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Europe Moves a Step Closer to Regulating Hedge Funds

Hedge funds use large amounts of borrowed money and aggressive trading strategies, including selling short, leverage, swaps, arbitrage, and derivatives, in the hope of making large profits

European Union governments moved a step closer to regulating hedge funds Tuesday, a move designed to increase regulation of financial markets, but criticized by U.S. and British officials.

Hedge funds are institutions that cater to wealthy investors and institutional investors. They tend to use large amounts of borrowed money and complex trading strategies in the hope of winning large profits.

The new EU rules would require hedge funds to register with governments, disclose information about their trades, and set aside money to cover possible losses on investments.

One European lawmaker, Jean-Paul Gauzes said it was critical that Europe adopt tough measures against Hedge funds, to guarantee transparency and greater security in financial markets.

U.S. and British officials criticize the current proposal because they say it would force hedge funds to register separately in each of the EU's many nations.

Before the measure becomes law, officials will have to work out differences between the version of the bill worked out by European governments and a separate plan crafted by the European Parliament.