The Hindu Business Line : `Retailisation of hedge funds, a cause for concern'

The increasing retail participation in hedge funds either directly or through pensions funds, is a matter of concern to stock market regulators world over, Ms Jane Diplock, Chairman of the Executive Committee of the International Organisation of Securities Commission (IOSCO), said here on Monday.

Giving a lecture on `Important challenges for IOSCO,' she said regulators world over are trying different ways to regulate the fast changing hedge fund industry and bring in more transparency.

Opaqueness, however, is the nature of hedge funds, she said, adding that in the US, the regulators have made it mandatory for hedge funds to register themselves with the Securities Exchange Commission. Registration by itself does not guarantee transparency, Ms Diplock, who is also the Chairman of Securities Commission, New Zealand, pointed out.

Better risk profile

IOSCO was in talks with hedge funds across the world to ascertain a better risk profile, she said, speaking at the function, organised by SEBI. Hedge funds handle $1 trillion worth assets across the globe, she said, quoting the data filed by a multilateral agency.

Earlier, hedge funds used to have only "wholesale" investors, but the growing "retailisation" of the funds is a matter of concern for the regulators. Plain vanilla regulations will not be a solution to tackle the regulatory issues in the hedge fund industry. Regulators will have to evolve constantly in dealing with this sector, which was also changing fast, she said.

Another challenge to the regulators is the possible creation of mega stock exchanges, through cross-border mergers or takeovers of the bourses.

She said all the participants of the stock market including issuers, investors, bankers, stock exchanges, auditors and regulators, have a significant role to play to ensure that the integrity of the market is maintained.

Co-ordination

Ms Diplock also called for better co-ordination and multilateral cooperation to facilitate better regulation in cases where cross-border information was required.

Earlier, in his welcome address, Mr M. Damodaran, Chairman, SEBI, said Indian markets were gaining ground in terms of better corporate governance standards, practice and quality of participants (both foreign and domestic).

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