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"para_1" }, { "text": "for the Fifth Circuit", "paragraph_id": "para_2" }, { "text": "____________", "paragraph_id": "para_3" }, { "text": "No. 23-60626", "paragraph_id": "para_4" }, { "text": "____________", "paragraph_id": "para_5" }, { "text": "National Association of Private Fund Managers;", "paragraph_id": "para_6" }, { "text": "Managed Funds Association; Alternative Investment", "paragraph_id": "para_7" }, { "text": "Management Association,", "paragraph_id": "para_8" }, { "text": "Petitioners,", "paragraph_id": "para_9" }, { "text": "versus", "paragraph_id": "para_10" }, { "text": "Securities and Exchange Commission,", "paragraph_id": "para_11" }, { "text": "Respondent.", "paragraph_id": "para_12" }, { "text": "______________________________", "paragraph_id": "para_13" }, { "text": "Petition for Review from an Order", "paragraph_id": "para_14" }, { "text": "of the Securities & Exchange Commission", "paragraph_id": "para_15" }, { "text": "Agency No. 34-98737,", "paragraph_id": "para_16" }, { "text": "Agency No. 34-98738", "paragraph_id": "para_17" }, { "text": "______________________________", "paragraph_id": "para_18" }, { "text": "Before Wilson and Douglas, Circuit Judges, and Vitter, District", "paragraph_id": "para_19" }, { "text": "Judge.*", "paragraph_id": "para_20" }, { "text": "Cory T. Wilson, Circuit Judge:", "paragraph_id": "para_21" }, { "text": "The Securities Exchange Commission adopted two rules aimed at", "paragraph_id": "para_22" }, { "text": "increasing transparency in the securities lending and short sale markets. See", "paragraph_id": "para_23" }, { "text": "Reporting of Securities Loans (Securities Lending Rule), 88 Fed. Reg. 75644", "paragraph_id": "para_24" }, { "text": "_____________________", "paragraph_id": "para_25" }, { "text": "* United States District Judge for the Eastern District of Louisiana, sitting by designation.", "paragraph_id": "para_26" }, { "text": "United States Court of Appeals", "paragraph_id": "para_27" }, { "text": "Fifth Circuit", "paragraph_id": "para_28" }, { "text": "FILED", "paragraph_id": "para_29" }, { "text": "August 25, 2025", "paragraph_id": "para_30" }, { "text": "Lyle W. Cayce", "paragraph_id": "para_31" }, { "text": "Clerk", "paragraph_id": "para_32" }, { "text": "No. 23-60626", "paragraph_id": "para_33" }, { "text": "2", "paragraph_id": "para_34" }, { "text": "(Nov. 3, 2023) (codified at 17 C.F.R. § 240.10c-1a); Short Position and Short", "paragraph_id": "para_35", "court_paragraph": 2 }, { "text": "Activity Reporting by Institutional Investment Managers (Short Sale Rule),", "paragraph_id": "para_36" }, { "text": "88 Fed. Reg. 75100 (Nov. 1, 2023) (codified at 17 C.F.R. § 240.13f-2).", "paragraph_id": "para_37" }, { "text": "Petitioners, National Association of Private Fund Managers, Managed", "paragraph_id": "para_38" }, { "text": "Funds Association, and Alternative Investment Management Association,", "paragraph_id": "para_39" }, { "text": "Ltd., challenge the Rules on various grounds. Because the agency failed to", "paragraph_id": "para_40" }, { "text": "consider and quantify the cumulative economic impact of the Rules as", "paragraph_id": "para_41" }, { "text": "required by the governing statutes, we grant the petition for review in part", "paragraph_id": "para_42" }, { "text": "and remand to the agency for further proceedings.", "paragraph_id": "para_43" }, { "text": "I.", "paragraph_id": "para_44" }, { "text": "Securities lending occurs when “securities are transferred", "paragraph_id": "para_45" }, { "text": "temporarily from one party, a securities lender, to another, a securities", "paragraph_id": "para_46" }, { "text": "borrower, for a fee.” Securities Lending Rule, 88 Fed. Reg. at 75645. Short", "paragraph_id": "para_47" }, { "text": "sales occur when an investor sells a stock that the investor does not own in", "paragraph_id": "para_48" }, { "text": "hopes that the share price will decrease. Short Sale Rule, 88 Fed. Reg. at", "paragraph_id": "para_49" }, { "text": "75100–01. To make the sale, the investor must first borrow the requisite", "paragraph_id": "para_50" }, { "text": "shares and later purchase the same number of shares on the market to return", "paragraph_id": "para_51" }, { "text": "to the lender. Securities lending is thus an integral facet of the short sale", "paragraph_id": "para_52" }, { "text": "market, which is in turn an integral component of modern securities markets.", "paragraph_id": "para_53" }, { "text": "Securities Lending Rule, 88 Fed. Reg. at 75645.", "paragraph_id": "para_54" }, { "text": "According to the Securities and Exchange Commission (the", "paragraph_id": "para_55" }, { "text": "Commission) and at least some market participants, the securities lending", "paragraph_id": "para_56" }, { "text": "market is opaque, in that comprehensive information on current market", "paragraph_id": "para_57" }, { "text": "conditions is generally unavailable to the public. See id. at 75644–45. This", "paragraph_id": "para_58" }, { "text": "lack of information makes it challenging for federal regulators to oversee", "paragraph_id": "para_59" }, { "text": "transactions and ensure a fair, orderly, and efficient market. Id. at 75645.", "paragraph_id": "para_60" }, { "text": "The short sale market has similar gaps in information accessible to the public", "paragraph_id": "para_61" }, { "text": "and regulators. See Short Sale Rule, 88 Fed. Reg. at 75148. And while short", "paragraph_id": "para_62" }, { "text": "No. 23-60626", "paragraph_id": "para_63" }, { "text": "3", "paragraph_id": "para_64" }, { "text": "selling provides important benefits to securities markets like liquidity and", "paragraph_id": "para_65", "court_paragraph": 3 }, { "text": "pricing efficiency, it can also be abused through improper practices like", "paragraph_id": "para_66" }, { "text": "“short and distort” and “naked” short selling strategies.1 Id. at 75101 n.14,", "paragraph_id": "para_67" }, { "text": "75159–60.", "paragraph_id": "para_68" }, { "text": "Due to perceived gaps in market information, the Commission sought", "paragraph_id": "para_69" }, { "text": "to increase transparency in both the securities lending and short sale markets", "paragraph_id": "para_70" }, { "text": "under rulemaking authority granted to the agency by the Dodd-Frank Wall", "paragraph_id": "para_71" }, { "text": "Street Reform and Consumer Protection Act of 2010 (Dodd-Frank), Pub. L.", "paragraph_id": "para_72" }, { "text": "111–203, 124 Stat. 1376. Dodd-Frank overhauled financial regulation in the", "paragraph_id": "para_73" }, { "text": "aftermath of the economic downturn in 2008, amending, inter alia, the", "paragraph_id": "para_74" }, { "text": "Securities Exchange Act of 1934 (Exchange Act). 15 U.S.C. § 78b; see Short", "paragraph_id": "para_75" }, { "text": "Sale Rule, 88 Fed. Reg. at 75100; Securities Lending Rule, 88 Fed. Reg. at", "paragraph_id": "para_76" }, { "text": "75644. Two Dodd-Frank provisions are relevant to this appeal.", "paragraph_id": "para_77" }, { "text": "Section 984(b), codified as a note to 15 U.S.C. § 78j,2 gives the Commission", "paragraph_id": "para_78" }, { "text": "the authority to “promulgate rules that are designed to increase the", "paragraph_id": "para_79" }, { "text": "transparency of information available to brokers, dealers, and investors, with", "paragraph_id": "para_80" }, { "text": "respect to the loan or borrowing of securities.” And § 929X, codified at 15", "paragraph_id": "para_81" }, { "text": "_____________________", "paragraph_id": "para_82" }, { "text": "1 The goal of a “short and distort” strategy is to manipulate the market by “first", "paragraph_id": "para_83" }, { "text": "short[ing] a stock and then engag[ing] in a campaign to spread unverified bad news about", "paragraph_id": "para_84" }, { "text": "the stock with the objective of panicking other investors into selling their stock in order to", "paragraph_id": "para_85" }, { "text": "drive the price down.” Short Sale Rule, 88 Fed. Reg. at 75159. “Naked” short selling", "paragraph_id": "para_86" }, { "text": "“refers generally to selling short without having stock available for delivery and", "paragraph_id": "para_87" }, { "text": "intentionally failing to deliver stock within the standard three-day settlement cycle.”", "paragraph_id": "para_88" }, { "text": "“Naked” Short Selling Antifraud Rule, Exchange Act Release No. 34–58774, 73 Fed. Reg.", "paragraph_id": "para_89" }, { "text": "61666, 61667 (Oct. 17, 2008).", "paragraph_id": "para_90" }, { "text": "2 “Statutory notes are provisions of law placed after the text of a United States", "paragraph_id": "para_91" }, { "text": "Code section. They exist throughout the United States Code” and are valid prima facie", "paragraph_id": "para_92" }, { "text": "evidence of the laws of the United States. Shawn G. Nevers and Julie Graves", "paragraph_id": "para_93" }, { "text": "Krishnaswami, The Shadow Code: Statutory Notes in the United States Code, 112 Law Libr.", "paragraph_id": "para_94" }, { "text": "J. 213, 213 (2020); 1 U.S.C. § 204; see Conyers v. Merit Sys. Prot. Bd., 388 F.3d 1380, 1382", "paragraph_id": "para_95" }, { "text": "n.2 (Fed. Cir. 2004) (That language “was codified as a statutory note is of no moment.”).", "paragraph_id": "para_96" }, { "text": "For ease of reference hereafter, we cite to Dodd-Frank § 984(b) or § 78j note.", "paragraph_id": "para_97" }, { "text": "No. 23-60626", "paragraph_id": "para_98" }, { "text": "4", "paragraph_id": "para_99" }, { "text": "U.S.C. § 78m(f)(2), gives the Commission rulemaking authority to require", "paragraph_id": "para_100", "court_paragraph": 4 }, { "text": "“the public disclosure of the name of the issuer and the title, class, CUSIP", "paragraph_id": "para_101" }, { "text": "number,[3] aggregate amount of the number of short sales of each security,", "paragraph_id": "para_102" }, { "text": "and any additional information determined by the Commission following the", "paragraph_id": "para_103" }, { "text": "end of the reporting period.”", "paragraph_id": "para_104" }, { "text": "Proceeding under § 984(b), the Commission proposed the Securities", "paragraph_id": "para_105" }, { "text": "Lending Rule on November 18, 2021, with a comment period through", "paragraph_id": "para_106" }, { "text": "January 7, 2022. Reporting on Securities Loans (Proposed Securities", "paragraph_id": "para_107" }, { "text": "Lending Rule), 86 Fed. Reg. 69802 (proposed Nov. 18, 2021). The Rule", "paragraph_id": "para_108" }, { "text": "applies to “[a]ny person that agrees to a covered securities loan on behalf of", "paragraph_id": "para_109" }, { "text": "a lender (‘intermediary’)”; “[a]ny person that agrees to a covered securities", "paragraph_id": "para_110" }, { "text": "loan as a lender when an intermediary is not used”; and brokers or dealers", "paragraph_id": "para_111" }, { "text": "that “borrow[] fully paid or excess margin securities.” Securities Lending", "paragraph_id": "para_112" }, { "text": "Rule, 88 Fed. Reg. at 75647, 75649–50, 75742. The Proposed Securities", "paragraph_id": "para_113" }, { "text": "Lending Rule required securities loan transactions to be reported to the", "paragraph_id": "para_114" }, { "text": "Financial Industry Regulatory Authority (FINRA) within fifteen minutes of", "paragraph_id": "para_115" }, { "text": "execution, followed by publication of transaction-by-transaction data “as", "paragraph_id": "para_116" }, { "text": "soon as practicable.” Proposed Securities Lending Rule, 86 Fed. Reg. at", "paragraph_id": "para_117" }, { "text": "69851–52.", "paragraph_id": "para_118" }, { "text": "A few months later, on February 25, 2022, the