Hedge funds typically operate under exemptions from many of the regulatory requirements imposed by securities and commodities laws. Many hedge funds are "offshore" funds, i.e., organized in locations outside the U.S. and offered only to non-U.S. persons. Offshore fund managers with funds consisting of non- U.S. citizens or residents as investors, and whose funds all come from non-U.S. locations, are generally exempt from Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) requirements. The CFTC has made exemptive relief available to registered fund managers who are U.S. citizens or residents with respect to the organization and operation of hedge funds outside the U.S. in which none of the participants is a U.S. person and no capital comes from U.S. sources. Offshore hedge funds also can be exempt from registering their interests with the SEC via the exemptive provisions of Regulation S. Likewise, the fund and its investment adviser also may be exempt from registration with the SEC as an investment company or as an investment adviser.

Even though hedge funds that accept U.S. investors are subject to the U.S. securities and commodities laws, they can substantially limit the amount of regulatory requirements imposed by these laws.




source: CME