Regulating Prime Brokerage Firms
Many hedge fund professionals and journalists have been suggesting that new regulations work through prime brokerage firms, a few of which handle the bulk of hedge fund trading activities. Most established prime brokers have the technology and skills to help provide a view of what is going on within a portion of the portfolios of at least their own clients, this is seen as an opportunity to leverage existing industry infrastructure to meet a growing need for more transparency across the industry. Here is an article excerpt from a FT article discussing this late last week:
Politicians love to grouse about regulating hedge funds. They have yet to explain exactly how they intend to do it. One idea is to force hedge funds to register with the authorities. That might protect investors. But it does nothing to protect against system-wide risks. Another is to require funds to disclose their trading positions...
A better approach, according to a forthcoming article in the Journal of Financial Stability, might be to focus on prime brokers. While there are thousands of hedge funds, only a handful of companies provide most hedge funds’ clearing, custody and collateral needs. source
For more information on prime brokerage please see PrimeBrokerageGuide.com