The U.S. Court of Appeals for the Fifth Circuit has struck down the SEC’s securities lending and short-sale reporting rules, delivering a major win to hedge fund industry groups including the Managed Funds Association (MFA), the Alternative Investment Management Association, and the National Association of Private Fund Managers. The lawsuit argued that the SEC’s dual rules, enacted on October 13, 2023, were contradictory—acknowledging the benefits of short selling while simultaneously imposing disclosure requirements on securities lending that risked curtailing those same practices. 

The court found that the SEC failed to consider the cumulative economic impact of the rules, ruling that the agency’s omission represented a critical flaw in its regulatory process. “It is gratifying to see the Court, yet again, remand the Biden Administration’s ill-conceived rulemakings for the SEC’s new leadership to fix,” said Bryan Corbett, president and CEO of the MFA, adding that his group looks forward to working with President Trump and SEC Chairman Paul Atkins to craft new disclosure rules. 

The decision is being hailed as a victory for hedge funds, which have long maintained that granular disclosure of securities loans would diminish short-selling activity, reduce liquidity, and impair price discovery. Industry groups argue instead for a consistent, integrated reporting regime that acknowledges the interrelated nature of securities lending and short sales. 

The SEC has not commented on the ruling, but the judgment leaves the regulator with the option to revisit and potentially rework its framework, balancing transparency with the functioning of capital markets.