Hedge Fund Lobby Warns Over 'Third Country' Rules

Feb 10 2012 | 2:44am ET

The hedge fund industry is crying foul—again—over proposed European Union regulations that would impact funds' relationships with entities outside of the bloc.

The Alternative Investment Management Association is taking issue with the Markets in Financial Instruments Directive. A proposed revision of those rules, which cover services used by hedge funds, needs major changes, including a new definition of algorithmic trading that could be read to include all computer-assisted trading.

"The most worrying proposals are around third countries, particularly the need to register with [the European Securities and Markets Authority] if you wish to trade with European eligible counterparties," AIMA's Jiri Krol told HFMWeek. "It's another element in a long line of quite unfortunate third-country regulatory proposals. This could make life difficult for all market participants, not just investment managers."

AIMA's latest worry follows its fight over the third-country provisions in the EU's Alternative Investment Fund Manager Directive, which comes into force next year. Despite a deal struck in 2010 that would give third-country hedge and private equity funds access to EU markets on equal footing with EU funds, AIMA warned in September that ESMA's plan for implementing the new rules could actually bar EU investors from investing in non-EU funds.

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