Commonly Used Terms in Derivative Market
February 12, 2025
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Technically, the term hedge fund does not exist. In fact, the term hedge fund applies to any fund which is sold to accredited private investors and does not have to follow through with the regulation process! Now, investment advisory is a highly regulated industry and there are several laws which have been passed to ensure compliance and minimize foul play.
However, hedge funds are immune to most of these laws. This is probably the reason why investors prefer them. However, of late, experts have been lobbying to bring this trillion dollar hedge fund industry under some sort of regulation.
In this article, we will have a closer look at some of the regulations that are avoided by the hedge funds as well as arguments in favor of and against bringing hedge funds under the purview of the Securities and Exchange Commission (SEC).
Also, they are exempted from other compliance procedure like submitting the details of their trade for oversight and approval, maintaining their record keeping in the prescribed manner and most importantly the limits on the amount of money that they can charge as fees.
Hedge funds have been blamed for several crises. Some prominent ones are the subprime mortgage crisis and the LTCM crisis. However, proponents of hedge funds believe that the funds have come a long way and given the new and better risk management practices, a catastrophic event triggered by hedge funds seems almost impossible.
America is the primary market for hedge funds today. However, these funds are also spreading to other regional financial centers like London, Hong Kong and even Singapore. If the American government insists on regulation, funds may move their business outside the nation and then only the tax authorities will be the real losers.
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