A US appeals court has ordered the Securities and Exchange Commission (SEC) to conduct a fresh cost-benefit analysis of its short-selling disclosure rules, handing hedge fund groups a partial win in their legal challenge against the regulator, according to a report by Reuters.
The case was brought in late 2023 by the Managed Funds Association (MFA), the Alternative Investment Management Association (AIMA), and the National Association of Private Fund Managers, who argued the new reporting requirements risked exposing confidential trading strategies and failed to meet statutory standards for rule-making.
While the 5th US Circuit Court of Appeals rejected claims that the SEC had exceeded its authority, it ruled that the regulator had not adequately justified the economic impact of the rule, introduced under former SEC chair Gary Gensler in response to the 2021 meme-stock trading frenzy.
The decision now pushes the rule back to the SEC, under its new leadership, to reassess its framework. Hedge fund groups expect the regulator to issue a revised proposal rather than abandon the initiative altogether.
Bryan Corbett, CEO of the MFA, has welcomed the ruling, saying: “These regulations were fatally flawed from the start, adopted without sufficient analysis of their cumulative impact,” he said.
