Court Orders SEC to Reassess Rules' Combined Market Impact

The U.S. Securities and Exchange Commission (SEC) is currently revisiting two key rules—Rule 10c-1a (Securities Lending Reporting Rule) and Rule 13f-2 (Short Position Reporting Rule)—after they were remanded by the U.S. Court of Appeals for the Fifth Circuit on August 25, 2025. The court ruled that the SEC had failed to consider the cumulative economic impact of the two rules when they were initially adopted in October 2023, calling the agency’s approach “arbitrary and capricious.” The decision has cast uncertainty over the future of these regulations, which were intended to increase transparency in the securities lending and short sale markets under the Dodd-Frank Act.

The Securities Lending Reporting Rule mandates that individuals entering into securities loans report the terms of the loan to FINRA, which then makes specific transaction information and aggregate data publicly available. The Short Position Reporting Rule requires institutional investment managers to report large short positions and daily short sale activity to the SEC’s EDGAR system on a monthly basis. While the SEC had conducted economic analyses for each rule, it did not account for their combined impact, a shortcoming the court deemed critical. The decision emphasized that the two rules were “highly interrelated” and adopted in the same regulatory session, yet the agency treated them in isolation.

In response, the SEC’s current leadership under Chairman Paul Atkins has indicated a willingness to revisit the rules with a more comprehensive economic analysis. A SEC spokesperson noted that the agency’s rulemaking process must include a thorough cost-benefit evaluation. This suggests that the agency may reissue the rules for public comment to incorporate the court’s guidance. Market participants are advised to remain attentive to any changes in compliance deadlines, particularly for Rule 13f-2 (set for January 2, 2026) and Rule 10c-1a (set for September 28, 2026).

The court also dismissed several other challenges to the rules, including claims of excessive extraterritorial application, inadequate notice, and insufficient justification for the reporting approaches. It found that the SEC had fulfilled its obligations under the Administrative Procedure Act and that the rules were within the scope of its statutory authority. However, the cumulative impact issue remains unresolved. The court remanded the rules “without vacatur,” meaning they remain in effect until the SEC completes its revised analysis.

The outcome has significant implications for industry stakeholders, who may now have additional opportunities to engage with the SEC on how to balance transparency objectives with the rules’ economic and competitive impacts. The decision reinforces the need for the SEC to consider interconnected regulatory efforts in a holistic manner, particularly in complex markets like securities lending and short selling. It also highlights the growing scrutiny of SEC rulemaking, particularly in light of changes in agency leadership and shifting policy priorities.

Source: [1] Fifth Circuit Remands SEC Securities Lending and Short Position Reporting Rules (https://www.sidley.com/en/insights/newsupdates/2025/09/fifth-circuit-remands-secs-securities-lending-and-short-position-reporting-rules)