Today, the Alternative Investment Management Association (AIMA) welcomes the US District Court for the Northern District of Texas' decision to vacate the Securities and Exchange Commission's (US SEC) Dealer Rule on the grounds that it exceeds the regulator’s statutory authority and is, therefore, unauthorized. On this basis, the court has vacated the final rule in full.
AIMA, along with two other trade associations, challenged the Dealer Rule in March 2024, arguing that it should be vacated entirely because it exceeds the SEC’s statutory authority, is arbitrary and capricious and was adopted without adequate consideration of its impacts on efficiency, competition and capital formation.
Commenting on the ruling, AIMA CEO Jack Inglis said:
"We are very pleased by the court’s ruling, a result that rightfully sets aside the SEC’s attempt to dramatically expand its authority by adopting a sweeping, unprecedented new interpretation of a 90-year-old statutory definition. This outcome spares many hedge fund managers from facing the unenviable task of either attempting to comply with dealer registration in whatever form or curtailing their trading strategies that may have triggered one of the Dealer Rule’s arbitrary tests. Today’s ruling validates our decision to challenge the rule to protect the interests of our members and a wide variety of market participants from what would otherwise have been severe and adverse consequences. We also hope that today’s decision leads to the SEC rethinking its attempt to regulate by enforcement through individual cases it is pursuing that involve a literal reading of the dealer definition."
The court’s summary of the ruling is here.
In March 2024, Gibson, Dunn & Crutcher LLP filed suit on behalf of AIMA and other industry trade bodies in the U.S. District Court for the Northern District of Texas in Fort Worth challenging the rule adopted by the US SEC that dramatically expands the definitions of “dealer” and “government securities dealer” (the “Dealer Rule”).
The consortium of trade bodies argued that the rule should be vacated based on their arguments that, among other things:
- The US SEC lacks the statutory authority to adopt the definition in the Dealer Rule because the rule captures firms that are not, and have never been considered, dealers and lacks any limiting principle.
- The US SEC engaged in arbitrary and capricious decision-making, including by failing to adequately address the economic consequences of the Dealer Rule.
- The Dealer Rule is otherwise contrary to law because it imposes a burden on competition not necessary or appropriate in furtherance of the purposes of the Securities Exchange Act.
Today, the panel of judges presiding over the case has ruled in favour of AIMA and other industry trade bodies, agreeing in principle with the arguments outlined above.
Contact Details:
Drew Nicol, Associate Director, Research and Communications, AIMA
Email: [email protected]
About AIMA:
The Alternative Investment Management Association (AIMA) is the global representative of the alternative investment industry, with around 2,100 corporate members in over 60 countries. AIMA's fund manager members collectively manage more than US$3 trillion in hedge fund and private credit assets.
AIMA draws upon the expertise and diversity of its membership to provide leadership in industry initiatives such as advocacy, policy and regulatory engagement, educational programmes and sound practice guides. AIMA works to raise media and public awareness of the value of the industry.
AIMA set up the Alternative Credit Council (ACC) to help firms focused in the private credit and direct lending space. The ACC currently represents over 250 members that manage US$1 trillion of private credit assets globally.
AIMA is committed to developing skills and education standards and is a co-founder of the Chartered Alternative Investment Analyst designation (CAIA) – the first and only specialised educational standard for alternative investment specialists. AIMA is governed by its Council (Board of Directors).