Commission proposed", "paragraph_id": "para_119" }, { "text": "the Short Sale Rule under § 929X. Short Position and Short Activity", "paragraph_id": "para_120" }, { "text": "Reporting by Institutional Investment Managers (Proposed Short Sale Rule),", "paragraph_id": "para_121" }, { "text": "87 Fed. Reg. 14950 (proposed Feb. 25, 2022). The proposed regulation", "paragraph_id": "para_122" }, { "text": "applied to institutional investment managers4 and required reporting and", "paragraph_id": "para_123" }, { "text": "_____________________", "paragraph_id": "para_124" }, { "text": "3 A CUSIP number is assigned by the Committee on Uniform Securities", "paragraph_id": "para_125" }, { "text": "Identification Procedures.", "paragraph_id": "para_126" }, { "text": "4 An institutional investment manager is “any person, other than a natural person,", "paragraph_id": "para_127" }, { "text": "investing in or buying and selling securities for its own account, and any person exercising", "paragraph_id": "para_128" }, { "text": "No. 23-60626", "paragraph_id": "para_129" }, { "text": "5", "paragraph_id": "para_130" }, { "text": "publication of short sale data on an aggregate, monthly basis. Id. at 14950–", "paragraph_id": "para_131", "court_paragraph": 5 }, { "text": "51. Reports were to be filed through the Commission’s Electronic Data", "paragraph_id": "para_132" }, { "text": "Gathering, Analysis, and Retrieval system (EDGAR). Id. at 14955–57. The", "paragraph_id": "para_133" }, { "text": "Commission contemporaneously reopened the comment period for the", "paragraph_id": "para_134" }, { "text": "Securities Lending Rule “so that commenters may consider whether there", "paragraph_id": "para_135" }, { "text": "would be any effects of [the Proposed Short Sale Rule] that the Commission", "paragraph_id": "para_136" }, { "text": "should consider in connection with [the Proposed Securities Lending Rule].”", "paragraph_id": "para_137" }, { "text": "Reopening of Comment Period for Reporting of Sec. Loans, Exchange Act", "paragraph_id": "para_138" }, { "text": "Release No. 34-94315, 87 Fed. Reg. 11659, 11659 (proposed Mar. 2, 2022).", "paragraph_id": "para_139" }, { "text": "The Commission adopted the final Rules on October 13, 2023.", "paragraph_id": "para_140" }, { "text": "Securities Lending Rule, 88 Fed. Reg. at 75742; Short Sale Rule, 88 Fed. Reg.", "paragraph_id": "para_141" }, { "text": "at 75186. The final Securities Lending Rule differs in a few material ways", "paragraph_id": "para_142" }, { "text": "from the proposed version: It delays the reporting timeframe from fifteen", "paragraph_id": "para_143" }, { "text": "minutes after a reportable transaction until the end of the day, and it delays", "paragraph_id": "para_144" }, { "text": "reporting of information about the size of each individual loan until twenty", "paragraph_id": "para_145" }, { "text": "business days after a transaction is effected. Securities Lending Rule, 88 Fed.", "paragraph_id": "para_146" }, { "text": "Reg. at 75665. The final Short Sale Rule contains no differences from the", "paragraph_id": "para_147" }, { "text": "proposed version that are material to this appeal.", "paragraph_id": "para_148" }, { "text": "Petitioners, several member organizations of institutional investment", "paragraph_id": "para_149" }, { "text": "managers, challenge both Rules under the Administrative Procedure Act", "paragraph_id": "para_150" }, { "text": "(APA) and the Exchange Act.5 Their primary challenges center on the", "paragraph_id": "para_151" }, { "text": "interplay between the Rules and purported inconsistencies between them", "paragraph_id": "para_152" }, { "text": "_____________________", "paragraph_id": "para_153" }, { "text": "investment discretion with respect to the account of any other person.” 15 U.S.C.", "paragraph_id": "para_154" }, { "text": "§ 78m(f)(6).", "paragraph_id": "para_155" }, { "text": "5 Petitioners have associational standing to bring suit as “(1) [their] members would", "paragraph_id": "para_156" }, { "text": "otherwise have standing to sue in their own right; (2) the interests [they] seek[] to protect", "paragraph_id": "para_157" }, { "text": "are germane to the organization[s’] purpose[s]; and (3) neither the claim asserted nor the", "paragraph_id": "para_158" }, { "text": "relief requested requires the participation in the lawsuit of each of the individual", "paragraph_id": "para_159" }, { "text": "members.” Hunt v. Wash. State Apple Advert. Comm’n, 432 U.S. 333, 343 (1977).", "paragraph_id": "para_160" }, { "text": "No. 23-60626", "paragraph_id": "para_161" }, { "text": "6", "paragraph_id": "para_162" }, { "text": "that Petitioners contend doom both Rules as arbitrary and capricious. In a", "paragraph_id": "para_163", "court_paragraph": 6 }, { "text": "nutshell, Petitioners argue that both Rules should be vacated because they", "paragraph_id": "para_164" }, { "text": "are irreconcilably contradictory—the disclosures required by the Securities", "paragraph_id": "para_165" }, { "text": "Lending Rule will reveal the very information the Short Sale Rule seeks to", "paragraph_id": "para_166" }, { "text": "protect—and because the Commission failed to consider the Rules’", "paragraph_id": "para_167" }, { "text": "collective economic impact.", "paragraph_id": "para_168" }, { "text": "Petitioners also attack the Rules individually. They contend that the", "paragraph_id": "para_169" }, { "text": "Securities Lending Rule exceeds the Commission’s statutory authority and", "paragraph_id": "para_170" }, { "text": "that the Commission did not provide adequate opportunity for comment", "paragraph_id": "para_171" }, { "text": "before it promulgated the final rule. Regarding the Short Sale Rule, they", "paragraph_id": "para_172" }, { "text": "assert that the Commission failed to explain why it did not use a less", "paragraph_id": "para_173" }, { "text": "burdensome reporting alternative and that the Rule impermissibly applies to", "paragraph_id": "para_174" }, { "text": "extraterritorial transactions.", "paragraph_id": "para_175" }, { "text": "II.", "paragraph_id": "para_176" }, { "text": "Under the APA, this court must uphold the Commission’s action", "paragraph_id": "para_177" }, { "text": "unless it is in “excess of statutory jurisdiction, authority, or limitations,” or", "paragraph_id": "para_178" }, { "text": "is “arbitrary, capricious, an abuse of discretion, or otherwise not in", "paragraph_id": "para_179" }, { "text": "accordance with law.” 5 U.S.C. § 706(2)(A), (C). “[W]e review questions", "paragraph_id": "para_180" }, { "text": "of law de novo, without deference to the agency’s conclusions.” Davidson v.", "paragraph_id": "para_181" }, { "text": "Glickman, 169 F.3d 996, 1000 (5th Cir. 1999) (citations omitted). And the", "paragraph_id": "para_182" }, { "text": "Commission’s factual findings are “conclusive” if “supported by substantial", "paragraph_id": "para_183" }, { "text": "evidence.” 15 U.S.C. § 80b-13(a).", "paragraph_id": "para_184" }, { "text": "Arbitrary-and-capricious review requires this court to scrutinize the", "paragraph_id": "para_185" }, { "text": "record to determine whether the agency has “examine[d] the relevant data", "paragraph_id": "para_186" }, { "text": "and articulate[d] a satisfactory explanation for its action including a ‘rational", "paragraph_id": "para_187" }, { "text": "connection between the facts found and the choice made.’” Motor Vehicle", "paragraph_id": "para_188" }, { "text": "Mfrs. Ass’n of U.S., Inc. v. State Farm Mut. Auto Ins. Co., 463 U.S. 29, 43", "paragraph_id": "para_189" }, { "text": "(1983) (quoting Burlington Truck Lines v. United States, 371 U.S. 156, 168", "paragraph_id": "para_190" }, { "text": "No. 23-60626", "paragraph_id": "para_191" }, { "text": "7", "paragraph_id": "para_192" }, { "text": "(1962)). This court “may not supply a reasoned basis for the agency’s action", "paragraph_id": "para_193", "court_paragraph": 7 }, { "text": "that the agency itself has not given.” Id. (citing SEC v. Chenery Corp., 332", "paragraph_id": "para_194" }, { "text": "U.S. 194, 196 (1947)). Finally, “we must set aside any action premised on", "paragraph_id": "para_195" }, { "text": "reasoning that fails to account for ‘relevant factors’ or evinces ‘a clear error", "paragraph_id": "para_196" }, { "text": "of judgment.’” Univ. of Tex. M.D. Anderson Cancer Ctr. v. U.S. Dep’t of", "paragraph_id": "para_197" }, { "text": "Health & Hum. Servs., 985 F.3d 472, 475 (5th Cir. 2021) (quoting Marsh v.", "paragraph_id": "para_198" }, { "text": "Or. Nat. Res. Council, 490 U.S. 360, 378 (1989)).", "paragraph_id": "para_199" }, { "text": "In addition to adhering to the APA’s requirements, the Commission", "paragraph_id": "para_200" }, { "text": "has a “unique obligation” to comply with the considerations enumerated in", "paragraph_id": "para_201" }, { "text": "the Exchange Act when promulgating rules. Bus. Roundtable v. SEC, 647", "paragraph_id": "para_202" }, { "text": "F.3d 1144, 1148 (D.C. Cir. 2011) (citing 15 U.S.C. §§ 78c(f), 78w(a)(2), 80b-", "paragraph_id": "para_203" }, { "text": "2(c)). Specifically, the Commission must consider the effect of a new rule", "paragraph_id": "para_204" }, { "text": "upon “efficiency, competition, and capital formation.” Id. And “its failure", "paragraph_id": "para_205" }, { "text": "to ‘apprise itself—and hence the public and the Congress—of the economic", "paragraph_id": "para_206" }, { "text": "consequences of a proposed regulation’ makes promulgation of the rule", "paragraph_id": "para_207" }, { "text": "arbitrary and capricious and not in accordance with law.” Id. (quoting", "paragraph_id": "para_208" }, { "text": "Chamber of Com. of U.S. v. SEC (Chamber of Com. (D.C. Circuit)), 412 F.3d", "paragraph_id": "para_209" }, { "text": "133, 144 (D.C. Cir. 2005)).", "paragraph_id": "para_210" }, { "text": "III.", "paragraph_id": "para_211" }, { "text": "We begin with Petitioners’ targeted challenges to the Securities", "paragraph_id": "para_212" }, { "text": "Lending Rule. They contend that (A) the Rule is unlawful because it", "paragraph_id": "para_213" }, { "text": "exceeded the scope of the Commission’s statutory authority and (B) the", "paragraph_id": "para_214" }, { "text": "Commission did not give the public adequate opportunity to comment. We", "paragraph_id": "para_215" }, { "text": "disagree on both points.", "paragraph_id": "para_216" }, { "text": "A.", "paragraph_id": "para_217" }, { "text": "When reviewing a statute that “delegates discretionary authority to", "paragraph_id": "para_218" }, { "text": "an agency, the role of the reviewing court under the APA is, as always, to", "paragraph_id": "para_219" }, { "text": "independently interpret the statute and effectuate the will of Congress", "paragraph_id": "para_220" }, { "text": "No. 23-60626", "paragraph_id": "para_221" }, { "text": "8", "paragraph_id": "para_222" }, { "text": "subject to constitutional limits.” Loper Bright Enters. v. Raimondo, 603 U.S.", "paragraph_id": "para_223", "court_paragraph": 8 }, { "text": "369, 395 (2024). “The court fulfills that role by recognizing constitutional", "paragraph_id": "para_224" }, { "text": "delegations, ‘fixing the boundaries of the delegated authority,’ and ensuring", "paragraph_id": "para_225" }, { "text": "the agency has engaged in ‘reasoned decisionmaking’ within those", "paragraph_id": "para_226" }, { "text": "boundaries.” Id. (cleaned up). In matters of statutory interpretation, “[w]e", "paragraph_id": "para_227" }, { "text": "begin, as always, with the text of the statute.” United States v. Palomares, 52", "paragraph_id": "para_228" }, { "text": "F.4th 640, 642 (5th Cir. 2022), cert. denied, 144 S. Ct. 1092 (2024) (mem.).", "paragraph_id": "para_229" }, { "text": "“If the statute is clear and unambiguous ‘that is the end of the matter, for the", "paragraph_id": "para_230" }, { "text": "court, as well as the agency, must give effect to the unambiguously expressed", "paragraph_id": "para_231" }, { "text": "intent of Congress.’” Bd. of Governors of Fed. Rsrv. Sys. v. Dimension Fin.", "paragraph_id": "para_232" }, { "text": "CorPage, 474 U.S. 361, 368 (1986) (quoting Chevron U.S.A. Inc. v. Nat. Res.", "paragraph_id": "para_233" }, { "text": "Def. Council, Inc., 467 U.S. 837, 842–43 (1984), overruled on other grounds by", "paragraph_id": "para_234" }, { "text": "Loper Bright, 603 U.S. 369).", "paragraph_id": "para_235" }, { "text": "As discussed supra, the Commission adopted the Securities Lending", "paragraph_id": "para_236" }, { "text": "Rule pursuant to Dodd-Frank § 984(b), which directs the Commission to", "paragraph_id": "para_237" }, { "text": "promulgate rules “designed to increase the transparency of information", "paragraph_id": "para_238" }, { "text": "available to brokers, dealers, and investors, with respect to the loan or", "paragraph_id": "para_239" }, { "text": "borrowing of securities.” There is no question that “the statute authorize[s]", "paragraph_id": "para_240" }, { "text": "the challenged agency action.” Loper Bright, 603 U.S. at 406. That is,", "paragraph_id": "para_241" }, { "text": "§ 984(b) expressly directs the Commission to facilitate more transparency in", "paragraph_id": "para_242" }, { "text": "securities lending—ostensibly what the Securities Lending Rule aims to do.", "paragraph_id": "para_243" }, { "text": "Compare 15 U.S.C. § 78j note (delineating scope of rulemaking “to increase", "paragraph_id": "para_244" }, { "text": "the transparency” of “the loan or borrowing of securities”), with Securities", "paragraph_id": "para_245" }, { "text": "Lending Rule, 88 Fed. Reg. at 75644 (stating that the purpose of the Rule is", "paragraph_id": "para_246" }, { "text": "to “increase the transparency and efficiency of the securities lending", "paragraph_id": "para_247" }, { "text": "market”).", "paragraph_id": "para_248" }, { "text": "Petitioners counter that the Commission’s authority under § 984(b)", "paragraph_id": "para_249" }, { "text": "is cabined by § 929X of Dodd-Frank, under which the Commission", "paragraph_id": "para_250" }, { "text": "promulgated the Short Sale Rule:", "paragraph_id": "para_251" }, { "text": "No. 23-60626", "paragraph_id": "para_252" }, { "text": "9", "paragraph_id": "para_253" }, { "text": "The Commission shall prescribe rules providing for the public", "paragraph_id": "para_254", "court_paragraph": 9 }, { "text": "disclosure of the name of the issuer and the title, class, CUSIP", "paragraph_id": "para_255" }, { "text": "number, aggregate amount of the number of short sales of each", "paragraph_id": "para_256" }, { "text": "security, and any additional information determined by the", "paragraph_id": "para_257" }, { "text": "Commission following the end of the reporting period. At a", "paragraph_id": "para_258" }, { "text": "minimum, such public disclosure shall occur every month.", "paragraph_id": "para_259" }, { "text": "15 U.S.C. § 78m(f)(2). Petitioners reason that this language not only", "paragraph_id": "para_260" }, { "text": "prescribes reporting of short sale data but also dictates when and how", "paragraph_id": "para_261" }, { "text": "securities loan disclosures must occur, i.e., only on an aggregate, monthly", "paragraph_id": "para_262" }, { "text": "basis. Essentially, Petitioners’ construction of the two statutes hinges on a", "paragraph_id": "para_263" }, { "text": "theory that securities loans are direct proxies for short sales, such that", "paragraph_id": "para_264" }, { "text": "disclosures of the former are effectively disclosures of the latter. And", "paragraph_id": "para_265" }, { "text": "because securities lending data reveal short sale data, Petitioners argue that", "paragraph_id": "para_266" }, { "text": "§ 929X governs rulemaking as to both.", "paragraph_id": "para_267" }, { "text": "But for reasons discussed in detail infra, Petitioners’ theory that", "paragraph_id": "para_268" }, { "text": "securities loan data are “direct proxies” for short sale data is faulty, at least", "paragraph_id": "para_269" }, { "text": "to the extent that Petitioners assert the two data sets are equivalent. The", "paragraph_id": "para_270" }, { "text": "Commission determined, with factual support in the record, that they are", "paragraph_id": "para_271" }, { "text": "not—regardless of the overlap between them. That conclusion undermines", "paragraph_id": "para_272" }, { "text": "the notion that § 984(b) and § 929X of Dodd-Frank must be read in tandem", "paragraph_id": "para_273" }, { "text": "to demarcate the Commission’s rulemaking authority under either provision,", "paragraph_id": "para_274" }, { "text": "or both.", "paragraph_id": "para_275" }, { "text": "Beyond that, Petitioners’ argument fails as a matter of statutory", "paragraph_id": "para_276" }, { "text": "interpretation. First, their reading would largely render § 984(b) surplusage,", "paragraph_id": "para_277" }, { "text": "contrary to “the will of Congress.” Loper Bright, 603 U.S. at 395. If § 929X", "paragraph_id": "para_278" }, { "text": "controlled the Commission’s ability to regulate securities lending data, as", "paragraph_id": "para_279" }, { "text": "synonymous with short sale data, § 984(b) would do little work of its own.", "paragraph_id": "para_280" }, { "text": "Congress’s choice to address the regulation of securities lending and short", "paragraph_id": "para_281" }, { "text": "sales via two separate statutes was deliberate, and we must treat it as a", "paragraph_id": "para_282" }, { "text": "No. 23-60626", "paragraph_id": "para_283" }, { "text": "10", "paragraph_id": "para_284" }, { "text": "deliberate choice. See Univ. of Tex. Sw. Med. Ctr. v. Nassar, 570 U.S. 338, 353", "paragraph_id": "para_285", "court_paragraph": 10 }, { "text": "(2013) (“Just as Congress’[s] choice of words is presumed to be deliberate,", "paragraph_id": "para_286" }, { "text": "so too are its structural choices.”). And there is no support in Dodd-Frank", "paragraph_id": "para_287" }, { "text": "for engrafting the limitations of § 929X onto § 984(b). Cf. Gozlon-Peretz v.", "paragraph_id": "para_288" }, { "text": "United States, 498 U.S. 395, 404 (1991) (“[W]here Congress includes", "paragraph_id": "para_289" }, { "text": "particular language in one section of a statute but omits it in another section", "paragraph_id": "para_290" }, { "text": "of the same Act, it is generally presumed that Congress acts intentionally and", "paragraph_id": "para_291" }, { "text": "purposely in the disparate inclusion or exclusion.”) (alteration in original)", "paragraph_id": "para_292" }, { "text": "(quoting Russello v. United States, 464 U.S. 16, 23 (1983)). The two", "paragraph_id": "para_293" }, { "text": "provisions are not adjacent in the law, and it is not otherwise apparent from", "paragraph_id": "para_294" }, { "text": "text or context that they are interdependent. See Nat’l Ass’n of Priv. Fund", "paragraph_id": "para_295" }, { "text": "Managers v. SEC, 103 F.4th 1097, 1111 (5th Cir. 2024) (“[T]he words of a", "paragraph_id": "para_296" }, { "text": "statute must be read in their context and with a view to their place in the", "paragraph_id": "para_297" }, { "text": "overall statutory scheme.” (quoting Roberts v. Sea-Land Servs., Inc., 566 U.S.", "paragraph_id": "para_298" }, { "text": "93, 101 (2012))).", "paragraph_id": "para_299" }, { "text": "Simply put, Congress enacted two separate, and specific, delegations", "paragraph_id": "para_300" }, { "text": "of rulemaking authority—one for securities lending, and one for short sales.", "paragraph_id": "para_301" }, { "text": "In § 984(b), Congress directed the Commission to adopt rules “to increase", "paragraph_id": "para_302" }, { "text": "the transparency of information” regarding securities lending. The", "paragraph_id": "para_303" }, { "text": "Securities Lending Rule aims to accomplish that directive by requiring", "paragraph_id": "para_304" }, { "text": "certain parties to securities loans to report the material terms of each covered", "paragraph_id": "para_305" }, { "text": "transaction to FINRA, which will then make specified aggregated", "paragraph_id": "para_306" }, { "text": "information publicly available. See 17 C.F.R. § 240.10c-1a(a), (c), (g).", "paragraph_id": "para_307" }, { "text": "Petitioners offer no support for the idea that Congress intended, sub silentio,", "paragraph_id": "para_308" }, { "text": "to map the parameters it articulated for short sale disclosures in Dodd-Frank", "paragraph_id": "para_309" }, { "text": "§ 929X onto its rulemaking directive in § 984(b) for securities loans.", "paragraph_id": "para_310" }, { "text": "And even if the limitations of § 929X applied to the Securities Lending", "paragraph_id": "para_311" }, { "text": "Rule, the Commission did not exceed that statute in promulgating the Rule.", "paragraph_id": "para_312" }, { "text": "Petitioners posit that § 929X’s proviso that “[a]t a minimum, such public", "paragraph_id": "para_313" }, { "text": "No. 23-60626", "paragraph_id": "para_314" }, { "text": "11", "paragraph_id": "para_315" }, { "text": "disclosure shall occur every month,” 15 U.S.C. § 78m(f)(2), means securities", "paragraph_id": "para_316", "court_paragraph": 11 }, { "text": "loan information may not be disclosed daily, as the Rule requires. But § 929X", "paragraph_id": "para_317" }, { "text": "expressly sets a minimum disclosure frequency, not a maximum. Put", "paragraph_id": "para_318" }, { "text": "differently, nothing in § 929X prevents the Commission from requiring", "paragraph_id": "para_319" }, { "text": "disclosures more often than monthly, just as it did in the Securities Lending", "paragraph_id": "para_320" }, { "text": "Rule. The statute plainly requires at least monthly reporting, and the daily", "paragraph_id": "para_321" }, { "text": "reporting required by the Securities Lending Rule fits comfortably within that", "paragraph_id": "para_322" }, { "text": "range.", "paragraph_id": "para_323" }, { "text": "Petitioners also attack the Securities Lending Rule as an improper", "paragraph_id": "para_324" }, { "text": "departure from prior Commission determinations and practice. For support,", "paragraph_id": "para_325" }, { "text": "they point to a 2014 Commission staff report that concluded that publication", "paragraph_id": "para_326" }, { "text": "of real-time, transaction-by-transaction short sale data could harm price", "paragraph_id": "para_327" }, { "text": "efficiency and reduce liquidity. See SEC, Short Sale Position and Transaction", "paragraph_id": "para_328" }, { "text": "Reporting (June 5, 2014), https://www.sec.gov/files/short-sale-position-", "paragraph_id": "para_329" }, { "text": "and-transaction-reporting0.pdf. Petitioners contend that the new Rule’s", "paragraph_id": "para_330" }, { "text": "requirement of daily, transaction-by-transaction disclosure of securities", "paragraph_id": "para_331" }, { "text": "lending data reversed the Commission’s prior stance with no explanation of", "paragraph_id": "para_332" }, { "text": "why it disregarded its earlier findings. However, the 2014 staff report was", "paragraph_id": "para_333" }, { "text": "explicit that “[t]he Commission ha[d] expressed no view regarding the", "paragraph_id": "para_334" }, { "text": "analysis, findings, or conclusions contained herein.” Id. at cover. Moreover,", "paragraph_id": "para_335" }, { "text": "the report did not consider “the details of