CFTC Approves SEC Systematic Risk Reporting Rules

(November 2, 2011) — The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) have approved rules for systematic risk disclosure from private fund managers, including hedge funds and private equity funds.

“With this final rule, regulators will gain transparency into an important sector of the financial marketplace to better assess risk to the overall system,” said CFTC Chairman Gary Gensler in a statement.

SEC Chairman Mary L. Schapiro added: “The data collection form that we have adopted will address the dramatic lack of private fund information available to regulators today while easing the burden on private fund managers producing the data.”

According to a news release from the CFTC, the new rules require managers of private funds with a minimum of $150 million in assets that are dually registered with the CFTC and the SEC to reveal added information about their holdings.

The release stated: “Private fund advisers are divided by size into two broad groups – large advisers and smaller advisers. The amount of information reported and the frequency of reporting depends on the group to which the adviser belongs. Both the CFTC and the SEC anticipate the relatively limited number of large advisers providing more detailed information will represent a substantial portion of industry assets under management. As a result, these thresholds will allow FSOC to monitor a significant portion of private fund assets while reducing the reporting burden for private fund advisers.”

The rules by the CFTC and the SEC reveal greater attempts to increase transparency among investors. As part of that effort, the CTFC and the SEC have been working to sharpen Dodd-Frank rules for the $600 trillion derivatives market. Gensler noted in September that several major new rules for the over-the-counter derivatives market will include rules on how much cash companies need to set aside to guard against losses on derivatives bets.

Under the proposals — aimed at limiting risk and boosting transparency in the global swaps market — swaps include foreign exchange swaps and forwards, foreign currency options, commodity options, cross-currency swaps, and forward rate agreements. An exemption would apply to certain insurance products, consumer and commercial transactions.