Obama point man seeks derivatives disclosure

Marketwatch ^ | Nov. 18, 2008 4:04 p.m. EST | Ronald D. Orol

[Ernest_at_the_Beach]

Ex-SEC commissioner Campos wants to bring back hedge fund manager registration

WASHINGTON (MarketWatch) - A top adviser to President-elect Barack Obama on securities regulations called Tuesday for the Securities and Exchange Commission to require more complete disclosure of "synthetic securities" and other derivatives.

"All synthetic securities, all derivatives should be overseen by the SEC or an organization the SEC morphs into," said Roel Campos, a former Democratic SEC commissioner and member of Obama's transition team. "Disclosure, transparency, counterparties, leverage, positions and derivatives should be well known so people aren't fooled into thinking that they are entering into a safer situation than they have entered into in the past."

Campos spoke at a Chartered Financial Analysts Institute event.

At issue are trillions of dollars of derivatives, including cash settled equity swaps, which give buyers an economic interest in the company but not a direct ownership stake. They are contracts between investors and bank derivatives dealers where a shareholder takes or gives a payment equal to the increase or decrease in the underlying share price by a certain date.

Under so-called 13D rules in the U.S. investors are required to disclose when they own more than 5% of a company. But equity swaps give buyers an economic interest in a stock, not the right to vote or the ability to sell the securities. That means these positions don't have to be disclosed when they rise above 5%.

The swaps are controversial because they can allow a hedge fund or rival firm secretly to build a stake in a company they are pressing for into acquisitions or other actions.

[Ernest_at_the_Beach]

This seems like a good move!

[Ingtar]

...build a stake in a company they are pressing for into acquisitions or other actions.

If, as the article says, no control is given, how is this building a stake?

[Ernest_at_the_Beach]

Not sure how the “swap” works so can't say,...I suppose they could threaten to dump the swaps which may impact the stock prices.