SEC’s new hedge fund rules lack an accountant’s precision.

Introduction:

The SEC’s new hedge fund regulations are imprecise and confusing:

The government won’t be able to find manipulative investing activities or possible explosions with the Reporting rules for short-sale transactions by large investors.
It’s more difficult than it seems to keep track of short-sale transactions’ effects. (Source: Getty Images/Michael M. Santiago The Americas

It sounds simple to request information about investment managers’ short positions; all you have to do is push a button to generate a report from your securities database for the SEC. Large investment managers may handle hundreds or even thousands of different funds, separate accounts, sub accounts, advised funds, master/feeder funds, and other legal entities, each with its own balance sheet Additionally, there can be serious financial and reputational repercussions for even accidental or minor errors.Even yet, if the rule accomplished what the SEC desired, the expenses might have been justified. It already has statistics on the gross short sales of stocks by issuer, but two crucial distinctions are missing from the data.

The first step that accountants would do if given the duty of creating rules is to create uniform sets of reporting entities, reporting periods, and data. The four primary ways investors take on short positions are short sales, options, swaps, and exchange-traded funds, and the SEC has four distinct reporting regimes for each of these methods. Each of these regimes collects information from various sources using various methodologies and reporting schedules. There is no way to combine the data to obtain a reliable overview of short selling.

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