For instance, given the importance of hedge funds in some markets, any abrupt liquidation of their positions could have implications for market stability. In addition, indirect supervision may not be in a position to address the concerns related to shareholder activism I mentioned earlier. In order to address these concerns, additional measures may have to be considered.
I hasten to add, however, that tight regulation of hedge funds – such as we know for banks – is undesirable. In order to preserve the beneficial role that hedge funds play in today’s market, I would prefer a lighter approach. Greater, market-driven transparency could provide markets and firms with a better sense of the build-up of large, concentrated positions or crowded trades.