securities lending programs” of", "paragraph_id": "para_336" }, { "text": "the kind to be disclosed under the Securities Lending Rule. Id. at 5. Instead,", "paragraph_id": "para_337" }, { "text": "it analyzed the effects of revealing a short seller’s identity in real time,", "paragraph_id": "para_338" }, { "text": "something the Securities Lending Rule does not purport to do. See id. at 72,", "paragraph_id": "para_339" }, { "text": "80, 83. Thus, Petitioners fail to show a departure from prior practice, or even", "paragraph_id": "para_340" }, { "text": "that the Rule and the 2014 staff report are at variance.", "paragraph_id": "para_341" }, { "text": "At the end of the inquiry, the Securities Lending Rule falls well within", "paragraph_id": "para_342" }, { "text": "the rulemaking authority granted the Commission by Dodd-Frank § 984(b)", "paragraph_id": "para_343" }, { "text": "“to increase the transparency . . . [of] the loan or borrowing of securities.”", "paragraph_id": "para_344" }, { "text": "No. 23-60626", "paragraph_id": "para_345" }, { "text": "12", "paragraph_id": "para_346" }, { "text": "Nothing in the text or structure of Dodd-Frank suggests that § 929X", "paragraph_id": "para_347", "court_paragraph": 12 }, { "text": "impinges upon that authority. The Commission thus acted within its", "paragraph_id": "para_348" }, { "text": "statutory bounds in adopting the Rule, and Petitioners’ contention to the", "paragraph_id": "para_349" }, { "text": "contrary lacks merit.", "paragraph_id": "para_350" }, { "text": "B.", "paragraph_id": "para_351" }, { "text": "In the initial draft of the Securities Lending Rule, all reportable data", "paragraph_id": "para_352" }, { "text": "were required to be reported within fifteen minutes of a covered transaction.", "paragraph_id": "para_353" }, { "text": "Proposed Securities Lending Rule, 86 Fed. Reg. at 69851–52. The final Rule", "paragraph_id": "para_354" }, { "text": "adjusted the reporting timeline to the end of the day, with publication set for", "paragraph_id": "para_355" }, { "text": "the following business day for most data, and twenty business days later for", "paragraph_id": "para_356" }, { "text": "loan size information. Securities Lending Rule, 88 Fed. Reg. at 75665, 75690,", "paragraph_id": "para_357" }, { "text": "75709–10. Petitioners question the adequacy of the public comment period", "paragraph_id": "para_358" }, { "text": "as to the final Rule’s twenty-day delay for release of loan size data, arguing", "paragraph_id": "para_359" }, { "text": "that the Commission should have provided new opportunity for public", "paragraph_id": "para_360" }, { "text": "comment on the adjusted reporting timeframe. The Commission counters", "paragraph_id": "para_361" }, { "text": "that the twenty-day delay was a logical outgrowth of the proposed Rule,", "paragraph_id": "para_362" }, { "text": "which itself carried ample opportunity for meaningful public comment.", "paragraph_id": "para_363" }, { "text": "The APA requires an agency to provide notice and an opportunity for", "paragraph_id": "para_364" }, { "text": "interested persons to participate in a rulemaking. Huawei Techs. USA, Inc. v.", "paragraph_id": "para_365" }, { "text": "FCC, 2 F.4th 421, 447 (5th Cir. 2021) (citing 5 U.S.C. § 553(c)). Notice of a", "paragraph_id": "para_366" }, { "text": "final rule is sufficient if the final version is a “logical outgrowth” of the", "paragraph_id": "para_367" }, { "text": "proposed rule. Id. (quoting Nat’l Lifeline Ass’n v. FCC, 921 F.3d 1102, 1115", "paragraph_id": "para_368" }, { "text": "(D.C. Cir. 2019)). Notice and request for comment must “adequately frame", "paragraph_id": "para_369" }, { "text": "the subjects for discussion” such that “the affected party ‘should have", "paragraph_id": "para_370" }, { "text": "anticipated’ the agency’s final course in light of the initial notice.” Id.", "paragraph_id": "para_371" }, { "text": "(quoting Nat’l Lifeline Ass’n, 921 F.3d at 1115). “The agency [is] not", "paragraph_id": "para_372" }, { "text": "required to specifically identify every precise proposal which the agency", "paragraph_id": "para_373" }, { "text": "might ultimately adopt, and it permissibly implement[s] changes in the final", "paragraph_id": "para_374" }, { "text": "No. 23-60626", "paragraph_id": "para_375" }, { "text": "13", "paragraph_id": "para_376" }, { "text": "rule instigated by . . . comments during the rulemaking.” Id. at 448 (internal", "paragraph_id": "para_377", "court_paragraph": 13 }, { "text": "quotation marks omitted) (quoting Chem. Mfrs. Ass’n v. EPA, 870 F.2d 177,", "paragraph_id": "para_378" }, { "text": "203 (5th Cir. 1989)).", "paragraph_id": "para_379" }, { "text": "Here, the Commission “sought comment on the ultimate subject” at", "paragraph_id": "para_380" }, { "text": "issue, id., as it solicited comments about the effects and timing of reporting", "paragraph_id": "para_381" }, { "text": "and publication of securities lending data when it proposed the Securities", "paragraph_id": "para_382" }, { "text": "Lending Rule. See Proposed Securities Lending Rule, 86 Fed. Reg. at 69813", "paragraph_id": "para_383" }, { "text": "(expressly asking for commenters’ input as to the timing of data reporting", "paragraph_id": "para_384" }, { "text": "and publication). The Commission also “apprised interested parties of the", "paragraph_id": "para_385" }, { "text": "related issues under consideration by offering” alternative publication and", "paragraph_id": "para_386" }, { "text": "reporting proposals and inviting interested parties to suggest others. See", "paragraph_id": "para_387" }, { "text": "Huawei, 2 F.4th at 448. Indeed, many commenters to the proposed Rule", "paragraph_id": "para_388" }, { "text": "expressed concern that publicizing transaction-level securities loan data on a", "paragraph_id": "para_389" }, { "text": "fifteen-minute timeline would reveal short sale trading strategies and", "paragraph_id": "para_390" }, { "text": "suggested alternative timelines, such as on a weekly basis. E.g., Alternative", "paragraph_id": "para_391" }, { "text": "Investment Management Association, Comment Letter on Proposed", "paragraph_id": "para_392" }, { "text": "Securities Lending Rule, 4–5, 5–6 n.12 (Jan. 7, 2022) (commenting that", "paragraph_id": "para_393" }, { "text": "loan-level data should not be made public on intra-day basis); Investment", "paragraph_id": "para_394" }, { "text": "Company Institute, Comment Letter on Proposed Securities Lending Rule,", "paragraph_id": "para_395" }, { "text": "11 (Jan. 7, 2022) (same). Far from depriving the public of meaningful", "paragraph_id": "para_396" }, { "text": "opportunity for comment, the record shows that the Commission considered", "paragraph_id": "para_397" }, { "text": "the public’s input and responded by adopting an end-of-day, rather than a", "paragraph_id": "para_398" }, { "text": "fifteen-minute, reporting interval, and by delaying the publication of loan size", "paragraph_id": "para_399" }, { "text": "information by twenty business days. Securities Lending Rule, 88 Fed. Reg.", "paragraph_id": "para_400" }, { "text": "at 75684, 75660. Given this record, the Commission did “all the APA", "paragraph_id": "para_401" }, { "text": "demands.” Huawei, 2 F.4th at 448 (quoting Chem. Mfrs. Ass’n, 870 F.2d at", "paragraph_id": "para_402" }, { "text": "203).", "paragraph_id": "para_403" }, { "text": "No. 23-60626", "paragraph_id": "para_404" }, { "text": "14", "paragraph_id": "para_405" }, { "text": "IV.", "paragraph_id": "para_406", "court_paragraph": 14 }, { "text": "Petitioners similarly challenge the Short Sale Rule as unlawful.", "paragraph_id": "para_407" }, { "text": "Specifically, they contend that (A) the Commission did not reasonably", "paragraph_id": "para_408" }, { "text": "explain why it did not use a less burdensome alternative to its EDGAR", "paragraph_id": "para_409" }, { "text": "reporting system and (B) the Short Sale Rule has impermissible", "paragraph_id": "para_410" }, { "text": "extraterritorial application. We again disagree.", "paragraph_id": "para_411" }, { "text": "A.", "paragraph_id": "para_412" }, { "text": "Petitioners first contend that the Commission failed to explain why it", "paragraph_id": "para_413" }, { "text": "did not pursue a less burdensome reporting alternative for compliance with", "paragraph_id": "para_414" }, { "text": "the Short Sale Rule, namely, FINRA’s existing disclosure infrastructure,", "paragraph_id": "para_415" }, { "text": "which the Securities Lending Rule utilizes. Petitioners assert that because", "paragraph_id": "para_416" }, { "text": "FINRA already collects and publishes much of the information that the", "paragraph_id": "para_417" }, { "text": "Short Sale Rule requires to be disclosed, using FINRA’s system would be", "paragraph_id": "para_418" }, { "text": "less burdensome than creating an entirely new reporting regime through the", "paragraph_id": "para_419" }, { "text": "Commission’s EDGAR system. Under arbitrary-and-capricious review, the", "paragraph_id": "para_420" }, { "text": "Commission must show that it “reasonably considered the relevant issues", "paragraph_id": "para_421" }, { "text": "and reasonably explained the decision.” FCC v. Prometheus Radio Project, 592", "paragraph_id": "para_422" }, { "text": "U.S. 414, 423 (2021) (citing authority). “That requires the agency to", "paragraph_id": "para_423" }, { "text": "consider all relevant factors raised by the public comments and provide a", "paragraph_id": "para_424" }, { "text": "response to significant points within.” Chamber of Com. of U.S. v. SEC", "paragraph_id": "para_425" }, { "text": "(Chamber of Com. (Fifth Circuit)), 85 F.4th 760, 774 (5th Cir. 2023) (citing", "paragraph_id": "para_426" }, { "text": "Huawei, 2 F.4th at 449). “Comments the agency must respond to include", "paragraph_id": "para_427" }, { "text": "those that can be thought to challenge a fundamental premise underlying the", "paragraph_id": "para_428" }, { "text": "proposed agency decision or include points that if true and adopted would", "paragraph_id": "para_429" }, { "text": "require a change in an agency’s proposed rule.” Id. (cleaned up).", "paragraph_id": "para_430" }, { "text": "Petitioners offer a host of reasons why the Rule’s utilization of", "paragraph_id": "para_431" }, { "text": "EDGAR is flawed and why FINRA’s reporting system is preferable. But", "paragraph_id": "para_432" }, { "text": "their assertion that the Commission did not consider using FINRA’s system", "paragraph_id": "para_433" }, { "text": "No. 23-60626", "paragraph_id": "para_434" }, { "text": "15", "paragraph_id": "para_435" }, { "text": "or explain its decision to use EDGAR instead falters against the record. The", "paragraph_id": "para_436", "court_paragraph": 15 }, { "text": "Commission discussed FINRA’s system multiple times in the final Short", "paragraph_id": "para_437" }, { "text": "Sale Rule. In the end, the agency emphasized that FINRA’s system is only", "paragraph_id": "para_438" }, { "text": "applicable to some users subject to the Rule, such that it would not facilitate", "paragraph_id": "para_439" }, { "text": "the level of transparency that EDGAR would provide. E.g., Short Sale Rule,", "paragraph_id": "para_440" }, { "text": "88 Fed. Reg. at 75105, 75148 n.493, 75176.", "paragraph_id": "para_441" }, { "text": "Further, responding to public comments that EDGAR poses", "paragraph_id": "para_442" }, { "text": "increased cybersecurity risks, the Commission stated that the likelihood of a", "paragraph_id": "para_443" }, { "text": "breach was low because the agency “recently deployed security and", "paragraph_id": "para_444" }, { "text": "modernization enhancements