SEC Punts Controversial Short-Sale Disclosure Deadline Again

(Bloomberg) — The US Securities and Exchange Commission delayed for the second time this year the deadline for hedge funds and other big investors to comply with much-watched disclosure rules for short selling and related stock lending.

Investment managers will now have until Jan. 2, 2028 to comply with the short-sale rules and until Sept. 28, 2028 on the related stock lending disclosures, the SEC said in an order Wednesday.

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“The Commission finds these temporary exemptions to be necessary in the public interest and consistent with the protection of investors,” the agency said in the order.

While short selling has long been a practice in US markets, it has faced heightened scrutiny following the 2008 financial crisis and after investors piled into so-called memestocks like GameStop Corp. in 2021.

The SEC issued the rules in October 2023, requiring certain investment managers to report short-sale data on a monthly basis. Pension funds, banks and institutional money managers that lend their stocks would have to report the transactions the next day.

Trade groups including the Managed Funds Association and the Alternative Investment Management Association challenged the rules in court, saying they were inconsistent and exceeded the agency’s authority. In August, a three-judge panel of the 5th US Circuit Court of Appeals issued a ruling saying the SEC didn’t fully consider the economic impact of the rules and called on the agency to reconsider.

SEC Commissioner Caroline Crenshaw, the commission’s lone Democrat, issued a statement Wednesday expressing concern about the delay, characterizing it as “repeal by extension” that could indefinitely delay compliance with new rules. She also described the court’s instructions as a narrow directive, not a message for the SEC to abandon the rules.

“Under the guise of compliance date extensions, we are attempting to camouflage a new willingness to repeatedly bend the rules until they break — eroding the rule of law,” Crenshaw said.

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