Evan Vucci/Associated Press Gary Gensler, the C.F.T.C. chairman, says the new rules will provide more transparency for regulators.6:34 p.m. | Updated
Financial regulators are planning to collect confidential information from hedge fund managers and other investment advisers, as the government moves to shed more light on the private investment world.
The plans, drafted by the Securities and Exchange Commission and the Commodity Futures Trading Commission, or C.F.T.C., would require some investment advisers to periodically turn over private data, including details about their trading and the amount of assets they manage.
Although the proposed disclosures are not comprehensive, regulators hope the new information will help them determine whether hedge funds or other investment firms pose a systemic danger to the economy.
The Dodd-Frank Act, the financial regulatory overhaul enacted in July, mandated such reporting.
The proposal is “designed to ensure that regulators have a view into any financial market activity of potential systemic importance,” Mary L. Schapiro, the chairwoman of the S.E.C., said in a statement.
The S.E.C., which oversees investment advisers, unanimously agreed to propose the rules on Tuesday. The C.F.T.C., which regulates commodity trading advisers, likewise voted 5 to 0 in favor of proposing the rules on Wednesday.
The proposals are now open for public comment during a 60-day period, after which the regulators must vote on a final version of the rules.
If enacted, the new rules would require a range of investment advisers including hedge fund managers, private equity fund advisers and commodity pools operators to open up their books to regulators.
“What this importantly does is bring more transparency to the regulators,” said Gary Gensler, the C.F.T.C. chairman, during the agency’s meeting on Wednesday.
The new reporting would represent a regulatory sea change for some of these firms, which currently face only light regulation and minimal reporting requirements.
“Right now it’s hard to find any reliable information out there that even shows the size of the industry,” said Heather Slavkin, a senior legal and policy adviser to the A.F.L.-C.I.O.’s investment division.
Although the proposed rules would fill in some blind spots for regulators, Ms. Slavkin said the disclosure requirements could be tougher.
The reporting requirements, for instance, would apply only to funds that manage more than $150 million in assets.
The smaller funds that fit into that category would face the softer edge of the proposed rules. Hedge fund advisers that manage less than $1 billion would provide only basic information about the performance and strategy of their fund and their use of borrowed money for leverage. They would have to file their reports only once a year.
Those that manage more than $1 billion would have to report more detailed information on a quarterly basis.
Ms. Slavkin said she was “skeptical” that the quarterly reporting would suffice. “It would be easy to change your positions just before the change of the quarter,” she said.
Because the information is proprietary, the regulators must keep it confidential. They would, however, share it with the Financial Stability Oversight Council, which monitors risk in the financial system. Armed with the new data, the council would aim to identify private funds that could endanger the economy if they collapsed.
The rules are likely to affect 1,000 to 2,000 private fund advisers, including 200 hedge fund firms, according to regulators.