GOP Lawmakers Ask SEC to Justify Private Funds in Proposal
(Bloomberg) -- Two senior Republican lawmakers are asking the US Securities and Exchange Commission to justify including private funds in a proposal that would require high-frequency trading firms to register as securities dealers.
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Including private funds in the rule could disrupt the $24 trillion US Treasury market even after the Federal Reserve raised concerns in a recent report about low liquidity in the bond market during the prior year, Senator Bill Hagerty of Tennessee and Representative French Hill of Arkansas said in a letter sent Thursday. Hagerty is ranking member of a Senate Banking subcommittee. Hill leads a House Financial Services subcommittee.
The costs to market participants and the Treasury market of “forcing private funds that are investors to become dealers or change their trading behavior are likely to be extraordinary and exceed the perceived benefits of the proposal,” the lawmakers wrote.
Private funds have signaled that they will change or abandon some investment strategies, including in the US bond market, if forced to register as dealers, Hagerty and Hill said.
The rule is meant to level the playing field among market makers that provide liquidity in Treasuries, the SEC said when it proposed the rule last March. Some firms, including proprietary trading firms, historically haven’t had to register as dealers.
The two members of Congress asked the SEC to respond to a host of questions, including why the agency included private funds within the scope of the proposal, and how the agency envisions private funds and their investment advisers being able to register as dealers.
The Managed Funds Association, a trade group representing hedge funds and private equity firms, said it shared the lawmakers’ concerns with the proposal.
“Instead of improving market stability, the SEC’s dealer proposal will push firms to exit Treasury markets, which will result in greater volatility, less liquidity and reduced market resiliency,” Jillien Flores, head of MFA’s global government affairs, said in an emailed statement.
SEC Chair Gary Gensler “will respond to members of Congress directly, rather than through the media,” an agency spokesperson said in response to an emailed request for comment.
(Updates with detail from lawmakers in fourth paragraph. A previous version corrected the spelling of a name.)
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