Are hedge funds affecting market information

There have been recent events which are prompting the market to question whether the activities of hedge funds are changing the flow of information to the market.

It is not secret that hedge fund now account for at least 50% of the trades on both the New York and London markets. Hedge funds can participate in companies by equity or debt and now increasing in the form of loans. They have been become major players in the opague debt market. This makes them privy to market moving inside information. This is raising some concern, especially from banks who are the traditional lenders and have separated this business from other parts of the bank to prevent sharing of insider information.

This has prompted trade association for lenders to draw up new guidelines on how confidential and material non public information is used. In hedge funds, it is difficult to have chinese walls as these firms are usually smaller and the same person who makes a decision on the loan is also the equity trader.

To deal with this issue, some of the larger hedge funds have however implemented information barriers. Some funds have imposed trading restrictions if they receive non public information and others have opted to receive only public information.

This issue of managing information is a serious one and it is very difficult to find the right answers although steps are being taken in the right direction.

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