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SEC approach to public disclosure of SBS positions is “critically flawed”, says MFA

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The approach adopted by the US Securities and Exchange Commission (SEC) in its proposal requiring public disclosure of large security-based swap (SBS) positions (Rule 10B-1) is “critically flawed”, according to the Managed Funds Association (MFA).

The MFA has submitted a supplemental comment letter to the SEC after the commission reopened the comment period on the proposal following the release of new analysis from the SEC’s Division of Economic and Risk Analysis (DERA).

The MFA commissioned NERA Economic Consulting (NERA) to evaluate DERA’s analysis and found that it suffers from serious analytical flaws and does not justify the establishment of a publicly attributed reporting regime for SBS positions as contemplated in the proposal.

Based on the NERA analysis, MFA concludes that the SEC adopting a final Rule 10B-1 based exclusively on the DERA analysis will fall short of its statutory requirements under the Administrative Procedure Act (APA) and its own guidance for economic analysis in rulemaking. MFA also argues that, as proposed, Rule 10B-1 is prohibited under the major questions doctrine as it would be an unprecedented intervention by the SEC in the SBS market without explicit authorisation from Congress.

“The Proposal exceeds the SEC’s legal authority and is only supported by inadequate economic analysis that uses flawed data,” said Bryan Corbett, MFA’s President and CEO. “The Proposal risks driving liquidity out of security-based swap markets, harming alternative asset managers and their investors, including pensions, foundations, and endowments, who rely on these markets to mitigate risk. The SEC should instead align the Proposal with its proposed short sale disclosure rule by introducing an aggregated and anonymised public disclosure regime that would achieve its objectives without harming U.S. capital markets.”

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