The Securities and Exchange
Commission (SEC) is considering how best to implement
Dodd-Frank's insistence on measuring the systemic risk of funds
with stress tests. US counsel believe a one-size-fits all
approach is unlikely to work.
The 2010 Dodd-Frank Act mandated the SEC to establish
stress-testing methodologies for registered investment
companies and advisers with total assets of over $10 billion.
Now, the regulator is looking into conditional value-at-risk
(CoVAR) for measuring the effects of funds selling in
distressed market environment, and potentially for measuring
the systemic effects of distressed funds too.
Michael Rosella, Paul Hastings "The SEC
is trying to gauge the possibility of a particular
fund’s liquidity problems, a run on the bank so to
speak, having a broader impact on the fixed income market,"
said Michael Rosella, partner at Paul Hastings. In addition,
the stress test for asset managers (AMs) would focus on
assessing an individual fund's ability...