D.E. Shaw & Company lost the right to keep its stock portfolio confidential, forcing the hedge fund group, whose trading strategy depends upon secrecy, to unveil holdings valued at $21 billion as of September 30.

Shaw, which ranks among the 20 largest hedge fund managers in the country, has relied on a securities law loophole to keep all of its positions secret for at least the last five years. That ended last month, when the Securities and Exchange Commission said the New York-based firm could no longer rely on the exemption in question, according to regulatory filings.

The SEC decision may represent a setback for Shaw because one of the firm’s specialties – exploiting anomalies in stock prices – becomes less profitable as other investors join in. Disclosure of the group’s stock holdings also may help rival traders gain insight into the strategies and computer models developed under founder David Shaw.

“To actually throw the robe open is not something that is in a quantitative manager’s best interest,” said Barry Colvin, president of Tremont Capital Management Inc., a Rye, N.Y., money management firm that invests in hedge funds. “People can re-engineer your models by the trades you have done over some period of time.”

A managing director at Shaw, Trey Beck, declined to comment.

To prevent copycat trading by rivals, hedge funds have sought to keep information on their holdings from leaking into the public. Shaw has developed a reputation as one of the more secretive hedge funds, with its Web site citing a 1996 article in Fortune magazine that called the firm “the most intriguing and mysterious force on Wall Street.”

The desire to maintain a low profile can conflict with SEC rules that require most money managers to disclose the stocks that they own at the end of each quarter. Firms with $100 million or more in equities under management must list their stock holdings in a Form 13F that is available to the public.

The SEC allows money managers who can show that disclosure would ruin a proprietary trading strategy to file a separate, confidential report.

Billionaire Warren Buffett has used this exemption to keep specific stock holdings from public eyes. Hedge funds that engage in a computer-driven trading strategy known as statistical arbitrage – including Shaw, Glacis Capital Management LLC, and Two Sigma Investments LLC – have employed the process to conceal all of their equity investments.

“There have been many firms seeking confidential treatment for their entire portfolios,” said the chief counsel in the SEC’s division of investment management, Douglas Scheidt. “In large part, we have found most of these are not completely entitled to confidential treatment.”

Mr. Scheidt declined to comment on the reason that the agency revoked Shaw’s confidential status on December 13, a move that the hedge fund group has disclosed in Form 13Fs filed with the SEC during the past two weeks.

According to the SEC documents, Shaw’s stock holdings ranged between $6 billion and $7.5 billion from December 2001 through March 2003.The holdings climbed to $14.9 billion during the remainder of 2003 and rose another $6.4 billion to $21.3 billion during the first nine months of this year.

Shaw’s largest holding as of September 30 was a $260 million stake in Best Buy Incorporated. The portfolio also included 5.9 million shares of Bank of America Corporation valued at $257 million and 6.7 million shares of Pfizer Incorporated valued at $205 million.

Shaw had about $11 billion in capital invested by partners and outside backers in its hedge funds and technology ventures as of December. Given that its stock holdings exceed the amount of invested capital, Shaw may be using borrowed money, or leverage, to boost returns.

Hedge funds often employ leverage to generate higher profits, with the trade-off being that losses will also be magnified should their strategies backfire. Shaw isn’t necessarily taking big risks because, as the filing for September 30 shows, its holdings are spread among 2,292 companies.

“Is $21 billion of fast-moving equity exposure dangerous? Not really, if you are properly hedged and the holdings are just for a short time,” said Bill Fung, a visiting research professor at the London Business School who consults on risk management of hedge fund portfolios.

David Shaw, a former computer sciences professor at Columbia University in New York, has been a pioneer in statistical arbitrage, in which computers crunch data – ranging from a company’s earnings to its historical stock price – to identify stocks that are mispriced.

The strategy, which calls for frequent trading of a large number of stocks, generated annual returns of up to 25% during the 1990s with little volatility, said a finance professor at the Massachusetts Institute of Technology’s business school in Cambridge, Mass., Andrew Lo.

Profits have declined in recent years: statistical arbitrage by hedge funds generated returns of 3.5% in 2004 compared with an 8.9% increase in the Standard & Poor’s 500 Index, according to the president of Hedge Fund Research Incorporated in Chicago, Joshua Rosenberg. One of the main reasons for the decline is that too many managers have crowded into the field.

“The popularity of statistical arbitrage was quite high several years ago,” said Mr. Lo, who has studied the hedge fund industry. “As a result, a great deal of assets flowed in, and that is going to have an impact on performance.”