Despite the turmoil of recent years, hedge funds, including the macro funds, are here to stay and are likely to increase their infiuence in financial markets in the years to come. This chapter examines the reasons why hedge funds will remain important to financial markets and institutions, and then explores what this means for policy.

The policy analysis is structured in four parts. Given the experiences with highly leveraged institutions in recent years and the continuing important role of HLIs in markets around the world, the policy discussion starts with an analysis of the case for policy action, and then sets out three core principles which should underpin such action. Four proposals are then analysed: greater transparency of HLI operations, including public disclosure of aggregate positions by institutional class; imposing margining on all swap and repurchase facilities; the introduction of a code of conduct for financial market participants; and possibly regulating electronic broking in foreign-exchange markets. The policy analysis concludes with an assessment of the merits of direct and indirect regulation of HLI activity, including a discussion on the direct measures taken by some countries in east Asia to limit offshore speculative activity.

The endpiece concludes the chapter and the book.