Hedge fund industry associations file lawsuit against US SEC over Treasury market dealer rule – Reuters

Hedge fund industry associations file lawsuit against US SEC over Treasury market dealer rule – Reuters

© Reuters. FILE PHOTO: The seal of the U.S. Securities and Exchange Commission (SEC) is seen at their headquarters in Washington, DC, U.S., May 12, 2021. REUTERS/Andrew Kelly/File Photo

By Davide Barbuscia

NEW YORK (Reuters) – Trade groups representing the private money management industry sued the U.S. Securities and Exchange Commission (SEC) on Monday over a rule requiring companies that regularly trade government bonds and other securities to register as brokers.

The SEC adopted the rule last month to impose stricter supervision and risk management controls on proprietary traders and other companies that it says have become important sources of liquidity in the securities market. US Treasury.

The groups say the rule is confusing and could apply to investors who regularly trade securities but are not broker-dealers. As such, they say it violates the Administrative Procedure Act, a federal law that requires regulators to act within their authority, justify new rules and consider comments.

The National Association of Private Fund Managers (NAPFM), the MFA and the Alternative Investment Management Association (AIMA) filed a lawsuit asking the U.S. District Court for the Northern District of Texas in Fort Worth to overturn the rule, they said. declared in a press release.

“The Broker Rule is indeterminate and leaves some market participants uncertain about their need to comply with the broker regulatory framework,” said Bryan Corbett, President and CEO of MFA. “Alternative asset managers are not brokers. They are clients of brokers,” he said.

The case is the third brought by the groups in recent months and is part of a broader wave of litigation brought by Wall Street firms seeking to take advantage of conservative-leaning courts to overturn rules that could hurt their bottom lines.

An SEC spokesperson said the commission “undertakes to develop rules consistent with its authorities and the laws governing the administrative process, and we will vigorously defend challenged rules in court.”

The SEC rule is part of regulators’ efforts to improve the resilience of the U.S. government bond market during times of stress. The SEC introduced another major rule last year that will force more Treasury transactions to go through clearinghouses.

The broker-dealer rule, first proposed in March 2022, would apply to trading firms that either regularly express interest in trading at the best prices available on both sides of the market or derive revenue primarily from trading broker-dealers. spreads on government bonds. or incentives offered by marketplaces.

The final rule removed some criteria that investors had said were too broad and likely to inadvertently attract market participants such as corporations, insurers and pensions.

Still, hedge fund groups said it could capture non-trading activity, harming investors and markets.

“This rule will require certain hedge funds – which are not broker-dealers and have never been considered broker-dealers – to either register as broker-dealers, thereby subjecting them to an impractical regulatory framework, or to significantly reduce or even to completely cease their trading activity,” Jack said. Inglis, CEO of AIMA, said in the release.

“Both of these outcomes will cause unnecessary and significant harm to markets, investors and certain funds,” he said.

The same three groups sued the SEC last December over two new rules aimed at increasing transparency in short selling. Along with other associations, they also filed a lawsuit in September last year over the new rules on private funds.

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