focusing on technology upgrades to the", "paragraph_id": "para_445" }, { "text": "EDGAR system.” Id. at 75172. Thus, the Commission “examine[d] the", "paragraph_id": "para_446" }, { "text": "relevant data and articulate[d] a satisfactory explanation for its action", "paragraph_id": "para_447" }, { "text": "including a ‘rational connection between the facts found and the choice", "paragraph_id": "para_448" }, { "text": "made,’” which is all that is required to hurdle arbitrary-and-capricious", "paragraph_id": "para_449" }, { "text": "review. State Farm, 463 U.S. at 43 (quoting Burlington Truck Lines, 371 U.S.", "paragraph_id": "para_450" }, { "text": "at 168). Even if Petitioners are correct that FINRA’s is the better system,", "paragraph_id": "para_451" }, { "text": "that answers the wrong question. The APA only requires the Commission", "paragraph_id": "para_452" }, { "text": "to show that it “reasonably considered the relevant issues and reasonably", "paragraph_id": "para_453" }, { "text": "explained [its] decision,” Prometheus Radio Project, 592 U.S. at 423, and", "paragraph_id": "para_454" }, { "text": "addressed “all relevant factors raised by the public comments", "paragraph_id": "para_455" }, { "text": "and . . . significant points within,” Chamber of Com. (Fifth Circuit), 85 F.4th", "paragraph_id": "para_456" }, { "text": "at 774 (citing Huawei, 2 F.4th at 449). It did so here, and Petitioners’", "paragraph_id": "para_457" }, { "text": "challenge on this point fails.", "paragraph_id": "para_458" }, { "text": "B.", "paragraph_id": "para_459" }, { "text": "Petitioners also raise the Short Sale Rule’s purported extraterritorial", "paragraph_id": "para_460" }, { "text": "effects, contending that the Rule impermissibly reaches foreign securities", "paragraph_id": "para_461" }, { "text": "transactions. For support, they point to the Rule’s language:", "paragraph_id": "para_462" }, { "text": "No. 23-60626", "paragraph_id": "para_463" }, { "text": "16", "paragraph_id": "para_464" }, { "text": "The Commission understands [the Short Sale Rule], by its", "paragraph_id": "para_465", "court_paragraph": 16 }, { "text": "terms, to apply to any institutional investment manager already", "paragraph_id": "para_466" }, { "text": "subject to U.S. reporting requirements. This indicates that the", "paragraph_id": "para_467" }, { "text": "relevant domestic conduct under [the Rule’s] section 13(f)(2)", "paragraph_id": "para_468" }, { "text": "is being an institutional investment manager operating in the", "paragraph_id": "para_469" }, { "text": "U.S. securities markets such that the investment manager is", "paragraph_id": "para_470" }, { "text": "subject to filing reports with the Commission. Thus, when that", "paragraph_id": "para_471" }, { "text": "relevant domestic conduct is present here in the United States,", "paragraph_id": "para_472" }, { "text": "[the Short Sale Rule’s] regulatory reporting obligation will", "paragraph_id": "para_473" }, { "text": "generally apply.", "paragraph_id": "para_474" }, { "text": "Short Sale Rule, 88 Fed. Reg. at 75109; see 17 C.F.R. § 240.13f-2.", "paragraph_id": "para_475" }, { "text": "Petitioners take this language to mean that “once a manager must", "paragraph_id": "para_476" }, { "text": "comply with unspecified ‘U.S. reporting requirements’ for any aspect of its", "paragraph_id": "para_477" }, { "text": "operations, the Rule requires that manager to report . . . all of its short-sale", "paragraph_id": "para_478" }, { "text": "activity around the globe, regardless of where the trades occur or what", "paragraph_id": "para_479" }, { "text": "securities are involved.” They point to the Rule’s reporting requirements,", "paragraph_id": "para_480" }, { "text": "which extend to “all accounts over which the [reporting entity] has", "paragraph_id": "para_481" }, { "text": "investment discretion that meet or exceed a quantitative reporting", "paragraph_id": "para_482" }, { "text": "threshold.” Short Sale Rule, 88 Fed. Reg. at 75105 (footnote omitted).", "paragraph_id": "para_483" }, { "text": "Petitioners argue these provisions require a global reporting system, such that", "paragraph_id": "para_484" }, { "text": "“any non-U.S. manager, because of any services it may provide to some small", "paragraph_id": "para_485" }, { "text": "number of U.S. clients, is required to file any reports with the Commission.”", "paragraph_id": "para_486" }, { "text": "However, viewing the Short Sale Rule in full disproves Petitioners’", "paragraph_id": "para_487" }, { "text": "argument. The proposed version of the Rule only aimed to apply to “equity", "paragraph_id": "para_488" }, { "text": "securities consistent with the Commission’s [existing] short sale regulations", "paragraph_id": "para_489" }, { "text": "(i.e., Regulation SHO[6]),” which do not reach securities traded outside of", "paragraph_id": "para_490" }, { "text": "_____________________", "paragraph_id": "para_491" }, { "text": "6 SEC Regulation SHO, 17 C.F.R. §§ 242.200–.204. Regulation SHO was", "paragraph_id": "para_492" }, { "text": "promulgated, inter alia, to “[e]stablish uniform locate and delivery requirements in order", "paragraph_id": "para_493" }, { "text": "No. 23-60626", "paragraph_id": "para_494" }, { "text": "17", "paragraph_id": "para_495" }, { "text": "the United States. Proposed Short Sale Rule, 87 Fed. Reg. at 14965–66", "paragraph_id": "para_496", "court_paragraph": 17 }, { "text": "(italics omitted); see also Short Sales, 69 Fed. Reg. 48008, 48014 n.54 (Aug.", "paragraph_id": "para_497" }, { "text": "6, 2004) (“Any broker-dealer using the United States jurisdictional means to", "paragraph_id": "para_498" }, { "text": "effect short sales in securities traded in the United States would be subject to", "paragraph_id": "para_499" }, { "text": "Regulation SHO . . . .”). The final Rule adopted the same, domestic,", "paragraph_id": "para_500" }, { "text": "parameters. Short Sale Rule, 88 Fed. Reg. at 75109 (“[T]he Commission is", "paragraph_id": "para_501" }, { "text": "adopting Rule 13f-2 and Form SHO to help enhance transparency regarding", "paragraph_id": "para_502" }, { "text": "short selling in equity securities—including both exchange-listed and over-", "paragraph_id": "para_503" }, { "text": "the-counter securities, and ETFs—that are already subject to Regulation", "paragraph_id": "para_504" }, { "text": "SHO.”). Nothing in either the proposed or final versions of the Rule suggest", "paragraph_id": "para_505" }, { "text": "any contrary extraterritorial reach.", "paragraph_id": "para_506" }, { "text": "Because the Short Sale Rule, by its terms, is cabined to cover only", "paragraph_id": "para_507" }, { "text": "equity securities “already subject to Regulation SHO” and because", "paragraph_id": "para_508" }, { "text": "Regulation SHO solely applies to equity securities traded in the United", "paragraph_id": "para_509" }, { "text": "States, it follows that the Short Sale Rule does not carry any improper", "paragraph_id": "para_510" }, { "text": "extraterritorial application. Short Sale Rule, 88 Fed. Reg. at 75100, 75109.", "paragraph_id": "para_511" }, { "text": "Petitioners’ argument thus lacks merit.", "paragraph_id": "para_512" }, { "text": "V.", "paragraph_id": "para_513" }, { "text": "Petitioners also lodge a challenge to the Rules in tandem, arguing that", "paragraph_id": "para_514" }, { "text": "their near-simultaneous adoption is arbitrary and capricious. Petitioners", "paragraph_id": "para_515" }, { "text": "assert that because the Rules are highly interrelated, the Commission was", "paragraph_id": "para_516" }, { "text": "required to consider more fully their interplay when promulgating them.", "paragraph_id": "para_517" }, { "text": "They contend that the Commission (A) did not adequately justify the Rules’", "paragraph_id": "para_518" }, { "text": "contradictory approaches to disclosure reporting and (B) failed to assess the", "paragraph_id": "para_519" }, { "text": "cumulative economic impact of the Rules, in violation of the APA and the", "paragraph_id": "para_520" }, { "text": "_____________________", "paragraph_id": "para_521" }, { "text": "to address potentially abusive naked short selling and other problems associated with", "paragraph_id": "para_522" }, { "text": "failures to deliver.” Short Sales, 69 Fed. Reg. 48008, 48028 (Aug. 6, 2004).", "paragraph_id": "para_523" }, { "text": "No. 23-60626", "paragraph_id": "para_524" }, { "text": "18", "paragraph_id": "para_525" }, { "text": "Exchange Act. In these respects, Petitioners assert that the Commission", "paragraph_id": "para_526", "court_paragraph": 18 }, { "text": "“entirely failed to consider an important aspect of the problem[s]” the Rules", "paragraph_id": "para_527" }, { "text": "aim to ameliorate. State Farm, 463 U.S. at 43; see also Bus. Roundtable, 647", "paragraph_id": "para_528" }, { "text": "F.3d at 1148. Petitioners’ first contention falters against the administrative", "paragraph_id": "para_529" }, { "text": "record, but their second has merit.", "paragraph_id": "para_530" }, { "text": "A.", "paragraph_id": "para_531" }, { "text": "Petitioners premise their first argument on the notion that, due to the", "paragraph_id": "para_532" }, { "text": "high correlation between short sales and securities lending, the Rules", "paragraph_id": "para_533" }, { "text": "effectively treat the same data inconsistently. They posit that securities", "paragraph_id": "para_534" }, { "text": "lending data and short sale information are essentially two sides of the same", "paragraph_id": "para_535" }, { "text": "coin—so much so that they are direct proxies for each other—such that the", "paragraph_id": "para_536" }, { "text": "Securities Lending Rule mandates disclosure of the very information that the", "paragraph_id": "para_537" }, { "text": "Short Sale Rule ostensibly protects. From this premise, Petitioners argue", "paragraph_id": "para_538" }, { "text": "that the Rules are inherently at cross purposes and, therefore, are arbitrary", "paragraph_id": "para_539" }, { "text": "and capricious.", "paragraph_id": "para_540" }, { "text": "If Petitioners were correct that lending and short sale data are in fact", "paragraph_id": "para_541" }, { "text": "proxies for each other, then the Rules would somewhat function as a", "paragraph_id": "para_542" }, { "text": "regulatory pushmi-pullyu, with one Rule materially undermining the other.", "paragraph_id": "para_543" }, { "text": "But Petitioners’ premise is faulty, even granting some tension between the", "paragraph_id": "para_544" }, { "text": "Rules. Certainly, the Rules espouse divergent approaches in their respective", "paragraph_id": "para_545" }, { "text": "disclosure regimes. The Short Sale Rule eschews immediate, individualized", "paragraph_id": "para_546" }, { "text": "reporting of covered transactions; as the Commission explained, “the", "paragraph_id": "para_547" }, { "text": "anticipated benefit of enhanced transparency” from individualized", "paragraph_id": "para_548" }, { "text": "transaction-by-transaction data would “not justify the costs,” including the", "paragraph_id": "para_549" }, { "text": "“potential to reveal a reporting [institutional investment manager]’s trading", "paragraph_id": "para_550" }, { "text": "strategies.” Short Sale Rule, 88 Fed. Reg. at 75132–33. Yet the Securities", "paragraph_id": "para_551" }, { "text": "Lending Rule requires almost immediate reporting of individualized, trade-", "paragraph_id": "para_552" }, { "text": "by-trade data (except for loan size, which is published after twenty business", "paragraph_id": "para_553" }, { "text": "No. 23-60626", "paragraph_id": "para_554" }, { "text": "19", "paragraph_id": "para_555" }, { "text": "days). The