Hedge fund managers must closely monitor their operations in an attempt to detect any potential trade errors and resolve them as quickly as possible. However, once a trade error is detected, the question of who bears responsibility for that error remains. Will the manager reimburse the hedge fund for any losses that it has incurred in light of the trade error? Or, will the fund have to bear that burden? Hedge fund managers must also keep in mind other operational considerations including materiality; applicability of trade error policies across multiple funds and accounts; and regulatory concerns. In an effort to determine industry best practices for addressing trade errors, the Hedge Fund Law Report conducted a survey of hedge fund managers. This second article in a two-part series presents the results of that survey with respect to detection of and responsibility for trade errors, as well as other operational considerations. The first article
discussed fundamentals of trade error policies and handling trade errors. For more on trade errors, see “How Should Hedge Fund Managers Approach the Identification, Prevention, Detection, Handling and Correction of Trade Errors? (Part Three of Three)
,” Hedge Fund Law Report, Vol. 6, No. 12 (Mar. 21, 2013).