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Regulation

House Republicans Propose 13 Bills to Reform SEC

The legislation would require more economic analysis and longer comment periods.
By Paul Mulholland



The U.S. House Committee on Financial Services’ Subcommittee on Capital Markets held a hearing on Wednesday to discuss 13 bills proposed to address what the subcommittee’s Republican members have described as “SEC overreach.”

The bills reflect the concerns long expressed by committee Republicans and trade groups.

Representative Anne Wagner, R-Missouri, who chairs the subcommittee, called the Securities and Exchange Commission’s approach to regulation “aggressive and burdensome,” and she expressed concern about an “alarming absence of stakeholder input and meaningful cost-benefit analysis during the rulemaking process.”

Wagner also criticized as too speedy the SEC’s rulemaking process, questioning why comment periods on proposed rules have been as short as 30 days. A discussion draft of one of the bills circulating in the subcommittee would require the SEC to have comment periods of at least 60 days, excluding federal holidays, for rule proposals. Under current law, comment periods must be open for at least 30 days, inclusive of holidays.

In remarks at the hearing, Wagner also criticized the SEC for issuing its recent climate disclosure rule earlier this month.

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“As members of this committee have made clear: The SEC is not an environmental regulator, nor was it given clear authority to finalize climate-related regulations that will only burden American businesses with serious costs,” Wagner said, adding that the full financial services committee plans to review the new rule in detail on April 10.

A bill proposed by Wagner would require the SEC to explicitly identify a market failure and calculate its size before proposing a rule to address it, and the commission would also have to identify any market participants that would be subject to the rule. This bill reflects a common industry refrain that many SEC rule proposals under SEC Chairman Gary Gensler are “a solution in search of a problem.”

William Birdthistle, the former director of the SEC’s Division of Investment Management who recently stepped down, answered this longstanding criticism at the Investment Adviser Association’s 2024 Compliance Conference on March 7 by saying that parents do not wait until their child is in an intersection before acting, therefore if the SEC anticipates an issue in the future, it does not have to wait for the problem to arrive.

Other proposals and drafts before the committee would require the SEC to review every rule every five years and conduct a new economic analysis for each; to issue a report to Congress twice per year on the SEC’s discussions with foreign securities regulators; and to report to Congress on the SEC’s data and cyber security measures.

Still other legislation targets specific SEC rules. One bill would invalidate the private funds advisers rule, currently being challenged in the U.S. 5th Circuit Court of Appeals. That rule would require private fund advisers to provide more disclosures to clients on fees and performance and to provide valuation opinions to clients for adviser-led transactions. Oral arguments took place in February but the court has not yet ruled on the issue. The subcommittee has not announced a date for a markup or vote on the bills discussed during the hearing.

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Home > News > Regulation > Private Funds Trade Groups Challenge New SEC Dealer Rule
Regulation

Private Funds Trade Groups Challenge New SEC Dealer Rule

The rule, finalized in February, would require private funds trading large blocks of government securities to register as dealers.
By Paul Mulholland



Trade groups in the private funds industry sued the Securities and Exchange Commission Tuesday, challenging the SEC’s government securities dealer rule, which was finalized in February.

Starting in April 2025, firms that regularly trade on both sides of a market or that derive most of their revenue by trading on the gap between a security’s bid and ask prices or by exploiting trading venue incentives will have to register as a dealer with the SEC and with the Financial Industry Regulatory Authority, according to TaNeka Ray, a senior manager with EisnerAmper’s regulatory risk and compliance solutions division.

Ray says the new rule will primarily apply to a small number of hedge funds and other private funds that buy and sell government securities in large quantities on their own accounts, instead of with investors’ money. According to Ray, the SEC wants to maintain control of this market “and keep out any bad actors,” and it also has an interest in data collection to monitor systemic risk in the Treasurys markets.

The complaint was filed in U.S. District Court for the Northern District of Texas, Fort Worth Division, by the National Association of Private Fund Managers, the Alternative Investment Management Association and the Managed Funds Association.

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The trade groups’ complaint argues that private funds have not traditionally been considered dealers or brokers; instead, they are customers of securities broker/dealers. As a result of having to register, the funds could not participate in initial public offerings and would have to begin paying insurance premiums to the independent nonprofit Securities Investor Protection Fund to protect customer accounts unaffected by the trading in question, according to the lawsuit.

The complaint also asserts that the definition of dealer used in the SEC rule is too broad, and the criteria used to determine who must register is explicitly non-exhaustive, meaning it could later be interpreted to include other actors. According to the complaint, the broadness of the definition forced the SEC to exclude certain organizations that otherwise would have been swept up by the rule, such as: mutual funds, central banks, sovereign entities and international financial institutions.

The plaintiffs are asking the court to vacate the rule because, they argue, it violates the Administrative Procedures Act.

Ray says the new compliance obligations for the covered actors are “not too far out of line with what is already in effect at most of these firms.” They will have to file a Form BD and register with FINRA, which can take up to 180 days to complete. They will also have to name a chief compliance officer and create new policies, procedures and training policies for employees.

 

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