The debate over the regulation of hedge funds will come to a head later this month as the Securities and Exchange Commission plans to hold a vote at its meeting on Oct. 26, sister publication Securities Industry News reports.

The proposed rule, issued by the SEC in July, would require hedge fund advisers to register under the Investment Advisers Act of 1940. The proposal has been met with fierce opposition from the hedge fund industry, which has launched a concerted effort to defeat it.

Still, the rule has the backing of the mutual fund industry, which has argued that even though hedge funds served as enablers in many of the recent market-timing and late-day trading scandals, they received little punishment, in part because hedge funds are not bound by the same rules as registered funds.

The SEC is also divided on the issue, having voted 3-2 along partisan lines to promote the rule proposal, with Chairman William Donaldson casting the deciding vote in favor of regulation. Donaldson has remained a champion of regulation throughout the hedge fund controversy, declaring at one point, "The hedge fund industry is a $1 trillion-dollar corner along Wall Street, with warning signs flashing at us. We simply can't afford to continue to walk by and ignore it."

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