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The U.S. Securities and Exchange Commission (SEC) announced the withdrawal of its appeal against a federal judge’s decision to vacate an overhaul of Treasury dealer rules.
According to Reuters, the SEC’s move to dismiss the appeal reflects concerns that the new rule might negatively impact the Treasury markets by reducing liquidity, increasing volatility, and raising taxpayer debt.
Last year, under the leadership of Chair Gary Gensler, the SEC implemented a rule requiring proprietary traders and others dealing in U.S. government bonds to register as broker-dealers, which would subject them to more rigorous regulation.
This rule was part of an effort to address liquidity issues in the $26 trillion Treasury market, which was seen as a significant change in market structure. However, in November, a Texas federal judge struck down the rule, stating the SEC exceeded its legal authority with the regulations.
The SEC’s policy change comes under the current acting chair, Mark Uyeda, signaling a shift in the regulator’s approach under new leadership. The court filing indicated that all parties involved would bear their own legal costs. Prior to the SEC’s decision to withdraw, AIMA and MFA, two investment associations that had filed lawsuits against the dealer rule, sent a letter to Uyeda requesting the agency to drop the appeal.
Bryan Corbett, CEO of MFA, remarked that the withdrawal of the rule aligns with the SEC’s traditional interpretation of securities laws. Jack Inglis, CEO of AIMA, also expressed approval of the decision, noting that hedge funds should not be classified as dealers. This development marks a significant turnaround in the SEC’s regulatory stance regarding oversight of the Treasury market.
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