SEC's Hedge Fund Rule Fails to Solve Two Main Problems
The agency wants to be made aware of “trigger” events that might indicate financial stress within 72 hours, but it has neither the tools nor the staff for rapid market intervention.
Right problem but wrong solution.
Photographer: Spencer Platt/Getty Images
The Securities and Exchange Commission wants hedge funds to report within 72 hours certain “trigger” events that might indicate financial stress. Although there are two very real problems when it comes to reporting by hedge funds, the new rule does not solve either of them.
It’s hard to think of a crisis with triggering events that occurred more than 72 hours before they were obvious to the public. Recent bank and cryptocurrency collapses were overnight events. Flash crashes are over in minutes (hence the name) and events like the 2007 quant equity crisis are generally over in a few days. Larger financial crises, like in 2008 or the 2010–2013 euro sovereign debt crisis, developed over months and years. It’s equally hard to think of a crisis in which notice of a triggering event could have led to effective immediate SEC action, as the agency has neither the tools nor staff for rapid market intervention.