Regulatory Watch List for 2012: The Shifting Landscape for Hedge Funds and Other Private Funds

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The Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), which was adopted in July 2010 with the goals of reducing risk, increasing transparency and promoting market integrity within the financial system, significantly alters the space within which hedge funds and other private funds currently operate.
The majority of the regulations to implement the Dodd-Frank Act have yet to become effective, with the exception of hedge fund adviser registration, discussed in Section 5 below. Nonetheless, federal regulators are working diligently to implement the Dodd-Frank Act’s mandates, and hedge funds and other private funds should begin preparing to comply with the new Dodd-Frank Act requirements now.
Changes and other developments that will be of interest to hedge funds and other private funds as they traverse the shifting regulatory landscape in 2012 are described below. Section 1 provides a general overview of the new regulatory regime that the Dodd-Frank Act imposes on over-the-counter (OTC) derivatives which, until now, have been largely unregulated, and the entities that use them. Section 2 describes (1) the rescission of a regulatory exclusion from the commodity pool operator definition that was previously available to registered investment companies, and (2) the repeal of two exemptions from commodity pool operator registration requirements for operators of funds whose shares are exempt from registration under the Securities Act of 1933. Section 3 discusses proposed changes to commodity pool operator registration and compliance requirements, and Sections 4 and 5 focus on Dodd-Frank Act changes to existing securities laws and regulations, including with respect to large trader reporting and investment advisers. Section 6 highlights some of the concerns raised by MF Global, Inc.’s collapse, which will be of particular interest to hedge funds and other private funds that participate in the futures market. Finally, Section 7 describes recent tax law developments including with respect to cleared swaps, the Foreign Account Tax Compliance Act (FATCA), carried interest and standardized swap documents. To access a artular section directly, please click on the relevant link below.

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