2004 Reports

New proposals to regulate hedge funds: SEC Rule 203(b)(3)-2

Edwards, Franklin R.; Mishkin, Frederic S.

On September 29, 2003, the Securities and Exchange Commission (SEC) issued a report
on the “Implications of the Growth of Hedge Funds” (the “Report”).
The Report raised several
issues related to hedge funds and proposed a number of regulatory initiatives that the SEC might
take. Its principal recommendation was that the SEC should require most hedge managers to
register as investment advisers under the Investment Advisers Act of 1940, as amended (the
“Advisers Act”). On July 14, 2004, after a lengthy period of public comment on the Report, the
SEC (“Commission”) adopted (by a split vote) Rule 203(b)(3)-2, which implements this
registration recommendation, and set a two-month period for public comment before formally
adopting the Rule on December 2, 2004.