Facing the financial crisis: Bank of Italy's implementing regulation on hedge funds

Purpose – This paper sets out to describe the Bank of Italy's implementation regulation on hedge funds pursuant to Law Decree No. 185 of November 9, 2008, the so‐called Anti‐Crisis Decree aimed at stabilizing the Italian economy during the current financial turmoil. Design/methodology/approach – The paper defines the criteria for hedge funds, actually known as “speculative funds,” under Italian law; explains provisions under Law Decree No. 185 for a hedge fund to respond to redemption requests, sell assets if necessary, and create side‐pockets if necessary. It defines side‐pockets as closed‐end funds and describes their purpose, operation, and set‐up procedures. The paper also explains the criteria for defining assets as illiquid and transferring them to side pockets. It also discusses approval procedures for amendments to hedge fund rules and the implications of the new regulation. Findings – The Anti‐Crisis Decree and the Bank of Italy's implementation regulation are among measures to ensure transparency, the orderly conduct of trading, and the protection of investors; their ultimate impact is uncertain. Originality/value – The paper provides a concise summary of hedge fund regulations by an attorney with experience in the Italian financial markets.