on Unregulated Entities following requests from the Financial Stability Board, as well as from IOSCO members. SEC Commissioner Kathleen Casey, Chair of the IOSCO Technical Committee, said that the disclosure template is designed to develop a comparable and consistent set of data to be collected from local hedge fund managers and advisers to monitor systemic risks and prevent gaps in regulatory reporting requirements. The Commissioner recognizes that the legislative process is ongoing in many jurisdictions and their outcomes could further influence the information needed to monitor systemic risk in the hedge fund sector.

The template is not a comprehensive list of all types of information and data that regulators might want. Thus, regulators are not restricted from requiring additional information at a domestic level

Under the template, hedge funds should disclose the principals, registered address, number of employees, number of funds, name of compliance officer, overseas offices, regulatory status, related affiliates, equity owners, relevant information about the financial health of the asset management company including, if applicable, any guarantees or agreements with parent companies. The fund should also disclose its key service providers, including, custodians, auditor, and fund administrator.

The funds should also disclose recent performance details and recent investor redemptions, as well as group wide assets under management. Product exposures also need to be disclosed. For securities, funds should disclose the value of long and short positions in equities, corporate bonds, sovereign bonds, and securitized credit products and other structured products. For derivatives, funds should disclose the long and short credit default swaps positions and other derivatives. There should also be disclosure of derivative clearing mechanisms, whether they are central counterparties or bilateral.

Finally, hedge funds should disclose net credit counterparty risk, identifying primary counterparties and identities and locations of those counterparties. They should also disclose the extent of rehypothecation, the percentage of net equity rehypothecated and contractual limits to rehypothecation.