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Mary Schapiro Comments on Examining Books and Records

Posted by Larry Doyle on August 29, 2009 6:51 AM |

If hedge funds and other financial firms are to be regulated for purposes of reviewing business practices, doesn’t it go without question that a financial self-regulatory organization which has invested in hedge funds should also be required to open its books and records?

In a recent interview, SEC chair Mary Schapiro was asked about the regulation of hedge funds. Wall Street Pit captured the entire interview, SEC Chair Schapiro: The Agency Lacks the Tools to Get the Job Done. This interview is very comprehensive and covers market structures, high frequency trading, derivatives, the Federal Reserve, systemic risk, the future of the SEC, and more.

The segment that jumped out at me was the following:

CLAMAN: How would you regulate a hedge fund?

SCHAPIRO: First of all, we need to have them registered, so we understand who is in the space and what they’re doing. We need information so that, to the extent they could be engaging in manipulative activities, insider trading, we can constrict. Reconstruct trading practices and patterns so that we can bring those cases and enforce the rules against manipulation and insider trading.

So we really need reporting. We need registration. We need the ability to examining their books and records, and understand how they’re conducting business. (LD’s highlight)

My point of this commentary is not hedge funds specifically but that Ms. Schapiro raises the topic of examining books and records and understanding how an entity conducts business.

Just as Ms. Schapiro feels hedge funds should be regulated for these purposes, who in their right mind would not want the same exposure and transparency required of the Wall Street self-regulatory organization, FINRA? That exposure and transparency is the basis for the complaint filed by Amerivet Securities vs. FINRA (Amerivet Complaint Against FINRA Alleges Madoff Investment).

Ms. Schapiro may have to recuse herself from any review of FINRA given her position as head of FINRA prior to heading the SEC.

In fact, given the questionable nature of FINRA’s activities (investment, regulatory oversight, compensation practices), the review of FINRA should be undertaken by an independent investigator.

Although FINRA itself does not want to provide transparency into its activities, transparency for a financial regulatory organization must happen without question.


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