The number of hedge funds who have submitted their letters of intent to deregister with the Securities and Exchange Commission is small. But expect more.
Ten funds that were required to register with the SEC under a recently overturned rule, have submitted requests to deregister, and the number appears to be growing.
The funds are responding to a US court of appeals decision that threw out a SEC regulation requiring most US hedge funds to register with the agency, and occasionally open their books to inspection.
The rule marked the first attempt by the SEC to regulate an industry that has been accused of being clandestine in their investment practices.
Since the rule went into effect in February, more than 2,500 funds registered with the agency.
But while the rule failed to pass court muster, Congress has introduced legislation that would expand the SEC’s jurisdiction to include hedge funds. Hearings concerning the proposals are to begin next week.
Unless the rule is reinstated quickly, more hedge funds are likely to deregister, leading to what one SEC commissioner called a “train wreck” in a recent Wall Street Journal report.