Friends, I read the article below with much concern. A second Russian debt default could make the meltdown of the Long-Term Capital Management "hedge fund" look like a walk in the park, no? Seth Sandronsky Monday May 3 1999 HK issues US with hedge-fund warning BARRY PORTER in Manila Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong has told the United States not to put the interests of American hedge funds and other highly leveraged institutions ahead of small open markets such as Hong Kong. He warned the US and other economic powerhouses against stalling proposed reforms to the world's financial architecture in the wake of the economic crisis. Mr Yam told a gathering of leading international bankers that the many working groups set up to review possible global financial sector changes were taking "too long". "There is always the risk that, when the dust has settled, the initiative and enthusiasm, dare I say, on the part of those less affected by the crisis, may be stifled," Mr Yam said in an address to the Institute of International Finance in Manila. "There is also the risk that the plight of those who have been seriously affected by the crisis is not given the attention it deserves, simply because they do not have an adequately representative voice on the issues at hand at these international forums." Mr Yam said there had been no lack of ideas, but these needed to be translated into action sooner rather than later. He said it was clear highly leveraged institutions acted in a calculated, secretive and potentially highly destablising way and safeguards were needed. Mr Yam made three suggestions. He called for greater transparency of markets, particularly over-the-counter (OTC) markets, which, he said, were very opaque and were where highly leveraged institutions conducted most of their activities. "Unlike ordinary exchanges, OTC markets are subject to little, if any, transparency or regulatory requirements, raising the risk of price-ramping, collusion of misconduct," said Mr Yam, calling for a better disclosure framework. He said he supported a German proposal for an international credit register, which would collate information on the exposures of international financial intermediaries to large market players that have a potential to create systemic risk. He called for highly leveraged institutions and hedge funds to be regulated. The Basle Committee on Banking Supervision, a working group of specialists from the Group of 10 leading industrialised nations, has recommended indirect regulation whereby banks adopt more prudent policies on the assessment and management of their exposure to such institutions. Mr Yam said: "Other tools of indirect regulation could include the imposition of capital charges on lending to such institutions, raising margin and collateral requirements." However, he was yet to be convinced that such indirect measures could adequately protect smaller markets like Hong Kong from overwhelming speculative onslaughts. Finally, the HKMA chief said there was a need for international co-operation to tackle regulatory arbitrage, in order to penalise highly leveraged institutions trying to escape any new market environment. He suggested higher risk weights for counter-party transactions for banks doing business with financial entities operating out of offshore jurisdictions that did not comply with Basle core principles. However, Mr Yam stressed he was not against free markets and warned that a delicate balancing act would be required not to impose over-heavy reporting burdens or infringe too much on proprietary information of individual institutions. South China Morning Post Publishers Ltd. All Rights Reserved. _______________________________________________________________ Get Free Email and Do More On The Web. Visit http://www.msn.com