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EU rules on hedge short sell reporting irritate investors and hedge funds

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(Credit: Thomson Reuters) Image shows European Union (EU) Competition Commissioner Joaquin Almunia.European Union
December 6
1:10 PM 2013

The hedge fund industry, including money managers and investors were apparently not happy with the new European rules regarding short-selling. In a Bloomberg report, short-sellers are required by the European Union to report their positions. The hedge fund industry claimed that one fund was forced to close due to the new rules.

The report by Bloomberg defined short-selling or shorting as a process wherein one makes money on a falling asset price. The process also involves an individual to borrow a security to sell it, betting that the price will fall so the individual could buy it back to cover his position.

Bloomberg said in an earlier report that British based hedge fund Meditor Capital Management is set to close its European business and had blamed the new rules, which was introduced last year. When asked by the news agency regarding a comment, Meditor refused to provide one.

Insiders of the hedge fund industry were surprised with the new rules and argued that the financial sector was already comfortable with the current regulations, which also covers coordinating temporary bans on short-selling,

Aberdeen Asset Management hedge funds team product specialist Christian Howells said, "The rules add a layer of regulatory burden and yes, it makes life more difficult but it's an irritation, not a game changer."

Critics of the EU's new rules said the adoption of the hedge fund industry to such rules will increase volatility in prices and hamper liquidity in the process. In September, however, Europe's securities regulator insisted that the new rules do not have a significant effect on market prices and that hedge funds need to learn to live with it.

Paris-based hedge fund Lutetia Capital co-president Fabrice Seiman said, "The increasing regulatory burden is not making our life easier, that's for sure. But we believe that overall the current European framework offers enough flexibility to manage efficiently hedge fund strategies like ours."

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