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SEC will redefine new rule if it finds cases of avoidance

The SEC may amend a rule aimed at US hedge funds if managers start to use it as a loophole to avoid registering with authorities.

According to the new rule, US hedge funds with more than USD 30 million in assets and 15 or more clients will be required to register with the SEC, as of 1 February 2006, thus providing basic information about themselves and opening their books to the SEC.

However, the rule also offered hedge funds a way out by saying that managers do not have to register if they agree to lock up client money for two years, a provision which might be a welcome way to sidestep registration.

According to Paul Roye, director of the SEC's Division of Investment Management, the SEC plans to watch funds carefully and in the event it finds "significant evasion" it will redefine the rule.

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