Authorities should only step in to regulate hedge funds if a market failure occurred that lead to a threat to the wider financial system and there is no sign of that happening, US Securities and Exchange Commission (SEC) Commissioner Paul Atkins said on May 30.
"Here there is no indication of market failure," Atkins said in an interview. "It seems the market is working," he added. He was speaking before addressing an American Chamber of Commerce event here. Some politicians in Europe want tighter regulation of the rapidly growing hedge fund industry, while lawmakers in the United States prefer to rely on market-based checks and balances between investors, creditors and counterparties.
Referring to the collapse in September 2006 of US hedge fund Amaranth after it lost $6 billion on natural gas futures Atkins said: "We saw a smooth liquidation of the portfolio."
Investors should be aware of the risks as well as the rewards of entrusting money to hedge funds, he said, adding it was in the interest of creditors to ensure that the funds they finance are well capitalised and that they themselves well collateralised.
Co-ordination and cooperation between regulators in the United States and Europe was good, he said, adding that in the United States: "We have increased our oversight of the hedge funds."
Competitive pressures might be causing "some credit institutions lending money to hedge funds to lower their credit standards", Atkins said. Any systemic risk arising from such a trend would "fall into our bailiwick", he said.
Atkins, appointed to the SEC in 2002 for a term that expires next year, declined to comment when asked whether he was a candidate to head the US Commodity Futures Trading Commission (CFTC), which regulates US commodity futures trading.
The Financial Times reported that Atkins was the front runner to replace Reuben Jeffery as CFTC chairman.