Commission acknowledged that aggregate loan data would", "paragraph_id": "para_556", "court_paragraph": 19 }, { "text": "“reduce the risk of exposing short selling strategies,” but concluded that", "paragraph_id": "para_557" }, { "text": "aggregate data “would not provide the same transparency benefits.”", "paragraph_id": "para_558" }, { "text": "Securities Lending Rule, 88 Fed. Reg. at 75726, 75132.", "paragraph_id": "para_559" }, { "text": "To be sure, lending and short sale data are correlated, inevitably giving", "paragraph_id": "para_560" }, { "text": "rise to significant interplay between the Rules. The Commission itself", "paragraph_id": "para_561" }, { "text": "conceded as much, as evidenced by its reopening the comment period for the", "paragraph_id": "para_562" }, { "text": "Securities Lending Rule when it proposed the Short Sale Rule, “so that", "paragraph_id": "para_563" }, { "text": "commenters may consider whether there would be any effects of [the", "paragraph_id": "para_564" }, { "text": "Proposed Short Sale Rule] that the Commission should consider in", "paragraph_id": "para_565" }, { "text": "connection with [the Proposed Securities Lending Rule].” Reopening of", "paragraph_id": "para_566" }, { "text": "Comment Period for Reporting of Sec. Loans, 87 Fed. Reg. at 11659. And", "paragraph_id": "para_567" }, { "text": "throughout the rulemaking process, the Commission expressly noted that the", "paragraph_id": "para_568" }, { "text": "two sets of data significantly overlap: “A primary reason for borrowing", "paragraph_id": "para_569" }, { "text": "equity shares is to facilitate a short sale.” Proposed Securities Lending Rule,", "paragraph_id": "para_570" }, { "text": "86 Fed. Reg. at 69831; see also Securities Lending Rule, 88 Fed. Reg. at 75696", "paragraph_id": "para_571" }, { "text": "(“[T]he majority of equity securities lending, particularly in the Customer", "paragraph_id": "para_572" }, { "text": "market, occurs to facilitate short selling.”). The Commission explained that", "paragraph_id": "para_573" }, { "text": "a major reason for this overlap is that “[i]nvestors’ ability to use securities", "paragraph_id": "para_574" }, { "text": "loans for purposes other than short selling is limited by the ‘permitted", "paragraph_id": "para_575" }, { "text": "purpose requirement’ of . . . the Federal Reserve System’s Regulation T.”", "paragraph_id": "para_576" }, { "text": "Securities Lending Rule, 88 Fed. Reg. at 75696. That regulation allows", "paragraph_id": "para_577" }, { "text": "broker-dealers to “borrow or lend U.S. securities from or to” non-broker-", "paragraph_id": "para_578" }, { "text": "dealers “solely ‘for the purpose of making delivery of the securities in the", "paragraph_id": "para_579" }, { "text": "case of short sales, failure to receive securities required to be delivered, or", "paragraph_id": "para_580" }, { "text": "other similar situations,’ unless an exemption applies.” Id. (quoting 12", "paragraph_id": "para_581" }, { "text": "C.F.R. § 220.10); see also id. (acknowledging that “[t]his limitation results in", "paragraph_id": "para_582" }, { "text": "a close correlation between information about aggregate Customer loan sizes", "paragraph_id": "para_583" }, { "text": "and short interest”).", "paragraph_id": "para_584" }, { "text": "No. 23-60626", "paragraph_id": "para_585" }, { "text": "20", "paragraph_id": "para_586" }, { "text": "Nonetheless, Petitioners’ argument misses the mark because the data", "paragraph_id": "para_587", "court_paragraph": 20 }, { "text": "required to be reported under each Rule are distinct, even if there is a “close", "paragraph_id": "para_588" }, { "text": "correlation” between the two sets of information. In other words, the", "paragraph_id": "para_589" }, { "text": "securities lending data and short sale data covered by the Rules are not direct", "paragraph_id": "para_590" }, { "text": "proxies for each other. While short selling may be the “primary reason” for", "paragraph_id": "para_591" }, { "text": "securities loans, it is not the only reason. Loans are also used to hedge, close", "paragraph_id": "para_592" }, { "text": "positions, and obtain collateral. Id. Thus, at least some disclosures made", "paragraph_id": "para_593" }, { "text": "under the Securities Lending Rule would signify that parties to a loan may", "paragraph_id": "para_594" }, { "text": "have closed or hedged a position, rather than sold short—shielding some of", "paragraph_id": "para_595" }, { "text": "the data protected under the Short Sale Rule.", "paragraph_id": "para_596" }, { "text": "Regardless, the Commission grappled—adequately, for purposes of", "paragraph_id": "para_597" }, { "text": "arbitrary-and-capricious review—with the data’s related nature. That is the", "paragraph_id": "para_598" }, { "text": "gravamen of our review: The APA only requires an agency to “examine the", "paragraph_id": "para_599" }, { "text": "relevant data and articulate a satisfactory explanation for its action including", "paragraph_id": "para_600" }, { "text": "a rational connection between the facts found and the choice made.”", "paragraph_id": "para_601" }, { "text": "Chamber of Com. (Fifth Circuit), 85 F.4th at 768 (cleaned up) (quoting State", "paragraph_id": "para_602" }, { "text": "Farm, 463 U.S. at 43). The Commission did that here, recurrently discussing", "paragraph_id": "para_603" }, { "text": "the Securities Lending Rule’s potential impact on short selling and", "paragraph_id": "para_604" }, { "text": "explaining the agency’s choices between transparency and protection of", "paragraph_id": "para_605" }, { "text": "proprietary short sale strategies and information.", "paragraph_id": "para_606" }, { "text": "For example, the Commission expressly justified the", "paragraph_id": "para_607" }, { "text": "transaction-by-transaction reporting required by the Securities Lending", "paragraph_id": "para_608" }, { "text": "Rule, acknowledging the potential that such reporting “could increase the", "paragraph_id": "para_609" }, { "text": "risk of revealing short sale strategies.” Securities Lending Rule, 88 Fed. Reg.", "paragraph_id": "para_610" }, { "text": "at 75684. The final Rule provides that “certain data elements will be made", "paragraph_id": "para_611" }, { "text": "publicly available on a transaction-by-transaction basis and aggregate", "paragraph_id": "para_612" }, { "text": "transaction activity and distribution of loan rates[] will also be made publicly", "paragraph_id": "para_613" }, { "text": "available in an aggregated format for each reportable security.” Id. In", "paragraph_id": "para_614" }, { "text": "striking this attempted balance, the Commission articulated that “aggregate", "paragraph_id": "para_615" }, { "text": "No. 23-60626", "paragraph_id": "para_616" }, { "text": "21", "paragraph_id": "para_617" }, { "text": "transaction activity”—as added to the final Rule—“refers to information", "paragraph_id": "para_618", "court_paragraph": 21 }, { "text": "pertaining to the absolute value of transactions such that net position changes", "paragraph_id": "para_619" }, { "text": "should not be discernable in the data.” Id. By adopting this change, the", "paragraph_id": "para_620" }, { "text": "Commission “intended to help ensure that only aggregate information about", "paragraph_id": "para_621" }, { "text": "net positions changes, rather than individualized information, is provided to", "paragraph_id": "para_622" }, { "text": "the public.” Id. That addition “respond[ed] to commenters’ concerns about", "paragraph_id": "para_623" }, { "text": "the potential exposure of proprietary information, while still providing", "paragraph_id": "para_624" }, { "text": "volume transparency to market participants.” Id.; see also id. at 75678 n.506", "paragraph_id": "para_625" }, { "text": "(“The addition of the term ‘aggregate transaction activity’ in the final [R]ule", "paragraph_id": "para_626" }, { "text": "limits the possibility of publishing proprietary information while still", "paragraph_id": "para_627" }, { "text": "providing volume transparency to market participants.”).", "paragraph_id": "para_628" }, { "text": "The Commission also determined that loan size information “is the", "paragraph_id": "para_629" }, { "text": "portion of the data most directly related to short selling activity.” Id. at", "paragraph_id": "para_630" }, { "text": "75710–11. Cognizant that loan size information in the customer market is the", "paragraph_id": "para_631" }, { "text": "same as the size of a short position, see id. at 75705, the Commission delayed", "paragraph_id": "para_632" }, { "text": "publication of transaction-by-transaction loan size data by twenty business", "paragraph_id": "para_633" }, { "text": "days, id. at 75660. The final Rule explains that this change, coupled with the", "paragraph_id": "para_634" }, { "text": "addition of “aggregate transaction activity,” “should help reduce the", "paragraph_id": "para_635" }, { "text": "potential to anticipate and reverse engineer the trading of competitors.” Id.", "paragraph_id": "para_636" }, { "text": "Publication of loan-size modifications was also delayed by twenty business", "paragraph_id": "para_637" }, { "text": "days. See Securities Lending Rule, 17 C.F.R. § 240.10c-1a(g)(3)(ii).", "paragraph_id": "para_638" }, { "text": "Finally, the Commission contemplated that even though delayed loan-", "paragraph_id": "para_639" }, { "text": "size data could provide some modicum of novel information about short", "paragraph_id": "para_640" }, { "text": "sellers’ strategies, “it is not clear that such an analysis, which would be", "paragraph_id": "para_641" }, { "text": "inherently noisy, would provide actionable insights into future short selling", "paragraph_id": "para_642" }, { "text": "activity that could harm short sellers’ abilities to profit from negative", "paragraph_id": "para_643" }, { "text": "information.” Securities Lending Rule, 88 Fed. Reg. at 75711. The", "paragraph_id": "para_644" }, { "text": "Commission emphasized that delayed disclosure “significantly reduce[s] the", "paragraph_id": "para_645" }, { "text": "novelty of the information disseminated under the final [R]ule regarding", "paragraph_id": "para_646" }, { "text": "No. 23-60626", "paragraph_id": "para_647" }, { "text": "22", "paragraph_id": "para_648" }, { "text": "short sellers’ positions, such that it is less timely than pre-existing sources of", "paragraph_id": "para_649", "court_paragraph": 22 }, { "text": "short selling transparency.” Id. at 75665.7", "paragraph_id": "para_650" }, { "text": "On the record before us, the Commission “reasonably considered the", "paragraph_id": "para_651" }, { "text": "relevant issues and reasonably explained the decision[s]” embodied in the", "paragraph_id": "para_652" }, { "text": "final Rules regarding the interplay of the Rules’ disclosure regimes.", "paragraph_id": "para_653" }, { "text": "Prometheus Radio Project, 592 U.S. at 423. The data required to be reported", "paragraph_id": "para_654" }, { "text": "pursuant to the Rules are not direct proxies for each other; regardless, though", "paragraph_id": "para_655" }, { "text": "Petitioners disagree with the Commission’s approach, the agency", "paragraph_id": "para_656" }, { "text": "“consider[ed] all relevant factors raised by the public comments and", "paragraph_id": "para_657" }, { "text": "provide[d] a response to significant points” raised therein. Chamber of Com.", "paragraph_id": "para_658" }, { "text": "(Fifth Circuit), 85 F.4th at 774 (citing Huawei, 2 F.4th at 449).", "paragraph_id": "para_659" }, { "text": "B.", "paragraph_id": "para_660" }, { "text": "Petitioners last argue that the Commission failed fully to assess the", "paragraph_id": "para_661" }, { "text": "economic impact of the two Rules, as required by the APA and the Exchange", "paragraph_id": "para_662" }, { "text": "Act. In addition to the more-generally applicable constraints on agency", "paragraph_id": "para_663" }, { "text": "action contained in the APA, the Exchange Act requires the Commission to", "paragraph_id": "para_664" }, { "text": "“consider or determine whether an action is necessary or appropriate in the", "paragraph_id": "para_665" }, { "text": "public interest” and “whether the action will promote efficiency,", "paragraph_id": "para_666" }, { "text": "competition, and capital formation.” 