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Hedge Funds and the SEC: Observations on the How and Why of Securities Regulation

22 Pages Posted: 7 May 2007  

Troy A. Paredes

Washington University in St. Louis - School of Law

Date Written: May 2007

Abstract

This short Essay addresses three topics on one aspect of the hedge fund industry - the SEC's recent efforts to regulate hedge funds. First, this Essay summarizes the regulation of hedge funds under U.S. federal securities laws insofar as protecting hedge funds is concerned. The discussion highlights four basic choices facing the SEC: (1) do nothing; (2) substantively regulate hedge funds directly; (3) regulate hedge fund managers; and (4) regulate hedge fund investors. Second, this Essay addresses the boundary between market discipline and government intervention in hedge fund regulation. To what extent should hedge fund investors be left to fend for themselves? Third, this Essay highlights two factors impacting regulatory decision making that help explain why the SEC pivoted in 2004 to regulate hedge funds when it had abstained from doing so in the past. These two factors are politics and psychology.

Keywords: hedge funds, Securities and Exchange Commission, SEC, market discipline, behavioralism, psychology, political economy

Suggested Citation

Paredes, Troy A., Hedge Funds and the SEC: Observations on the How and Why of Securities Regulation (May 2007). Washington U. School of Law Working Paper No. 07-05-01. Available at SSRN: https://ssrn.com/abstract=984450 or http://dx.doi.org/10.2139/ssrn.984450

Troy A. Paredes (Contact Author)

Washington University in St. Louis - School of Law ( email )

Campus Box 1120
St. Louis, MO 63130
United States
314-935-8216 (Phone)
314-935-5356 (Fax)

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