Industry groups accuse SEC of trying to ‘vastly expand its authority’ over dealer rule

investmentnews.com:

The Securities and Exchange Commission stands accused of trying to “vastly expand its authority” in a lawsuit filed by three investment industry associations.

The case has been filed by the National Association of Private Fund Managers, the Alternative Investment Management Association, and the Managed Funds Association, which say the regulator has adopted a “sweeping, unprecedented new interpretation of a 90-year-old statute,” referring to the expanded definitions of “dealer” and “government securities dealer” within the Dealer Rule.

“The US SEC has exceeded its statutory authority by incorrectly concluding that customers of dealers may be dealers themselves – a clear departure from the statutory definition and understanding of what has meant to be a securities ‘dealer’ for the past 90 years,” said Jack Inglis, AIMA CEO. “This rule will force certain hedge funds – who are not dealers and have never been considered dealers – to either register as dealers, thereby subjecting them to an unworkable regulatory framework, or force them to significantly curtail or cease altogether their trading activity. Both results will lead to unnecessary and significant harm to markets, investors, and certain funds.”

Inglis added that the associations have not taken the decision to challenge the SEC lightly but feel the new definitions threaten the future of certain funds and strategies.

The three industry bodies believe that if the rule stands, regulated market participants such as RIAs may be deterred from investment in certain asset classes, including US Treasuries.

The petition to the U.S. District Court for the Northern District of Texas in Fort Worth is seeking to have the rule vacated.

It states that the SEC’s adoption of the Dealer