Hedge funds: Hope your shorts are clean, because you may soon have to put them on display for the world to see

The financial landscape may be about to become more transparent if Chris Cox has his way and hedge funds aren't going to be happy:

Hedge funds and investors managing more than $100 million in securities would be ``required to promptly begin public reporting of their daily short positions,'' Chairman Christopher Cox said in a statement today. The enforcement division will obtain ``disclosure from significant hedge funds'' regarding ``past trading positions in specific securities,'' Cox said.

``A lot of hedge funds don't like being forced to disclose their long portfolios, so they're really not going to like this,'' said Sean O'Malley, a former SEC lawyer and now a partner at Goodwin Procter LLP in New York. ``There is going to be some push back from hedge funds, but they may not get any sympathy in the current market environment.''

It's unclear if the rules would only apply to common stock or to options and other securities as well.

SEC May Require Hedge Funds to Reveal Short Positions - Bloomberg

SEC Statement is below:

Statements of SEC Chairman Christopher Cox and Enforcement Division Director Linda Thomsen Regarding Immediate Commission Actions to Combat Market Manipulation
FOR IMMEDIATE RELEASE
2008-209

Washington, D.C., Sept. 17, 2008 — Securities and Exchange Commission Chairman Christopher Cox and SEC Enforcement Division Director Linda Chatman Thomsen issued the following statements today concerning ongoing and forthcoming Commission actions to investigate fraud and manipulation in the nation's securities markets:

"Millions of investors entrust their savings to our securities markets because they can be confident that our markets are orderly, liquid, efficient, and rational," said Chairman Cox. "The turmoil in today's markets, particularly in the financial sector, is challenging that assumption for ordinary Americans. Markets are the best tool a free society has to price and allocate assets across a complex economy, but as is well known from experience, sometimes the wisdom of crowds is supplanted by crowd behavior. We need well-functioning markets to help us draw the line between reasonable miscalculation and error or something worse involving the failure of due diligence, self-dealing, and conflicts of interest. It is thus vitally important that the market mechanism continue to inspire investor confidence.

"In order to ensure that hidden manipulation, illegal naked short selling, or illegitimate trading tactics do not drive market behavior and undermine confidence, the SEC today took several actions to address short selling abuses," Chairman Cox continued. "In addition to these initiatives, which will take effect at 12:01 a.m. ET on Thursday, I am asking the Commission to consider on an emergency basis a new disclosure rule that will require hedge funds and other large investors to disclose their short positions. Prepared by the staffs of the Division of Investment Management and the Division of Corporation Finance, the new rule will be designed to ensure transparency in short selling. Managers with more than $100 million invested in securities would be required to promptly begin public reporting of their daily short positions. The managers currently report their long positions to the SEC."

Chairman Cox continued, "Director Thomsen and the Division of Enforcement will also expand their ongoing investigations by undertaking a series of additional enforcement measures against market manipulation. The Enforcement Division will obtain disclosure from significant hedge funds and other institutional traders of their past trading positions in specific securities. Those institutions will also be required immediately to secure all of their communication records in anticipation of subpoenas for these records."

SEC Director of Enforcement Linda Chatman Thomsen said, "The Enforcement Division has been investigating and will continue to investigate any suggestion of manipulative trading. We are committed to using every weapon in our arsenal to combat market manipulation that threatens investors and capital markets."

The Commission is actively considering additional actions as appropriate.