-- Arguing that the Securities and Exchange Commission's emergency restrictions on short-sellers go too far, the nation's largest hedge fund association plans to press for modifications this week.
The rules imposed last week require institutional investment managers with aggregate accounts valued at $100 million or more to give the SEC regular Monday disclosures of their stock-shorting moves for the preceding week.
The rules, scheduled to take effect today, require the first reports to be filed Sept. 29. They will be made public two weeks after each filing, the SEC announced Sunday.
"By disclosing where we're investing … you're in essence taking Colonel Sanders' fried chicken recipe and giving it to Popeyes," said Richard Baker, president and CEO of the Managed Funds Association, which represents more than 600 hedge funds and managed future funds.
Such public disclosure could drive some investors away from hedge funds, he said.
Baker, hedge fund executives and other investment managers plan to press the SEC and Congress to ease the disclosure requirement in meetings expected to start Tuesday. Hedge funds would not object to the emergency rule if the SEC kept the disclosure reports private, he said.
The SEC is evaluating the issue, spokesman John Nester said Sunday.
The objection was among many raised after the SEC late last week enacted broad restrictions on short-sellers, traders who borrow stock and sell it, hoping to profit by replacing that stock with equivalent shares bought in the market at a lower price.
The SEC announced the crackdown after financial companies such as investment bank Morgan Stanley argued that their companies' stocks had been driven down by short-selling.
Along with the new disclosure reports on shorting strategies, the rules included a two-week ban on short sales of stock in 799 financial firms.
The SEC also announced late Friday that it is subpoenaing records and seeking sworn statements from hedge fund managers, broker-dealers and others with significant recent trading activity in financial companies' stocks.
John Standerfer, a vice president of S3 Matching Technologies, a Texas firm that provides business intelligence data reports, said an S3 market analysis of Friday's trading showed 18% of the stocks in which the SEC banned short sales declined, compared with 19% of all stocks in the S&P 500.
"This shows individual stocks can still decline even if they're on the list, and that the percentage of stocks declining was similar between those on and off the list," said Standerfer.
"Short-selling is not really the enemy here. These companies got themselves in big trouble with their actions," said David Tice, manager of the Prudent Bear fund, a large mutual fund that shorts stocks.
"If anything, the short-sellers weren't loud enough … raising concern."