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ARTICLE · 19 NOVEMBER 2015

Added Banking Regulations Altering Hedge Fund Activity, Causing Shift Towards Swap-Based Trades

Herbert Smith Freehills Kramer LLP
Herbert Smith Freehills Kramer LLP
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Herbert Smith Freehills Kramer LLP

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Added regulations on banks and prime brokers are creating changes for hedge funds, which face increased trading fees and broader changes to business relationships.

United StatesFinance and Banking
George Silfen
George Silfen
Ronald Feiman
Ronald Feiman
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Added regulations on banks and prime brokers are creating changes for hedge funds, which face increased trading fees and broader changes to business relationships. This is putting pressure on funds' margins and is causing managers to seek other growth strategies, according to EY's 2015 Global Hedge Fund and Investor Survey. Additional regulation from Basel III, Dodd-Frank and elsewhere have caused banks and their prime brokerage units to increase their focus on liquidity, balance sheet capacity and funding, resulting in changes for fund managers who use prime brokers to finance trades. As a result, fund managers using distressed credit, fixed income and global macro strategies have experienced some of the highest price increases. Respondents also expect price increases and broker limitations to alter the trading landscape, including causing a shift towards swap-based trade execution and reducing repo financing and overall leverage.

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