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May 22 (Bloomberg) - The cost of insuring hedge funds against negligence has risen as much as 20 percent in the past six months after Lehman Brothers Holdings Inc.’s bankruptcy and Bernard Madoff’s Ponzi scheme increased the threat of lawsuits.

The hedge fund industry has reacted furiously to the U.K. Financial Services Authority's recent clampdown on short-selling, according to CR sister publication Alternative Investment News. Under the new rules, which came into effect this past Friday, parties will be required to disclose any net-short position of 0.25% or above that they hold in a company conducting a rights issue. In a statement, the FSA supported the move as a way of "preventing the potential for abuse."

The credit crunch tsunami has touched all sectors within the financial services industry, with each being affected in one way or the other. Even Ireland has felt the impact, albeit to a much lesser extent than the US or the UK. While there is no doubt that the IFSC (International Financial Services Centre) and the Irish funds industry have performed spectacularly in the past decade, many are realising that a new age that has emerged within the financial services industry since the credit crunch last year.

The subprime crisis has prompted a bout of finger-pointing in the financial sector over there the blame lies. Not surprisingly, hedge funds have come into the firing line. Even since the highly leveraged Long Term Capital Management (LTCM) fund imploded in 1997, there has been no shortage of commentators lining up to claim that these high-risk investment vehicles are parasitical in nature, cause havoc in the markets and  damage investor confidence.
The collapse of a number of high profile hedge funds over the past few weeks has been greeted with a certain amount of glee in some parts of the market.

Proposals have been made by Minister for Education and Science Mary Hanafin to “incorporate performance into institutional funding” within higher education institutions and “enhance the accountability of the sector” according to a report seen by Business&Finance.

The stunning losses at France's Société Générale, prompted by rogue trader Jérôme Kerviel, underline a major risk faced by all investors: fraud.

DUBLIN, Sept. 5 — An Irish court on Wednesday appointed an examiner to oversee the restructuring of a small financial company as it tried to repay a portion of $238 million owed some of the world’s largest investment banks. Justice Mary Finlay Geoghegan ruled that at least a part of the company, Structured Credit, had a reasonable chance to survive if it could raise $125 million from shareholders. She approved Structured Credit’s request to restructure rather than liquidate.

Trading errors are a sensitive subject for hedge fund managers and although no major cases have yet been aired, the truth is that most managers have made such mistakes at some stage. Industry insiders argue that these errors are taking place and, given the amount that hedge funds trade in some cases, errors are a statistical certainty. Insurance broker Baronsmead has seen three major cases so far this year. What is more, they are on the increase, with the potential consequences also escalating in severity. Part of the problem is that these errors are so easy to make; they could involve confusing buy and sell orders or simply trading the wrong volume of stock. With increased market volatility, the effects of the smallest error can be exacerbated. An error which in flat market conditions might have been settled for little more than the expenses of the dealing costs becomes much more serious if the stock price has moved significantly. Cautionary tales abound inside the banking world, despite the institutional infrastructure that surrounds traders. Last December saw one of the most expensive trading errors ever made, when a hapless broker at Mizuho Securities in Tokyo mistakenly placed a sell order for 600,000 shares in recruitment agency J-Com despite the fact that the company had only 14,000 shares in issue.

The risk of mistyping a trade is one of the last things on a hedge fund managers’ mind when making investment decisions in fast-moving markets.

Hedge fund managers have been warned that they should have adequate compliance procedures in place to report trading errors and prevent potential conflicts of interest caused by cross-directorships. The warning comes on the back of apparent confusion in the hedge fund industry about whether fund managers should be liable for losses caused by trading errors.