Rethinking Hedge Fund Regulation: Focusing on the U.S., the U.K., and Korea

Until the global financial crisis in 2008, hedge funds had relied on various safe harbor rules to remain unregulated. Since then, various subprime mortgage crisis-driven regulatory reforms have been made worldwide. Through the implementation of registration and reporting obligations the hedge fund regulatory framework has been changed to reinforce regulations that may provide financial stability, making hedge funds more like other regulated entities. Current hedge fund regulations are based on the policy grounds, on one hand, that macro-prudential regulations are necessary due to the potential adverse effects on the market from hedge fund size and leverage positions, and on the other hand, that conventional micro-prudential regulations are necessary due to the rising exposure of unaccredited and unsophisticated investors to the market (necessitating governmental protection). Based on observations of the hedge fund regimes in the U.S., the U.K., and Korea, this article concludes that the current regimes have succumbed to the pressure to overregulate: It would be prudent for future regulatory efforts to focus on making the hedge fund market accessible to only accredited investors, and the role of a visible regulatory hand in this market should be refrained from to the extent necessary to promote market competition and financial innovation, while mitigating potential systemic risk from hedge fund failures

Enhancing Distribution Resilience with Mobile Energy Storage: A Progressive Hedging Approach

Electrochemical energy storage (ES) units (e.g. batteries) have been field-validated as an efficient back-up resource that enhance resilience of the distribution system in case of natural disasters. However, using these units for resilience is not sufficient to economically justify their installation and, therefore, these units are often installed in locations where they incur the greatest economic value during normal operations. Motivated by the recent progress in transportable ES technologies, i.e. ES units can be moved using public transportation routes, this paper proposes to use this spatial flexibility to bridge the gap between the economically optimal locations during normal operations and disaster-specific locations where extra back-up capacity is necessary. We propose a two-stage optimization model that optimizes investments in mobile ES units in the first stage and can re-route the installed mobile ES units in the second stage to avoid the expected load shedding caused by disaster forecasts. Since the proposed model cannot be solved efficiently with off-the-shelf solvers, even for relatively small instances, we apply a progressive hedging algorithm. The proposed model and progressive hedging algorithm are tested through two illustrative examples on a 15-bus radial distribution test system.Comment: Accepted for publication in the Proc. of the 2018 IEEE General Meeting in Portland, Orego

Mitigation-Aware Bidding Strategies in Electricity Markets

Market power exercise in the electricity markets distorts market prices and diminishes social welfare. Many markets have implemented market power mitigation processes to eliminate the impact of such behavior. The design of mitigation mechanisms has a direct influence on investors' profitability and thus mid-/long-term resource adequacy. In order to evaluate the effectiveness of the existing market power mitigation mechanisms, this paper proposes a mitigation-aware strategic bidding model and studies the bidding strategies of the market participants under current practice. The proposed bidding model has a bilevel structure with strategic participant's profit maximization problem in the upper level and the dispatch problem for market operators in the lower level. In particular, the consideration of potential offer mitigation is incorporated as upper-level constraints based on the conduct and impact tests. This bilevel problem is reduced to a single-level mixed-integer linear program using the KKT optimality conditions, duality theory, and linearization. Numerical results illustrate how a strategic player can exercise market power to achieve a higher profit even under the current market power mitigation process and we analyze the social impact that the market power exercise results