SEC, CFTC consider new crypto reporting rule for large hedge funds

Quick Take

  • Hedge funds with more than $500 million of net assets would have to report cryptocurrency exposure under a new joint proposal from the SEC and CFTC.

  • Regulators want to learn more about the risks cryptocurrency markets might pose to the broader economy. 

Hedge funds would be required to report cryptocurrency exposure through a confidential filing under a new joint proposal considered by the Securities and Exchange Commission and the Commodity Futures Trading Commission.

The commissions want to learn more about the risks that cryptocurrency poses to the US economy, especially after the market crash this summer. The proposal was first reported by the Wall Street Journal

Under the proposed rule, hedge funds with more than $500 million of net assets would report cryptocurrency exposure using Form PF, a confidential filing created after the 2008 financial crash. The funds would also need to report information about their portfolio concentrations and borrowing arrangements. The SEC considered amendments to Form PF during an open meeting on Wednesday. 

Federal agencies use reported data to publish statistics about the private funds industry.

"I'm pleased to support the proposal because if adopted I think it would improve the quality of information we receive from all form PF filers, with particular focus on the large hedge fund advisers," SEC Chair Gary Gensler said during the commission meeting. 

An SEC fact sheet on the proposed Form PF amendments says that they "are designed to enhance FSOC’s [Financial Stability Oversight Council] ability to monitor systemic risk and bolster the SEC’s regulatory oversight of private fund advisers." The number of private funds increased by nearly 55 percent between 2008 and the third quarter of 2021, according to the fact sheet.

"You have this private fund space growing more rapidly, and less transparently," Gensler said. 

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