AIMA warns on US market liquidity as SEC Dealer Rule set to pass

The Alternative Investment Management Association (AIMA) warned that the final proposal for the US SEC’s Dealer Rule is imminent and, if it remains unchanged from the original, could have a negative impact on US market liquidity and therefore stability.

According to AIMA, the SEC’s proposed changes to the Dealer Rule would change the definition of a securities dealer to one that captures almost the entire asset management market, bringing them in scope for a host of wholly inappropriate regulatory requirements.

“This rule is potentially destabilising for US securities markets and comes at an exceptionally sensitive moment for these markets,” AIMA wrote in emailed commentary.

The original proposal would apply arbitrary rules to all financial institutions that operate in US securities markets to constrain them in a totally inappropriate regulatory structure by making them register as securities dealers or radically scale back their investment activities to avoid new thresholds, AIMA wrote.

“These trading thresholds would create an artificial ceiling to many firm’s trading volumes, suppressing market liquidity,” AIMA said. “To make matters worse, we believe the SEC has no legal right to apply these rules and should seek a mandate from Congress to make these changes, as is the norm.”

Who is in scope? Pretty much every firm globally that engages with US securities markets. The very few that would be exempted from this rule are registered investment firms and entities managing under $50 million.

What would the impact be? The new arbitrary threshold would suppress trading and drain US market liquidity as firms seek to avoid having to register as a dealer.

Read AIMA’s SEC comment letter

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