Legal Challenge

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Legal Challenge

Status: SEC APPROVED RULES 2.1.25 Last Updated: 02 Jan 2025

A commenter stated that the Commission should pause the Rule 10c-1a compliance dates until the legal challenge regarding Rule 10c-1a is resolved.

Another commenter stated that the SEC and FINRA should “avoid pursuing” the Proposal until the legal challenge is adjudicated.

In general, the filing of a legal challenge to an agency rule does not itself alter the compliance date(s) set forth in the rule.

Accordingly, the challenge to Rule 10c-1a does not change the compliance date(s) set forth therein or the need for affected parties to comply with Rule 10c-1a.

See these publications on the court case including the NAPFA, AIMA and MFA lawsuit:

• Source Finadium: Finadium Article

• Source AIMA: AIMA Article

Notes and Examples:

Status: FINALISED Last Updated: 05 Sep 2025

• Please be aware of this short statement from the SEC Chairman Paul S. Atkins published on Friday 5^th September 2025 on 10c-1a.

  • SEC Chairman Paul S. Atkins statement 5th Sept 2025

Status: FINALISED Last Updated: 25 Jun 2025

5th Circuit SEC 10c-1a Court Ruling – Monday 25th August 2025:

On Monday the 25^th of August, the United States Court of Appeals for the Fifth Circuit remanded two rules the Securities Lending Reporting Rule and the Short Interest Reporting Rules (the Rules).

While the court’s decision did not vacate the rules outright, it found that the SEC’s rulemaking process was flawed because the agency failed to consider and quantify the cumulative economic impact of the two rules, which meant the process did not meet the requirements of the Administrative Procedure Act (APA) and the Securities Exchange Act of 1934 (Exchange Act). The court reasoned that there is a “serious possibility” that the SEC can cure the defect by providing the required analysis.

Because the rules were not vacated, they are still technically in effect. While compliance with the rules is currently delayed through SEC exemptive orders, market participants will have to wait and see how the SEC decides to react.

Background:

• The Securities Lending Reporting Rule (Rule 10c-1a) was adopted under the Dodd-Frank Act to improve transparency in securities lending transactions. It requires intermediaries, lenders, and broker-dealers to report certain securities loan data to FINRA, which then publishes the information. FINRA created the SLATE Rules (5600 series) to implement these requirements.

• The Short Interest Reporting Rule (Rule 13f-2), also adopted under the Dodd-Frank Act, requires institutional investment managers to report monthly short sale data to the SEC through the EDGAR system.

 Legal Challenges:

• The rules were challenged on several grounds, but the prevailing argument was that the SEC failed to consider the combined economic impact of both rules. The court pointed out that these rules are closely related and were adopted at the same time, so their effects should have been analysed together.

• The court rejected other arguments, including claims that the SEC lacked authority to issue the rules, did not provide enough opportunity for public comment, or issued rules that were arbitrary and capricious. The court found that the SEC acted within its authority and provided adequate public input.

Compliance Dates and Delays:

The SEC has already delayed compliance dates for both rules:

• For the Securities Lending Rule, reporting is now required by September 28, 2026, and data publication by March 29, 2027.

• For the Short Sale Rule, compliance is delayed until February 2026.

 Conclusion:

• Based on the court’s opinion, a Fifth Circuit panel hasn’t revoked the new rules on short selling and securities lending entirely.

• Instead, the court has granted a petition for review and remanded the rules to the Securities and Exchange Commission (SEC), ordering the agency to properly "consider and quantify the cumulative economic impact of the Rules".

• The court otherwise denied the petition for review.

• This means that while the rules are still in effect, the SEC must go back to the drawing board to address the court’s finding that they failed to adequately analyse the economic effects of the two interconnected measures.