Regulatory Arbitrage
Arbitrage is the practice of taking
advantage of a difference (usually
price difference) between two or more markets.
In order to
have arbitrage opportunities, we need
to find a difference.
Regulatory Arbitrage is the practice of
taking advantage of a regulatory difference
between two or more markets.
Basel ii is a
mandatory framework which is full of
differences (different approaches, different deadlines,
different options, different national discretions etc. )
When we have all these different approaches and options
by design
(Basel ii is proud of that), we also have
"flexible" countries that create opportunities...
...
and "non-flexible" countries
(compliance is just an obligation).
Hedge Funds select the more favorable jurisdictions, playing one
government off against another. Is it
fair? Absolutely!
The
"flexible" countries know that. They have a plan, to retain or
attract foreign direct investments. They know that
hedge fund managers like shopping, especially
"regulator shopping". They try to find the friendliest regime
to do business.
The "non-flexible" countries complain.
They say that a general easing of regulations is a
"race to the bottom". And, they
continue to lose money, jobs, investments.
Basel ii is supposed to be the framework
that attempts to align economic and regulatory capital more closely to
reduce the scope for regulatory arbitrage.
At least, this is what they say.
But, you can
not have so many differences
(approaches, deadlines, options and national discretions)
and the same time to say that you try to
reduce the scope of regulatory arbitrage!!! This is an
oxymoron.
Example:
By providing at least three alternative capital calculation methods,
Basel II creates
differences that do not exist in Basel I. The treatment of
non-investment-grade credits
under the standardized approach is so different from the treatment
under the foundation or advanced internal ratings based (IRB)
approach.
Differences = regulatory arbitrage opportunities
Our key goal
is to generate alpha, "excess return"
over market performance. "Alpha" has always to
do with the skill of the hedge fund manager. Skill-based
investing makes the real difference.
Do you want
to discuss Basel ii and Regulatory arbitrage opportunities?
We can
develop a tailor-made presentation, to meet your needs.
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Compliance - Hedge Funds and
Alternative Investments
It is
not easy to regulate Hedge Funds directly.
They use an indirect approach.
They establish
laws, regulations, directives and best practices
for the hedge funds’ counterparties and creditors, for banks and
securities firms. Although indirect supervision can be very
effective, it can also become a competitive disadvantage for a country
or a region.
They speak
about the need of a robust internal risk
management systems for the hedge funds’
counterparties. Working with a "Highly Leveraged Institutions (HLI)"is
a risk. You need to stress test your exposure, to measure it,
and to allocate more capital for this risk.
They establish
Accords like the Basel ii, which informs regulators and
supervisors that they have to focus on the risks
that come from Highly Leveraged Institutions
like the liquidity risk, the
concentration risk, the (fat) tail risk. They should
ensure that the banks’ internal systems capture
the full range of exposures to hedge funds. If not, banks can
forget the "advanced" Basel ii approaches.
They speak
about market transparency, which is never
adequate, ignoring that this is primary risk for hedge funds: There are many that
are more than willing to copy the strategy, behavior, model etc. of
VIP hedge fund managers.
They speak about efficient oversight by
banking and securities supervisors. They have new weapons,
like Basel ii, MiFID, UCITS iii.
They always
speak about the "lessons learned" from
the hedge fund Long-Term Capital Management (LTCM). Nobody is able to
learn something from
the top 50 performing hedge funds.
Hedge Funds -
Compliance Training and
Presentations
Fully tailored training,
presented exclusively for your own people
Compliance LLC is
pleased to offer
an
exciting range of training and consulting services. We can help your
organization understand better the
compliance challenges for the Hedge Funds
in
the context of the
UCITS
iii directives, the Markets in Financial Instruments Directive
(MiFID) and the Financial Services Action Plan (FSAP)
of
the European Union.
What
we can do for you:
In-company Awareness, Training and
Presentations.
1.
Presentations for the Board of Directors and Executive Management
60 - 180 minutes
2.
Overview of the directives and the new challenges and opportunities
One day
3.
Tailor made presentations and training
Let us know what you
need
The courses are
intended for:
-
Hedge Fund
Managers
-
Hedge Fund and
Fund of Funds Marketing Organisations
-
Hedge Fund and
Fund of Funds Managers, Administrators, Lawyers and Prime Brokers
-
Institutional
Brokerage Houses
-
Investment
Professionals
-
Wealth Management
Firms
-
Risk Managers
-
Professionals
responsible for the structure and marketing of financial products
-
Existing and
potential hedge fund and fund of funds Institutional Investors
For Hedge Funds and MiFID: Please visit
www.markets-in-financial-instruments-directive.com
www.mifid-training.com
www.mifid-board-directors.com
For Hedge
Funds and UCITS: Please visit
www.ucits-iii.com
www.ucits-iii-training.com
For Securitization after Basel ii:
Please visit
www.basel-ii-securitization.com
Off Balance Sheet
www.off-balance-sheet.com
Legal Assistance
We
are proud to have the legal assistance of
John J. Maalouf, Chairman
of Maalouf Law Firm, which has offices in
New York City, London and Hong Kong.
He is named as
one of the US Top 10 Finance Lawyers
by US
Lawyer Rankings, 2006 and 2007
Editions.
Web:
www.maalouf.us
Address: 500 Fifth Avenue,
14th Fl. New York, New York 10110
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