Incoming SEC chief ‘absolutely’ wants HF registration

Mary Schapiro has expressed her support for reinstating hedge fund registration requirements overturned by a federal court in 2006. A prior SEC attempt at registering ‘private funds’ did not include most private equity funds.

Mary Schapiro, President-elect Barack Obama’s nominee to head the Securities and Exchange Commission, said at her confirmation hearing that she would “absolutely support proceeding again with the registration of hedge funds”.

She told the Senate Banking Committee that transparency “will give us a better handle on who is out there and what they are doing”.

In 2004, the SEC voted to propose requiring hedge fund advisors to register as investment advisors. The adopted regulations were then overturned by a US federal appeals court in 2006 on the basis that the SEC had overstepped its authority.

The rules applied to managers of previously exempted “private funds” that allow liquidity within two years. Many hedge funds allow monthly, quarterly or yearly redemptions, while most private equity funds have decade-long capital lock-up provisions.

The two-year capital lock-up exemption meant that most private equity funds were not expected to register with the SEC. It is unclear whether Schapiro also supports registration for other types of private investment partnerships.

Senator Chuck Grassley, a Republican from Iowa, has led the charge to put registration requirements for hedge funds back in place. He said in November that he will introduce a bill to that effect once the new Congress is in place this year. The bill will be modeled on the Hedge Fund Registration Act that he introduced to the Senate Committee on Banking in May 2007 but was never brought up for consideration.

Schapiro is the chief executive officer of the Financial Industry Regulatory Authority (FINRA). FINRA was created in 2007 through the merger of the regulatory arms of the New York Stock Exchange and NASD, which Schapiro had led since 1996.

She was chairman of the Commodities Futures Trading Commission from 1994 to 1996 and a member of the Securities and Exchange Commission from 1988 to 1994.