The Securities and Exchange Commission (SEC) has been dealt another significant defeat in its regulatory push after a Texas federal judge overturned a rule requiring certain firms to register as dealers in the US Treasuries market, according to a report by Bloomberg.
US District Judge Reed O’Connor in Fort Worth ruled in favour of hedge funds that had sued to block the SEC’s rule, arguing it was overly broad and could harm market liquidity by discouraging trading. O’Connor stated that the SEC had exceeded its authority, calling the agency’s actions “unlawful.”
The ruling comes at a pivotal moment for the SEC, as its chair, Gary Gensler, announced plans to step down in January. His tenure has been marked by contentious regulatory efforts, including actions on cryptocurrencies and private funds, which critics argue stretched the agency’s jurisdiction. President-elect Donald Trump had previously vowed to dismiss Gensler.
The SEC has not yet indicated whether it will appeal the decision. If it chooses to do so, the case would head to the 5th US Circuit Court of Appeals in New Orleans, a court that recently invalidated another SEC rule aimed at increasing fee transparency for hedge funds and private equity firms. The SEC abandoned its legal challenge in that case.
The overturned rule was part of an effort by the SEC to expand its oversight by labelling certain hedge funds and trading firms as dealers, subjecting them to stricter regulatory scrutiny and higher compliance costs.
The Managed Funds Association (MFA), Alternative Investment Management Association, and National Association of Private Fund Managers had collectively challenged the rule, arguing it ignored the fundamental differences between dealers and asset managers.
