The Securities and Exchange Commission has imposed new rules that will require many private funds to register with the agency as so-called dealers, a move that regulators say will help them better monitor a sometimes shaky market for U.S. government debt.
When dealers register, they become subject to a number of important laws and rules that help protect the public, promote market integrity, and facilitate capital formation,” SEC Chairman Gensler said Tuesday. “These include compliance with minimum capital requirements and data reporting
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The rule follows another adopted in December that will mandate central clearing of more government debt transactions and is part of a broader effort by the Biden administration to stabilize the Treasury market.
The private fund industry, high-frequency trading firms and their allies in Congress, however, predict that the rule could lead some investment firms to flee the U.S. Treasury market, bringing more instability.
Sen. Bill Hagerty of Tennessee and Rep. French Hill of Arkansas, both Republicans, expressed those fears in a letter to Gensler last year, writing that the new rule would only “exacerbate” a recent trend of tensions of liquidity in the market for the US government. debt.
The private fund industry is taking an increasingly combative stance toward the SEC. The Managed Funds Association, which represents alternative asset managers, has led two lawsuits against the SEC over short-selling disclosure rules and another rule requiring private equity and hedge funds to disclose quarterly performance, fees and expenses.
The SEC watered down the rule in the initial 2022 proposal, removing a provision that said anyone who traded Treasury securities worth more than $25 billion in four of the last six calendar months would have to register as a broker-dealer.
MFA CEO Bryan Corbett praised the SEC for dropping this quantitative factor in a statement Tuesday, but said its members may still be unfairly affected.
“The MFA will continue to review the final rule to evaluate whether our members’ investment activities are harmed by the Commission’s dealer definition. Alternative asset managers are not dealers, and the MFA is concerned that the Rule may not go far enough in excluding them and private funds from being regulated as dealers,” Corbett said.
The agency anticipates the rule will require more than 43 entities to register, according to SEC officials.
The cryptocurrency industry is also sounding the alarm that a change in the legal definition of securities “dealer” could encompass a broad swath of cryptocurrency traders who provide liquidity on decentralized digital asset exchanges.