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US regulators want hedge funds, private investment trusts that speculate in stocks, bonds and currencies, to provide regular accounts to the authorities.
They also want to know details of how much they have borrowed from banks and other financial institutions.
President Clinton has decided to accept the recommendations of the President's Working Group on Financial Markets, which brought together officials from the US Treasury, the Federal Reserve Bank, and the Securities and Exchange Commission, which regulates the stock market.
"Taken together, the report's recommendations are an important step in our efforts to promote more secure financial markets," he said.
Close to meltdown
The report was prompted by the near-collapse of hedge fund Long Term Capital Management (LTCM) in September, which was rescued by a consortium of banks for $3.6bn.
The hedge fund had built up stakes worth $1.5 trillon dollars in bond markets around the world, using money borrowed from the banks. It had borrowed 28 times its own worth, making it one of the most highly leveraged financial institutions ever.
If it had been allowed to collapse it could have triggered a worldwide crisis of confidence, raising the cost of borrowing for governments and companies alike.
It might have also precipated a run on the banks that had lent it so much money.
"The LTCM episode well illustrates the need for all participants in our financial system, not only hedge funds, to face constraints on the amount of leverage they can assume," the report said.
More disclosure
The recommendations include:
The SEC and the Commodity Futures Trading Commission would police the new requirements, some of which would be voluntary.
US Deputy Treasury Secretary Gary Gensler said that the Administration proposals would focus on disclosure and transparency, allowing the private sector to judge for itself the risks involved.
The chaiman of the House Banking Committee, Republican Jim Leach, has broadly welcomed the recommendations.
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