15 U.S.C. § 78c(f). Inter alia, that", "paragraph_id": "para_667" }, { "text": "statutory obligation mandates the Commission to “determine as best it can", "paragraph_id": "para_668" }, { "text": "the economic implications of the rule it has proposed.” Chamber of Com.", "paragraph_id": "para_669" }, { "text": "(D.C. Circuit), 412 F.3d at 143. The question in today’s case is whether the", "paragraph_id": "para_670" }, { "text": "Commission was required to consider the Rules’ collective economic impact.", "paragraph_id": "para_671" }, { "text": "Given the Rules’ significant interplay and their nearly concurrent", "paragraph_id": "para_672" }, { "text": "promulgation, the agency should have done so. Because it did not, we agree", "paragraph_id": "para_673" }, { "text": "_____________________", "paragraph_id": "para_674" }, { "text": "7 For example, FINRA Rule 4560 requires FINRA member firms to report their", "paragraph_id": "para_675" }, { "text": "short positions in all equity securities to FINRA twice a month.", "paragraph_id": "para_676" }, { "text": "No. 23-60626", "paragraph_id": "para_677" }, { "text": "23", "paragraph_id": "para_678" }, { "text": "with Petitioners that the Commission “failed to consider an important aspect", "paragraph_id": "para_679", "court_paragraph": 23 }, { "text": "of the problem,” State Farm, 463 U.S. at 43, such that remand is required.", "paragraph_id": "para_680" }, { "text": "Under the Commission’s “long-standing practice,” the required", "paragraph_id": "para_681" }, { "text": "“economic analysis in each adopting release considers the incremental", "paragraph_id": "para_682" }, { "text": "benefits and costs for the specific rule—that is, the benefits and costs", "paragraph_id": "para_683" }, { "text": "stemming from that rule compared to the baseline.” Securities Lending", "paragraph_id": "para_684" }, { "text": "Rule, 88 Fed. Reg. at 75719. That baseline is used to gauge a proposed rule’s", "paragraph_id": "para_685" }, { "text": "“potential costs and benefits including effects on efficiency, competition,", "paragraph_id": "para_686" }, { "text": "and capital formation” and is “the best assessment of how the world would", "paragraph_id": "para_687" }, { "text": "look in the absence of the proposed action.” Id. at 75694 n.724. The baseline", "paragraph_id": "para_688" }, { "text": "includes “existing regulatory requirements, including recently adopted", "paragraph_id": "para_689" }, { "text": "rules.” Id. at 75694.", "paragraph_id": "para_690" }, { "text": "As discussed above, the Commission enacted the Securities Lending", "paragraph_id": "para_691" }, { "text": "Rule and Short Sale Rule on the same day, with the former finalized", "paragraph_id": "para_692" }, { "text": "according to Petitioners “mere minutes” before the latter. The Commission", "paragraph_id": "para_693" }, { "text": "discussed the first-adopted Securities Lending Rule in the economic impact", "paragraph_id": "para_694" }, { "text": "analysis of the later-adopted Short Sale Rule, but not vice versa. In the", "paragraph_id": "para_695" }, { "text": "Commission’s telling, it did not need to account for the Short Sale Rule in", "paragraph_id": "para_696" }, { "text": "the Securities Lending Rule’s economic baseline because the Short Sale Rule", "paragraph_id": "para_697" }, { "text": "“remain[ed] at the proposal stage.” Id. at 75695. The Commission reasons", "paragraph_id": "para_698" }, { "text": "that “[t]he best assessment of how the world would look in the absence of the", "paragraph_id": "para_699" }, { "text": "proposed or final action typically does not include recently proposed actions,", "paragraph_id": "para_700" }, { "text": "because that would improperly assume the adoption of those proposed", "paragraph_id": "para_701" }, { "text": "actions.” Id. at 75694 n.724. Instead, the rulemaking baseline should", "paragraph_id": "para_702" }, { "text": "“reflect the regulatory landscape that is current at that time.” Id. at 75695.", "paragraph_id": "para_703" }, { "text": "All true enough as a general matter. But here, in the context of highly", "paragraph_id": "para_704" }, { "text": "interrelated Rules enacted contemporaneously during the same open", "paragraph_id": "para_705" }, { "text": "meeting, the Commission’s approach was a short-cutting fiction that does", "paragraph_id": "para_706" }, { "text": "No. 23-60626", "paragraph_id": "para_707" }, { "text": "24", "paragraph_id": "para_708" }, { "text": "not survive scrutiny. In reality, the Short Sale Rule only “remain[ed] at the", "paragraph_id": "para_709", "court_paragraph": 24 }, { "text": "proposal stage” for an hour or so after the Securities Lending Rule was", "paragraph_id": "para_710" }, { "text": "adopted, and the agency clearly planned to adopt the Rules together.", "paragraph_id": "para_711" }, { "text": "SEC,", "paragraph_id": "para_712" }, { "text": "2023 10 13 Open Meeting, at 1:08:20, 2:23:08 (YouTube Oct. 13, 2023),", "paragraph_id": "para_713" }, { "text": "www.youtube.com/watch?v=NVRu8eBHkGo (Securities Lending Rule", "paragraph_id": "para_714" }, { "text": "adopted at timestamp 1:08:20, and Short Sale Rule adopted at timestamp", "paragraph_id": "para_715" }, { "text": "2:23:08). Given the close temporal proximity of the Rules’ adoption and", "paragraph_id": "para_716" }, { "text": "their interrelatedness, the Commission was thus not free to ignore the", "paragraph_id": "para_717" }, { "text": "economic impact of the Short Sale Rule upon the Securities Lending Rule;", "paragraph_id": "para_718" }, { "text": "the agency needed to consider the Rules’ collective economic effects. See", "paragraph_id": "para_719" }, { "text": "Chamber of Com. (D.C. Circuit), 412 F.3d at 143.", "paragraph_id": "para_720" }, { "text": "The Commission contends that it would amount to improper", "paragraph_id": "para_721" }, { "text": "“double-counting” to factor the Rules into each other’s baselines. But that", "paragraph_id": "para_722" }, { "text": "contention presupposes that the earlier-adopted regulation’s effects on the", "paragraph_id": "para_723" }, { "text": "later-adopted regulation are the same as the reverse. This is not inherently", "paragraph_id": "para_724" }, { "text": "true. Indeed, the Commission argues mightily that the data required to be", "paragraph_id": "para_725" }, { "text": "disclosed under each Rule are not 1:1 proxies for each other, but are distinct,", "paragraph_id": "para_726" }, { "text": "if overlapping, sets of information. See supra Part V.A. And the two Rules", "paragraph_id": "para_727" }, { "text": "affect different parties, such that the Short Sale Rule’s effects on those", "paragraph_id": "para_728" }, { "text": "governed by the Securities Lending Rule will not equate with the Securities", "paragraph_id": "para_729" }, { "text": "Lending Rule’s effects on those regulated by the Short Sale Rule. Compare", "paragraph_id": "para_730" }, { "text": "Short Sale Rule, 88 Fed. Reg. at 75102 (stating the Rule will apply to", "paragraph_id": "para_731" }, { "text": "“institutional investment managers”), with Securities Lending Rule, 88 Fed.", "paragraph_id": "para_732" }, { "text": "Reg. at 75650–51 (stating the Rule will apply to intermediaries, lenders, and", "paragraph_id": "para_733" }, { "text": "broker or dealers). Thus, the Commission’s opting to perform a more", "paragraph_id": "para_734" }, { "text": "comprehensive analysis for only the later-adopted Rule “is nothing more", "paragraph_id": "para_735" }, { "text": "than a determination that [the Commission] would not address the problem", "paragraph_id": "para_736" }, { "text": "unless it happened to appear at an inconvenient time—an eventuality over", "paragraph_id": "para_737" }, { "text": "No. 23-60626", "paragraph_id": "para_738" }, { "text": "25", "paragraph_id": "para_739" }, { "text": "which [the Commission] had full control.” Portland Cement Ass’n v. EPA,", "paragraph_id": "para_740", "court_paragraph": 25 }, { "text": "665 F.3d 177, 187 (D.C. Cir. 2011) (per curiam).", "paragraph_id": "para_741" }, { "text": "And the Commission’s logic is irredeemably illogical: The agency’s", "paragraph_id": "para_742" }, { "text": "principal justification—that it was not required to factor the Short Sale", "paragraph_id": "para_743" }, { "text": "Rule’s impacts into the economic analysis of the Securities Lending Rule", "paragraph_id": "para_744" }, { "text": "because the Short Sale Rule was merely proposed—applies just as well to the", "paragraph_id": "para_745" }, { "text": "pending Securities Lending Rule. In other words, both Rules were only", "paragraph_id": "para_746" }, { "text": "proposals when the Commission drafted the Short Sale Rule and slated it for", "paragraph_id": "para_747" }, { "text": "adoption. Because the Commission sequentially adopted the two", "paragraph_id": "para_748" }, { "text": "overlapping Rules during the same meeting, it was not free to pick one and", "paragraph_id": "para_749" }, { "text": "treat it as “adopted” while discounting the other as just an ephemeral", "paragraph_id": "para_750" }, { "text": "“proposed rule” to sidestep considering the combined economic impact of", "paragraph_id": "para_751" }, { "text": "the two. See id. 665 F.3d at 187 (“It is not absurd to require that an agency’s", "paragraph_id": "para_752" }, { "text": "right hand take account of what its left hand is doing.”). Doing so amounted", "paragraph_id": "para_753" }, { "text": "to regulatory sleight of hand that neither the APA nor the Exchange Act", "paragraph_id": "para_754" }, { "text": "countenances. See id. at 187 (“[A]n agency must have a similar obligation to", "paragraph_id": "para_755" }, { "text": "acknowledge and account for a changed regulatory posture the agency", "paragraph_id": "para_756" }, { "text": "creates—especially when the change impacts a contemporaneous and closely", "paragraph_id": "para_757" }, { "text": "related rulemaking.”); cf. Off. of Commc’n of United Church of Christ v. FCC,", "paragraph_id": "para_758" }, { "text": "707 F.2d 1413, 1441–42 (D.C. Cir. 1983) (finding it “beyond belief” that an", "paragraph_id": "para_759" }, { "text": "agency would take rulemaking action undercutting another “concurrent”", "paragraph_id": "para_760" }, { "text": "rulemaking process).", "paragraph_id": "para_761" }, { "text": "The Commission’s short-cut approach is belied by its own procedural", "paragraph_id": "para_762" }, { "text": "history in promulgating the Rules. The Commission reopened the comment", "paragraph_id": "para_763" }, { "text": "period for the proposed Securities Lending Rule when it proposed the Short", "paragraph_id": "para_764" }, { "text": "Sale Rule, acknowledging the interplay between the Rules, i.e., that the latter", "paragraph_id": "para_765" }, { "text": "Rule impacted the former (and vice-versa). Reopening of Comment Period", "paragraph_id": "para_766" }, { "text": "for Reporting of Sec. Loans, 87 Fed. Reg. at 11659 (“[C]ommenters