SEC Securities Lending, Short Sales Rules Challenged by Trade Associations

Three buy-side trade associations have filed an opening brief contesting the Securities and Exchange Commission’s (SEC) securities lending and short position reporting requirements. 

The Alternative Investment Management Association (AIMA), the Managed Funds Association (MFA), and the National Association of Private Fund Managers (NAPFM) argue in their petition that the SEC rules apply “contradictory and incoherent approaches” to two aspects of the same underlying transaction, namely the short-sale and the stock borrow. 

In their brief, the joint associations refer to the SEC’s final rule in Reporting of Securities Loans and Short Position and Short Activity Reporting by Institutional Investment Managers.  

“Although the rules are indisputably interconnected and were finalized on the same day, neither rule considered how the two disclosure requirements interact,” said the associations. 

The background to this legal action is detailed in a December 13, 2023 Connect Money article, when the three associations announced this legal action. 

According to the joint associations, the SEC failed to assess the cumulative economic impact of the two laws on affected parties, as well as any harm to pricing efficiency, market liquidity, competition, or capital formation. 

“The adoption of these two rules epitomizes arbitrary and capricious rulemaking by adopting inconsistent disclosure frameworks for interlinked transactions,” said AIMA CEO Jack Inglis. “These rules will unnecessarily impair market efficiency and price discovery, thereby harming both markets and market participants.” 

“The SEC’s defective rulemaking process produced two flawed, inconsistent rules that will harm investors and the markets. The rules should be vacated,” added MFA president and CEO Bryan Corbett.