SEC: Crypto Exposure Surveillance May No Longer Be Optional for Hedge Funds

Segments of LinkedIn lit up on Wednesday, August 10^th with comments about the SEC’s proposed revisions to Form PF, revisions which would require private hedge funds to disclose their assets’ exposure to the crypto market. SEC chair Gary Gensler argued that the revisions would enable regulators to “gain transparency into an important sector of the financial marketplace to better assess risk to the overall system.” 

Among other changes, the proposed rules would require companies to separate crypto exposure and crypto assets from cash and cash equivalents on their balance sheets.

Too Burdensome?

But quantifying the value of crypto exposure is no easy feat. Hedge funds may not only own digital assets themselves but have indirect exposure through shares in companies with digital assets and through the holdings of instruments such as ETFs, UITs, and mutual funds. SEC Commissioner Mark Uyeda, an opponent of the change, pointed out in a statement that the costs of these “more granular disclosures” would disproportionately burden smaller private funds that are less able to allocate additional resources to compliance.

The Solution

Fortunately, SQX is ready with a solution for both large and small private advisers. SQX began offering crypto exposure surveillance earlier this year, and we have already cleared the hurdles to tracking exposure to the turbulent and miasmic crypto market. And we level the playing field through pricing tailored to the size and need of the financial institution so that smaller firms aren’t unduly burdened.

We track exposure for a range of instruments such as ETF's, ETP's, UIT's, Mutual Funds, Equities, Indices, and Derivatives. For each instrument, we report the type of crypto exposure, such as blockchain, mining, hardware, etc. For securities, we show the ratio of digital assets to total holdings, plus we calculate a qualitative weighting of the security’s exposure and indicate the correlations between the price of the security and the prices of Bitcoin and Ethereum. 

This robust crypto exposure surveillance has benefits beyond compliance, though. Clients have expressed interest in our data to develop internal risk management controls and exposure monitoring, create and sell ETFs with customized exposure types, recommend products or funds based on clients’ risk tolerances, and make trading decisions to gain exposure to or hedge against crypto.

Whichever group you fall into—whether it’s SEC compliance, product development, or strategic trading—SQX can make the task of tracking your crypto exposure easy and affordable. 

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