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Written by David Barbuscia
NEW YORK (Reuters) – A trade group representing the private fund management industry on Monday filed a lawsuit with the U.S. Securities and Exchange Commission (SEC) over a rule requiring companies that routinely trade government securities and other securities to register as broker-dealers. ) was sued.
Last month, the SEC adopted rules that provide tighter oversight and risk controls for proprietary traders and other companies that are a key source of liquidity in the U.S. Treasury market.
The group argues that the rules are confusing and could trap investors who trade securities regularly but are not dealers. As such, they claim this violates the Administrative Procedure Act, a federal law that requires regulators to act within the scope of their authority, justify new rules, and accept feedback from the commission. .
The National Association of Private Fund Managers (NAPFM), MFA, and Alternative Investment Management Association (AIMA) filed a lawsuit in the U.S. District Court for the Northern District of Texas in Fort Worth seeking to invalidate the rule, they said in a statement.
“Dealer rules are uncertain, leaving some market participants uncertain about the need to comply with the dealer regulatory framework,” said MFA President and CEO Brian Corbett. ” he said. “Alternative asset managers are not dealers. They are customers of dealers,” he said.
The lawsuit is the group’s third in recent months and is part of a broader lawsuit by Wall Street companies seeking to use conservative-leaning courts to overturn rules that could harm their profits. .
An SEC spokesperson said the commission is “committed to creating rules that are consistent with the laws governing agencies and administrative processes, and will vigorously defend challenged rules in court.”
The SEC’s rules are part of the regulator’s efforts to improve the resilience of the U.S. Treasury market during times of stress. Last year, the SEC introduced another important rule forcing an increase in Treasury transactions through clearinghouses.
The broker-dealer rule, first proposed in March 2022, would require broker-dealers who routinely express an interest in trading at the best prices available on both sides of the market, or who earn money primarily by trading spreads on government bonds. Applies to trading companies that have obtained or from incentives offered by the trading venue.
The final rule eliminated certain criteria that said investors could be too broad and inadvertently include market participants such as corporations, insurance companies, and pension plans.
Still, the hedge fund group said it could capture non-trading activity and harm investors and the market.
“This rule forces certain hedge funds that are not dealers and have never been considered dealers to register as dealers, thereby exposing them to an unworkable regulatory framework or significantly reducing their trading activity. It will force us to scale back or shut down completely,” Jack said. AIMA CEO Inglis said in a statement:
“Either outcome would cause unnecessary and significant harm to markets, investors and some funds,” he said.
The same three groups sued the SEC in December over two new rules aimed at increasing transparency in short selling. They, along with other associations, also filed a lawsuit last September over new private fund rules.
(Reporting by Davide Barbuscia; Editing by Josie Kao)
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