• AIMA jointly with National Association of Private Fund Managers (NAPFM) and MFA filed brief challenging the SEC's securities lending and short position reporting rules.
• Follows 3 November 2023 SEC securities lending final rule and SEC short position final rule both became effective as of 2 January 2024.

Court Case Overview

• The associations filed the brief in the case NA of Private Fund Managers v. SEC.
• According to AIMA, the case is about two rules that impose inconsistent requirements for the public disclosure of the same market activity: short selling of securities.
• The rules are indisputably interconnected and were finalized on the same day.
• However, neither rule considered how the two disclosure requirements interact.

Contradictory SEC Rules

• In the final short selling rule, the SEC acknowledges the benefits of short selling.
• When explaining its rationale for a short selling disclosure framework with aggregated, anonymized, and delayed public reporting, the SEC cited the benefits of short selling.
• The benefits to price discovery, liquidity, and good corporate governance.
• Accordingly, the SEC expressed its desire not to inhibit the short selling practice.
• But at same time, the SEC adopted the securities lending rule that has opposite effect.
• The securities lending disclosure framework will have the effect of reducing short selling by publishing granular data on individual securities loans almost immediately.
• SEC never evaluated cumulative economic effect of the two rules on affected parties or the harm to price efficiency, market liquidity, competition, or capital formation.
• Instead, it adopted contradictory disclosure frameworks without any explanation.

Argument for Vacating Rules

• The associations, as petitioners, requested that both SEC rules be vacated by the court
• An argument for vacating is SEC engaged in arbitrary and capricious rulemaking.
• The SEC did so when it adopted two interrelated rules without acknowledging or explaining their contradictory approaches to disclosure of the same market activity.
• The SEC violated SEA and APA by conducting separate economic analyses.
• Analyses which ignored the cumulative impact of the two interrelated rules.
• The securities lending rule is contrary to the statute and the SEC’s own prior views.
• SEC deprived public of meaningful opportunity to comment on material rule changes.
• In addition, the SEC did not reasonably explain why it refused to adopt a less burdensome alternative than the regime it ultimately adopted in the short sale rule.