British Regulators Seek Info On Hedge-Fund Interest-Rate Exposure

Sep 18 2013 | 11:05am ET

The U.K. Financial Conduct Authority is scrutinizing some large hedge funds in the wake of a spike in interest-rate market volatility.

The FCA sent a letter in early August to a number of hedge funds, asking for information about their exposure to rising rates. Some believe June's wild interest-rate moves were the result of a hedge-fund sell-off.

The hedge funds approached do not appear concerned about the probe itself. But they are worried about the fate of the information they have been asked to provide.

"It represents a new approach and is probably in line with the increased level of regulatory attention hedge funds are receiving," an executive at one recipient of an FSA request told Risk.net. "The most interesting angle probably relates to the footprint of hedge funds in particular trades and hence the liquidity risk of them heading for the exit. But I'm still not clear how they will use the information without telling market participants about the positioning of other funds. This would directly impact pricing if it happened and might self-fulfill the run for the door."

A bank derivatives trader put it more succinctly: "It's interesting that the FCA would ask hedge funds about their sensitivity to interest rates because they're effectively asking them for positions. I'd be very nervous about what happens to that information if I were them."


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