Edited by Phoebus Athanassiou
Chapter 10: Hedge Fund Regulation through Competition Law Principles – Some Reflections
David Harrison* 51 The condition is easily diagnosed. Over the last half century, the rise of the investment industry has created overwhelming incentives for investors to follow one another into risks they often do not understand. As a result, world markets are hopelessly synchronised. This obstructs rational pricing and, in a capitalist world that relies on markets to set prices, endangers our prosperity. Finding a cure, however, is more difficult. (John Authers, 2010, p.182) INTRODUCTION One could imagine a world where, by accident or design, for policy reasons or because policy-makers cannot agree, there is no dedicated hedge fund regulatory framework. In such a world there would remain the underlying rules of the market economy, including those contained in competition law, to serve as instruments to control hedge funds and their market activities. In the European Union (EU), competition law applies to ‘undertakings’, i.e. to all entities engaged in the pursuit of an economic activity, regardless of their nomenclature, their precise legal status or the manner of their financing. Unlike, say, financial regulation or national taxation rules, EU competition law is not concerned with the details of the legal structure, or the precise physical location of an undertaking. Instead, the effect on EU trade is the test of whether or not competition rules apply to agreements between, or to the conduct of, undertakings (including those that are located outside the EU). The extent to which this test is met can * David Harrison is a lawyer specialising in EU/competition law at...
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