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Ken Griffin, the founder and chief executive of $62bn US hedge fund Citadel, has warned regulators that they should focus their attention on banks rather than his industry if they want to reduce risks in the financial system stemming from leveraged bets on US government debt.
Global regulators have warned about growing risks emerging from the so-called Treasury basis trade — selling Treasury futures while buying US government bonds and extracting gains from the small gap between the two using borrowed money.
But Griffin said they should focus on the risk management of banks that enable the trade by lending to hedge funds, rather than try to increase regulation of the hedge funds themselves.
The US Securities and Exchange Commission, which regulates hedge funds, has proposed a new regime for the Treasury market that would treat hedge funds like the broker-dealer arms of banks.
“The SEC is searching for a problem,” Griffin told the Financial Times. “If regulators are really worried about the size of the basis trade, they can ask banks to conduct stress tests to see if…
