However, these are focused on alternative measures such as capital cushions, liquidity charges and delayed withdrawal for funds with a variable valuation. These initiatives are to be welcomed, but an obligatory shift to variable share valuation would be better. An example of direct regulation of activities is that applying to securities financing transactions.
In these transactions, a German bank, for instance, provides a UK-based hedge fund with short-term financing against collateral in the form of securities. In a liquid market, this type of transaction can contribute to a procyclical build-up of leverage.