The U.S. Securities and Exchange Commission responded to objections from hedge funds and private- equity funds by dialing back demands in its new rule requiring fund advisers to report internal information to regulators.
The commission approved its final rule in a unanimous vote today, easing the thresholds for defining which large funds will have to report the most information to regulators. The final rule, which requires some funds to begin reporting as soon as next year, also allows private-equity funds to report less often than initially proposed.
In today’s rule, required by the Dodd-Frank regulatory overhaul, all funds with more than $150 million in assets will be required to report asset and operational information that has not been collected by regulators in the past.
“We have produced a document that will address the dramatic lack of private fund information available to regulators today while easing the burden on private-fund managers producing the data,” SEC Chairman Mary Schapiro said before the vote.
The new rule defines large funds as hedge funds with more than $1.5 billion in assets, private-equity funds with $2 billion in assets, and liquidity funds with $1 billion. Those designated as large funds would have the highest reporting standards. The original version of the rule, released in January, set lower asset thresholds.
Under the new definitions, about 230 U.S.-based hedge funds and 155 private-equity fund advisers would be subject to the large-fund disclosure system. Hedge fund advisers will have to file the new Form PF every quarter.
The Dodd-Frank Act called for the SEC to work together with the Commodity Futures Trading Commission to monitor the confidential fund data, and the final version is a joint rule. The CFTC’s five commissioners are planning to vote in coming days on paper without holding a public meeting, a process known as seriatim approval, according to a person familiar with the rulemaking process.
The data gathered by the two agencies will be shared with the new Financial Stability Oversight Council and the Treasury Department’s financial research office as they monitor potential shocks to the markets.
Hedge fund industry group Managed Funds Association expressed disappointment “that the Commission was not able to focus the scope of the form to a more targeted set of data points,” Richard Baker, president and chief executive officer, said in a statement.
The rule is an “example of overreaching,” with little justification for its cost, said Paul Atkins, a former SEC commissioner, in a statement. “The government is not even competent to use the information that it will collect.”
Hedge funds had asked the SEC to give them more time than the initially proposed 15 days from the close of each quarter, and the new rule expands that window to 60 days.
The final rule gives private-equity funds 120 days from the end of each fiscal year to file the reports, because “trends emerge more slowly in private-equity investing,” Schapiro said.
“We commend the Commission for further investigating the nature of Private Equity Funds and enacting -- more appropriately -- yearly reports,” Tim Cameron, managing director of the asset-management group at the Securities Industry and Financial Markets Association, said in a statement. “It seems the Commission produced a much more palatable requirement for the industry.”
The largest funds -- those controlling more than $5 billion -- will have to start reporting at the close of their first fiscal quarter or fiscal year after June 15, 2012. The rest will have more breathing room, with a requirement they report after the close of the first fiscal quarter or fiscal year after Dec. 15, 2012.
David A. Vaughan, a former SEC lawyer who worked on the initial proposal, said the agency “made a number of major improvements to the form based on industry input.” Vaughan, who works at Dechert LLP in Washington, said private-equity firms saw the greatest reduction in burden.
“They’re not happy about doing a filing, but at least the annual filing is more feasible than a quarterly filing,” Vaughan said.
A related Dodd-Frank rule, passed by the SEC in June, requires private-fund advisers to register with their regulator, reporting basic operational and structural information. That information will be made public.
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