(Bloomberg) — Hedge funds launched another legal salvo against the Securities and Exchange Commission, this time over new rules requiring some firms to register as dealers in the US Treasuries market.
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The Managed Funds Association, Alternative Investment Management Association and National Association of Private Fund Managers filed a lawsuit on Monday in federal court in Texas to block the SEC’s rules.
The regulator says its new rules approved last month will ensure high-frequency traders receive the same level of scrutiny as other firms. But, the hedge fund industry contends the regulation is too vague and could force them to spend excessively on compliance and legal fees just to avoid being swept up.
Under the new rule, firms must register when they buy and sell securities for their own account as part of the “regular” course of their business. Hedge funds argue that the language is too loose and different types of their trading strategies could be captured by the rule, causing them to pull back from the Treasuries trading and reducing liquidity for the overall market.
“If the rule is permitted to stand, it could mean that managers in scope and the funds they manage would lose their customer protections with their dealer counterparties and could not participate in IPOs,” MFA President and Chief Executive Officer Bryan Corbett said in a statement. “This would harm funds, their investors, and issuers looking to raise capital,” he added.
Monday’s lawsuit is one of several that the three hedge fund organizations have filed in recent months over new SEC rules. The first involved new disclosures and regulations for private funds, and the second was over disclosure of short selling and stock lending activities.
The SEC said in a statement that it “undertakes rulemaking consistent with its authorities and laws governing the administrative process, and we will vigorously defend challenged rules in court.”
The case is National Association of Private Fund Managers v. SEC, 4:24-cv-00250, US District Court, Northern District of Texas (Fort Worth).
–With assistance from Madlin Mekelburg.
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