Raise Your Right Hand, Hedgistan

While I appreciate the regulators giving up their weekends in the name of public service, their ad hoc approach resembles a clusterf*ck, as witnessed by yesterday's events at the CBOE. Everyone is struggling to figure out how to comply with all the new rules, ensuring a bull market for compliance officers and securities lawyers, but few others.

Although I would not necessarily shed a tear to see Morgan and Goldman go down (after having been on the other side of their strong arm tactics over the years) their implosions certainly would have resulted in bigger problems thanks to their prime brokerage arms. Lehman's bankruptcy was a taste of what was to come. And while the biggest funds often utilize multiple prime brokers, having Morgan and Goldman go down would have resulted in a complete meltdown in Hedgistan, and then everywhere else.

Perhaps Goldman and Morgan should be careful what they wish for; conspiracy theorists continue to believe they were at least partially responsible for delivering a coup de grace to Bear Stearns, and have made hundreds of millions of dollars loaning out shares to short sellers over the past few years. Of course when the tables are turned they run right to Hank Paulson and Chris Cox, pleading they are too big to fail, etc.

And while the broker dealers can take a fair amount of blame for the straights we are in, the alternative managers are being painted as the bad guys. You can laugh and cry at the same time, but don't forget to fill out your Form SH, under oath:

The U.S. Securities and Exchange Commission, seeking to jumpstart a hunt for suspected manipulation of financial stocks, will require hedge fund managers, brokerages and institutional investors to describe under oath their bets on the firms.

Investors with ``significant’’ trades in the companies’ securities or credit default swaps must disclose their positions and provide ``certain other information’’ in written statements, the regulator said yesterday.

``I’m sure they’ll have a very short return date for those sworn statements,’’ said Gregory Bruch, a former SEC attorney who is a partner at Willkie Farr & Gallagher LLP in Washington. ``It’ll give them a tremendous amount of information quickly.’’ Bloomberg

Yes, the SEC will force managers to file daily reports detailing their open short positions, and apparently will update the filings on the internet every Saturday for the world to see.

Given the overwhelming interest in 13-F filings, this is sure to be a heavily trafficked website. Perhaps the SEC can serve ads on the site to generate additional revenue,and use the funds to assist in the bailout.

I have long enjoyed poring over the filings; it gave money managers a reasonable amount of wiggle room so to speak, but these new filings are nearly immediate, and will give voyeurs a window to hedge funds weekly positions.

It won’t leave much to the imagination. And the markets, which have been de-volving for months if not years, can discard the last vestiges of actual security analysis, as everyone shoots against each other until one side caves. 

While the most hardcore among us might adapt to the new rules, we will be chasing capital out of our markets, and many participants will simply take their ball and go home.

This is turning into pure torture; the last man standing can turn out the lights, but I am not sure he will consider himself a winner when the dust clears.

All sides probably share in the blame, but it would have taken a twisted mind to see us at this juncture two years ago. Horrific, isn’t it?
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This just in-Sunday 7:20 EST Institutional money managers will have their short positions made public 2 weeks after it is filed electronically to the commission
U.S. SEC to make public some short positions
Reuters

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SEC Pushes Hedge Fund Oath in Manipulation Probe
Bloomberg

Botched rescues are killing markets
MSN Money

Form SH
sec.gov
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The content contained represent the opinions of 1440 Wall Street. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author. No position

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