1 Entrepreneurial Bus. L.J. 1 (2006)

handle is hein.journals/eblwj1 and id is 1 raw text is: Regulating Hedge Funds

Dale A. Oesterle*
Pressure is mounting to control hedge funds, managed
pools of private money that use very sophisticated trading
strategies in securities, currencies, and derivatives. The
industry's size - hedge funds contain over $1.5 trillion'
and the impact of the funds' trading strategies on securities
markets2 and    on  company   operations3 has prompted
regulators around the world to investigate the industry.
The   Securities  and  Exchange    Commission    recently
promulgated a limited package of new rules, effective on
February 1 of this year.4 More regulation may be coming.5
Congress has held hearings on hedge funds to see if the
SEC rules are sufficient. 6 Governments in Britain, France,
Dale A. Oesterle is the J. Gilbert Reese Chair in Contract Law at The Ohio State
University Mortiz College of Law. The author wishes to thank the assistance of
Erik Geiger, Richard Helm, Nathan Pangrace, and Parker Bridgeport.
Michael Steinhadt, Do You Really Need a Hedge Fund?, WALL ST. J., Apr. 14, 2006,
at A16 (noting a gulf between hedge fund performance and fund manager
2 Robert C. Pozen, Hedge Funds Today: To Regulate or Not?, WALL ST. J., June 20,
2005, at A14 (suggesting a collapse of highly leveraged hedge funds may threaten the
integrity of other financial institutions; hedge funds may play an aggressive role in
campaigning for an overhaul of corporate governance).
4 See Registration Under the Advisers Act of Certain Hedge Fund Advisers, 69 Fed.
Reg. 72,054 (Dec. 10, 2004).
5 Kara Scannell, Hundreds of Hedge-FundAdvisers Register With SEC, WALL ST. J.,
Jan 28, 2006, at A3. See also Rita Raagas de Ramos, Concerns Over Hedge Funds Rise
as Market Volatility Rises Globally, WALL ST. J., June 15, 2006, at C5 (Some financial
experts believe that more regulation of hedge funds is needed to achieve financial
stability. Mark Shipman, a partner at Clifford Chance, argues that a universal system of
hedge fund regulation is necessary because hedge funds invest in global markets and are
available globally. Peter Douglas, head of Alternative Investment Management
Association in Singapore, suggests that current hedge fund regulation is virtually
irrelevant because most hedge funds are located offshore in completely unregulated
jurisdictions. He argues that marketing regulation would be a more effective way of
protecting nonprofessional investors from hedge funds.).
6 See, e.g., Hedge Funds and Capital Markets: Hearing Before the Subcomm. on
Securities of the S. Comm. on Banking, Housing and Urban Affairs, 109th Cong. (2006)
(Statement by Randal K. Quarles, Under Sec, for Domestic Finance) (stating that the
Treasury Department will examine in detail whether the growth of hedge funds holds
the potential to change the overall level or nature of risk in our markets).

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