Hedge Funds Take Legal Action Against SEC Over Short-Selling Rules

Hedge funds and investment companies have filed a lawsuit against the U.S. Securities and Exchange Commission (SEC) over new rules that require disclosure of information related to securities short sales and lending. The lawsuit argues that the rules will discourage short selling by revealing confidential trading strategies and enabling imitation or trading against funds. The lack of transparency in short selling was a major factor in the meme stock craze of 2021. The SEC approved two rules in October, one requiring fund managers to report short sales to the SEC, and the other requiring financial companies to disclose information about securities loans. The lawsuit claims that the two rules take a contradictory approach and will harm market efficiency and price discovery.