Hedge funds may be considered too complex for the SEC to investigate, but nobody is too complex to be regulated. It begins by the SEC determining what benefits bear funds and what benefits bull funds.
Then make one regulation restricting each in a small way. If that does not reduce volatility, then make one more small restriction on each, etc. And be sure to have some powerful restrictions on the back burner in case things get out of control quickly, much like trading circuit breakers.
The actual effect is far less important that showing the initiative to get things under control. By making the market comfortable that less extreme vacillations won’t get out of control, the confidence will be there to not panic.
In turn, this will slowly reduce the motivation to have hedge funds in the first place, allowing the less smaller and less successful ones to perish, along with the dominance over the market.
Good luck trying. Just remember ERM, and the G7 agreement of 1973, and ftm the Franco-British ''stability'' pact of 1924 when your new regulations fail to achieve their goals -- which they absolutely infallibly will. The only variable in their failure is how long they will take to fail.
The net bottom line on your ''regulations'' is that the chaps in the mkt are MUCH smarter than the clowns in the gov't...if you'd care to bet against this proposition, I'll take $10K of your wager, right now, with a 4-year time limit on when your regulatory scheme will fail badly in the practical world (and, no, the pronouncement of bureaucrats will not count in the settlement of our wager; we'll take our cue from the real world).
Care to play?
;^)