SEC to Reevaluate Securities Lending and Short Sale Rules
Commentary by Steven Lofchie
In a public statement, SEC Chair Paul Atkins said the agency will revisit its 2023 rules on securities lending and short sale reporting.
He said the SEC will undertake the reevaluation following a Fifth Circuit decision, which remanded the rules back to the agency with instructions "to consider and quantify [their] cumulative economic impact."
The Fifth Circuit considered the two transparency measures: (i) the Securities Lending Rule, requiring loan terms to be reported to FINRA, and (ii) the Short Sale Rule, requiring institutional managers to report short position data to the SEC through EDGAR. (See related coverage.) While the Court upheld the SEC’s authority and rejected most challenges, it found the agency acted arbitrarily by failing to assess the combined economic impact of the two rules and, therefore, remanded them for further consideration.
SEC Chair Paul S. Atkins directed staff to review the rules in light of the court’s opinion, including potential revisions and adjustments to compliance deadlines.
Commentary
The rules at issue were not well-drafted as to the details and were overly expansive in the big picture. Salvaging the rules would seem to require a do-over. It is hard to imagine why that should be a good use of SEC resources.
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The Fifth Circuit remanded, for further consideration by the SEC, two recent SEC rules on securities lending and short selling. The appellate court held that the agency failed to account for the combined economic impact of the rules.