Large hedge-fund advisers will be required to register with the Securities and Exchange Commission and undergo inspections starting in February 2006, the SEC decided Tuesday.
The change was approved on a 3-2 vote and will only apply to hedge-fund operators who manage $30 million or more of assets, Dow Jones Newswires reported.
SEC Chairman William Donaldson led the move for greater oversight of hedge funds. He said inspections would provide more information about the industry and prevent fraud. Failing to do so "would be a major dereliction" of the SEC's duty to investors, he said. The two Democrats on the commission agreed.
Republicans Cynthia Glassman and Paul Atkins remained opposed. Glassman called mandatory registration “the wrong approach,” although she acknowledged that more needs to be known about hedge funds. Atkins said that he would rather see the SEC focus on inspections of mutual funds instead of hedge funds, which are investment pools traditionally designed for the very rich.
He also complained that the proposal was rushed and that numerous comments in opposition had been overlooked.
In a separate vote, the commissioners decided to seek public comment on a proposal to lessen restrictions on the so-called quiet period before initial public offerings. The quiet period, or waiting period, begins when a company files a statement with the SEC to register new stock and ends when the agency approves the registration statement, the Associated Press reported.
Rather than continuing the strict limits on publicly released information during this period, the new proposal would allow company executives to give media interviews or speak to audiences of prospective investors. However, executives would still be banned from hyping the stock and would be held liable for misstatements.
Alan Beller, director of the SEC's corporation finance division, said, "We are in an age where ... our current framework and restrictions are outmoded.”