WILLIAM DONALDSON rode roughshod over the wishes of Republicans during his tenure as chairman of the SEC, even though he was a close family friend and a personal appointment of President Bush.

Perhaps his greatest clash with the party came last October when he imposed the first regulation on the hedge fund industry. In a 3-2 split vote carried by Mr Donaldson, the SEC adopted a rule requiring registration by advisers managing more than $25 million of hedge fund assets for 15 or more clients.

The two SEC board directors who voted for it were Democrats; those that voted against it were Republican. The rule, which forces the advisers to undergo routine inspections by SEC examiners in an attempt to thwart fraud, is due to become effective next February. But it was so vehemently opposed by Republicans on Wall Street and in Washington that John Snow, the Treasury Secretary, and Alan Greenspan, the Federal Reserve Chairman, both publicly denounced the rule changes.

It has been said by some allies of the SEC chairman that he never recovered from that fight. Talk of his demise has circulated in Washington and on Wall Street since the hedge fund rule was passed.

Mr Donaldson also carried a split 3-2 vote that forced mutual funds to appoint independent chairmen. In April another rule change was carried by Mr Donaldson siding with the Democrats on the SEC board. The new regulation required orders for shares to be fulfilled at the best possible price provided they could be executed immediately.

This change also angered Republicans, with a growing chorus calling for legislation to reverse it, citing the number of split votes at the SEC in the past year as a major cause for concern.

• In the UK, the Financial Services Authority is set to publish a discussion paper at the end of this month that will look at the activities of hedge funds, which are unregulated and offshore. One of the main things that the FSA will be looking at is the threat posed to financial stability by the funds’ activities. The paper will also look at whether hedge funds need to be more closely monitored and regulated. Hedge funds have been playing an increasing role in corporate takeovers, leading to complaints from companies who claim that they create instability.