Page 39 - Investment Advisor May 2021

THE PLAYING FIELD

By Melanie Waddell

Is Family Office Regulation in SEC’s Future?

Industry officials weigh in on the Archegos meltdown along with a family
office rule review that’s already in the SEC’s crosshairs.

T he recent Archegos Capital mer SEC trial attorney, told me in

mid-April.
Management
meltdown
is
The Dodd-Frank Act of 2010
raising new questions as to
whether the Securities and Exchange “excludes family offices from the fund
Commission this year will mull put- advisor registration requirement, and
ting family offices under its regulatory other SEC filings such as on Forms 13D
purview. or 13F are required only for holdings of
The agency had already said in certain amounts of certain securities,”
its “Reg Flex” agenda, released in Morgan said.
late March in the Federal Register, For instance, “total return swaps
that family office registration rule aren’t on the SEC’s list of securities
exemptions was one of four rules to be disclosed on 13F, and securi-
it planned to review this year. The ties that are on the SEC’s list but that
SEC is required to file its rule review fall below the $100 million aggregate
under Section 610 of the Regulatory threshold don’t need to be disclosed,”
The Dodd-Frank Act Flexibility Act. The purpose of the Morgan said.
Archegos “traded what are called
review is ‘‘to determine whether such
of 2010 “excludes rules should be continued without security-based swaps; that was the
family offices from change, or should be amended or instrument they used to put on that
risk,” said a general counsel of a family
rescinded,” the RFA states.
the fund advisor After Dodd-Frank went into effect in office who asked not to be identified.
Archegos’ derivative contracts
registration 2010, the SEC adopted on June 22, 2011, “exposed the firm to severe losses
a rule to define “family offices” that
requirement, and are excluded from the definition of an when the trades went bad,” The Wall
investment advisor under the Advisers
Street Journal reported. Hwang lost
other SEC filings Act and are thus not subject to regula- $8 billion in 10 days, the Journal
such as on Forms 13D tion under the Advisers Act. reported, while Bloomberg News
reported that Hwang lost $20 billion
Archegos, a family office capital
or 13F are required management firm run by Bill Hwang, in two days.
only for holdings of defaulted on margin calls that resulted SEC LATE TO THE GAME
in a stock fire sale. The firm had $10 bil-
certain amounts of lion under management as of 2020. “As part of Dodd-Frank, Congress
charged the SEC and CFTC to regulate
Industry officials that I spoke to in
certain securities.” mid-April had mixed views as to what security-based swaps. That regulation
the SEC may or may not do regard- is literally going into effect starting in
—Nick Morgan of ing regulating family offices post the August. It would require the dealers to
Paul Hastings Archegos blow up. report security-based swap positions
“The most common reaction to the to a central repository that the SEC
Archegos unraveling has been varia- and public has access to,” the general
tions of ‘Archegos who?’ or ‘Why are counsel said.
there no SEC filings for Archegos?’” “If that [regulation] had been in
Nick Morgan, a partner at legal effect before Archegos blew up, the SEC
defense firm Paul Hastings and a for- would have seen those trades. Congress

MAY 2021 INVESTMENT ADVISOR 37