The U.S. Securities and Exchange Commission (SEC), the federal agency responsible for regulating securities markets, has been directed by a U.S. appeals court to reassess the economic impact of rules introduced during President Joe Biden’s administration to increase transparency in short-selling trades. The decision, issued by the 5th U.S. Circuit Court of Appeals, came after hedge fund associations, including the National Association of Private Fund Managers, the Managed Funds Association (MFA), and the Alternative Investment Management Association, challenged the rules.
The three-judge panel rejected claims that the rules exceeded the SEC’s authority or exposed confidential trading positions but required the agency to provide a clearer cost-benefit analysis. An SEC spokesperson responded, saying, “The Commission is reviewing the decision and will determine next steps as appropriate.”
The rules were originally adopted in 2023 under Democratic SEC Chair Gary Gensler, following heightened scrutiny of short-selling after the 2021 GameStop “meme stock” episode. With leadership now under Republican appointee Paul Atkins, the SEC must revisit the rules amid continued industry resistance. Bryan Corbett, CEO of the MFA, welcomed the ruling, stating, “These regulations were fatally flawed from the start when the SEC adopted highly related rules on the same day without analyzing the impact one would have on the other.” Hedge funds expect the SEC to re-propose a revised version of the rule rather than abandon it entirely.
