By The Securities and Exchange Commission (SEC) is introducing new regulations that will require a significant number of private funds to register as dealers with the agency. This move, according to regulators, aims to enhance their oversight of the sometimes volatile U.S. government debt market.
SEC Chair Gary Gensler emphasized the benefits of registering with the SEC, stating that it subjects firms dealing with Treasury bonds to important laws and regulations that safeguard the public, foster market integrity, and promote capital formation. Gensler made these remarks in October during an industry event.
The upcoming vote on the adoption of this new rule is scheduled for a meeting commencing at 10 a.m. Eastern time.
Hedge Funds Sue SEC Over New Short Selling Rules
In addition, it is worth noting that hedge funds have filed lawsuits against the SEC regarding recently implemented short selling regulations in the aftermath of the meme stock frenzy.
This latest rule follows another regulation passed in December that requires a greater percentage of government-debt trades to be centrally cleared. These initiatives form part of the broader efforts made by the Biden administration to stabilize the Treasury market.
However, skeptics—including players from the private funds industry, high-frequency trading firms, and their supporters within Congress—express concern that this rule could potentially compel investment companies to exit the market for U.S. Treasuries, thereby increasing instability.
Private Fund Industry Challenges SEC Rules
The private fund industry is becoming increasingly confrontational with the Securities and Exchange Commission (SEC). The Managed Funds Association, which represents alternative asset managers, has initiated two lawsuits against the SEC for regulations pertaining to short sale disclosures and the mandatory disclosure of quarterly performance, fees, and expenses for private equity and hedge funds.
Sen. Bill Hagerty of Tennessee and Rep. French Hill of Arkansas, both Republicans, shared their concerns about a new rule proposed by the SEC in a letter to Gensler last year. They believe that this rule would only worsen the existing liquidity strains in the market for U.S. government debt.
Despite pushback, the SEC did revise the initial 2022 proposal by eliminating a provision that would have required anyone trading more than $25 billion worth of Treasuries in four out of the last six calendar months to register as a broker-dealer.
SEC officials anticipate that the rule will impact approximately 43 entities, forcing them to register.
Furthermore, the cryptocurrency industry is raising alarms about a potential expansion in the legal definition of a securities “dealer.” They are concerned that this change could encompass a wide range of crypto traders who provide liquidity on decentralized digital asset exchanges.
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