may", "paragraph_id": "para_767" }, { "text": "consider whether there would be any effects of [the Proposed Short Sale", "paragraph_id": "para_768" }, { "text": "No. 23-60626", "paragraph_id": "para_769" }, { "text": "26", "paragraph_id": "para_770" }, { "text": "Rule] that the Commission should consider in connection with [the Proposed", "paragraph_id": "para_771", "court_paragraph": 26 }, { "text": "Securities Lending Rule].”). Comments to both Rules demonstrated the", "paragraph_id": "para_772" }, { "text": "same, as did the Commission’s explanations and revisions in response to the", "paragraph_id": "para_773" }, { "text": "comments. E.g., Managed Funds Association and National Association of", "paragraph_id": "para_774" }, { "text": "Private Fund Managers, Comment Letter on the Proposed Rules (July 21,", "paragraph_id": "para_775" }, { "text": "2023) (commenting that “it is critical that the Commission consider the", "paragraph_id": "para_776" }, { "text": "aggregate costs and benefits of its rulemakings on advisers, investors, and the", "paragraph_id": "para_777" }, { "text": "markets, as well as how each rule may intersect or impact other rules”); Short", "paragraph_id": "para_778" }, { "text": "Sale Rule, 88 Fed. Reg. at 75162 (stating that Short Sale Rule data for open", "paragraph_id": "para_779" }, { "text": "positions “could be combined with FINRA short interest and [Securities", "paragraph_id": "para_780" }, { "text": "Lending Rule] data to estimate the proportion of short positions held by large", "paragraph_id": "para_781" }, { "text": "short sellers”). Basically, the two Rules traveled through the rulemaking", "paragraph_id": "para_782" }, { "text": "process together and then were adopted during the same meeting. Given the", "paragraph_id": "para_783" }, { "text": "Commission’s failure to account for the Short Sale Rule in the Securities", "paragraph_id": "para_784" }, { "text": "Lending Rule’s economic baseline, the Commission failed to “examine the", "paragraph_id": "para_785" }, { "text": "relevant data and articulate a satisfactory explanation for its action,” State", "paragraph_id": "para_786" }, { "text": "Farm, 463 U.S. at 43, and further “fail[ed] to apprise . . . the public . . . of the", "paragraph_id": "para_787" }, { "text": "economic consequences of [the] proposed regulation[s],” Bus. Roundtable,", "paragraph_id": "para_788" }, { "text": "647 F.3d at 1148 (internal quotation marks omitted).", "paragraph_id": "para_789" }, { "text": "Putting each of the Rules into silos also goes against the Commission’s", "paragraph_id": "para_790" }, { "text": "prior practice. The agency has often treated related rules as adopted", "paragraph_id": "para_791" }, { "text": "concurrently and factored them into each other’s economic analysis. E.g.,", "paragraph_id": "para_792" }, { "text": "Investment Company Reporting Modernization (Modernization Rule), 81", "paragraph_id": "para_793" }, { "text": "Fed. Reg. 81870 (Nov. 18, 2016); Investment Company Liquidity Risk", "paragraph_id": "para_794" }, { "text": "Management Programs (Liquidity Rule), 81 Fed. Reg. 82142 (Nov. 18, 2016).", "paragraph_id": "para_795" }, { "text": "For instance, in 2019, the Commission adopted its Regulation Best Interest", "paragraph_id": "para_796" }, { "text": "and Form CRS during the same open meeting. SEC Open Meeting Agenda", "paragraph_id": "para_797" }, { "text": "(June 5, 2019), https://www.sec.gov/news/openmeetings", "paragraph_id": "para_798" }, { "text": "/2019/agenda060519.htm; see Regulation Best Interest: The Broker-Dealer", "paragraph_id": "para_799" }, { "text": "No. 23-60626", "paragraph_id": "para_800" }, { "text": "27", "paragraph_id": "para_801" }, { "text": "Standard of Conduct (Regulation Best Interest), 84 Fed. Reg. 33318 (July 12,", "paragraph_id": "para_802", "court_paragraph": 27 }, { "text": "2019); Form CRS Relationship Summary; Amendments to Form ADV", "paragraph_id": "para_803" }, { "text": "(Form CRS), 84 Fed. Reg. 33492 (July 12, 2019). In the final Regulation Best", "paragraph_id": "para_804" }, { "text": "Interest’s economic analysis, the Commission addressed the joint “costs of", "paragraph_id": "para_805" }, { "text": "Regulation Best Interest and Form CRS,” 84 Fed. Reg. at 33437, and in the", "paragraph_id": "para_806" }, { "text": "final Form CRS’s economic analysis, the Commission explained why it", "paragraph_id": "para_807" }, { "text": "adopted a different definition of a similar term in Regulation Best Interest, 84", "paragraph_id": "para_808" }, { "text": "Fed. Reg. at 33593. The rules’ benefits and costs resulting from their", "paragraph_id": "para_809" }, { "text": "interplay were frequently discussed throughout their respective economic", "paragraph_id": "para_810" }, { "text": "analyses as well. See, e.g., Regulation Best Interest, 84 Fed. Reg. at 33437;", "paragraph_id": "para_811" }, { "text": "Form CRS, 84 Fed. Reg. at 33568, 33577 n.1004, 33578, 33597; see also", "paragraph_id": "para_812" }, { "text": "Modernization Rule, 81 Fed. Reg. at 81985 (discussing concurrently adopted", "paragraph_id": "para_813" }, { "text": "Liquidity Rule); Liquidity Rule, 81 Fed. Reg. at 33593 (in turn discussing", "paragraph_id": "para_814" }, { "text": "Modernization Rule).", "paragraph_id": "para_815" }, { "text": "As discussed above, the Short Sale Rule was not just “recently", "paragraph_id": "para_816" }, { "text": "proposed” by the time the Securities Lending Rule was slated for adoption.", "paragraph_id": "para_817" }, { "text": "It was proposed on February 25, 2022, more than a year and a half before it", "paragraph_id": "para_818" }, { "text": "was adopted on October 13, 2023, the same day as the Securities Lending", "paragraph_id": "para_819" }, { "text": "Rule. Thus, the general principle that a rule’s economic baseline should not", "paragraph_id": "para_820" }, { "text": "include recently proposed rules because they may never be adopted simply", "paragraph_id": "para_821" }, { "text": "does not hold in this case. If anything, the record demonstrates that the two", "paragraph_id": "para_822" }, { "text": "Rules were to be adopted concurrently all along. E.g., Short Sale Rule, 88", "paragraph_id": "para_823" }, { "text": "Fed. Reg. at 75148, 75155–56, 75162; see also Reopening of Comment Period", "paragraph_id": "para_824" }, { "text": "for Reporting of Sec. Loans, 87 Fed. Reg. at 11659 (reopening comment", "paragraph_id": "para_825" }, { "text": "period “so that commenters may consider whether there would be any", "paragraph_id": "para_826" }, { "text": "effects of [the Short Sale Rule] . . . in connection with [the Securities Lending", "paragraph_id": "para_827" }, { "text": "Rule]”). This comports with the Commission’s approach in analogous", "paragraph_id": "para_828" }, { "text": "situations. See, e.g., Modernization Rule, 81 Fed. Reg. at 81872 n.11. And", "paragraph_id": "para_829" }, { "text": "commenters expressly requested that the Commission consider the interplay", "paragraph_id": "para_830" }, { "text": "No. 23-60626", "paragraph_id": "para_831" }, { "text": "28", "paragraph_id": "para_832" }, { "text": "between the Rules. E.g., Managed Funds Association, Comment Letter on", "paragraph_id": "para_833", "court_paragraph": 28 }, { "text": "Proposed Short Sale Rule, R. Doc. 63-2 at pp. 260–70 (June 15, 2023);", "paragraph_id": "para_834" }, { "text": "Managed Funds Association and National Association of Private Fund", "paragraph_id": "para_835" }, { "text": "Managers, Comment Letter on the Proposed Rules, R. Doc. 63-2 at pp. 272–", "paragraph_id": "para_836" }, { "text": "307 (July 21, 2023); Alternative Investment Management Association,", "paragraph_id": "para_837" }, { "text": "Comment Letter on Proposed Short Sale Rule, R. Doc. 63-2 at pp. 173–88", "paragraph_id": "para_838" }, { "text": "(Apr. 26, 2022); Investment Company Institute, Comment Letter on", "paragraph_id": "para_839" }, { "text": "Proposed Rules, R. Doc. 63-1 at pp. 339–51 (Aug. 17, 2023); Managed Funds", "paragraph_id": "para_840" }, { "text": "Association, Comment Letter on Securities Lending Rule, R. Doc. 63-1 at pp.", "paragraph_id": "para_841" }, { "text": "275–80 (Apr. 1, 2022); Alternative Investment Management Association,", "paragraph_id": "para_842" }, { "text": "Comment Letter on Proposed Rules, R. Doc. 63-1 at pp. 264–67 (Apr. 1,", "paragraph_id": "para_843" }, { "text": "2022).", "paragraph_id": "para_844" }, { "text": "The Commission’s omission of any discussion synergizing the", "paragraph_id": "para_845" }, { "text": "collective economic impact of the Rules in the Securities Lending Rule, based", "paragraph_id": "para_846" }, { "text": "on these comments or otherwise, contravenes the bedrock principle that", "paragraph_id": "para_847" }, { "text": "“[a]n agency must consider and respond to significant comments received,”", "paragraph_id": "para_848" }, { "text": "Perez v. Mortg. Bankers Ass’n, 575 U.S. 92, 96 (2015), and shows that the", "paragraph_id": "para_849" }, { "text": "Commission “failed to consider an important aspect of the problem,” State", "paragraph_id": "para_850" }, { "text": "Farm, 463 U.S. at 43; accord Bus. Roundtable, 647 F.3d at 1148. Nor may the", "paragraph_id": "para_851" }, { "text": "Commission sidestep an appraisal of the cumulative impact of the Rules by", "paragraph_id": "para_852" }, { "text": "arguing that the Rules’ interplay is adequately captured in the economic", "paragraph_id": "para_853" }, { "text": "baseline of the later-adopted Short Sale Rule. Regardless of whether the", "paragraph_id": "para_854" }, { "text": "Short Sale Rule gave a nod to the “potential economic effects arising from", "paragraph_id": "para_855" }, { "text": "any overlap between the compliance period for the final amendments and", "paragraph_id": "para_856" }, { "text": "[the Securities Lending Rule],” Short Sale Rule, 88 Fed. Reg. at 75149, the", "paragraph_id": "para_857" }, { "text": "failure of the Securities Lending Rule to factor in the Short Sale Rule still", "paragraph_id": "para_858" }, { "text": "causes the tandem Rules to be insufficiently explained, such that the", "paragraph_id": "para_859" }, { "text": "Commission failed to justify the regulations under the APA and the", "paragraph_id": "para_860" }, { "text": "Exchange Act.", "paragraph_id": "para_861" }, { "text": "No. 23-60626", "paragraph_id": "para_862" }, { "text": "29", "paragraph_id": "para_863" }, { "text": "We hasten to emphasize the limited nature of our holding: We express", "paragraph_id": "para_864", "court_paragraph": 29 }, { "text": "no general view on when or how cumulative economic impact analyses", "paragraph_id": "para_865" }, { "text": "should be conducted in other cases involving multiple proposed rules with", "paragraph_id": "para_866" }, { "text": "potentially overlapping economic implications. To the contrary, we accept", "paragraph_id": "para_867" }, { "text": "arguendo that in the mine’s run of cases, a rule’s economic baseline need not", "paragraph_id": "para_868" }, { "text": "include subsequently proposed rules because such draft regulations may", "paragraph_id": "para_869" }, { "text": "never be adopted. But in this case, the Commission erred by failing to", "paragraph_id": "para_870" }, { "text": "consider the economic impact the Short Sale Rule would have on the", "paragraph_id": "para_871" }, { "text": "Securities Lending Rule when the Rules were promulgated in tandem and", "paragraph_id": "para_872" }, { "text": "were adopted concurrently.", "paragraph_id": "para_873" }, { "text": "“Remand without vacatur of the agency action is ‘generally", "paragraph_id": "para_874" }, { "text": "appropriate when there is at least a serious possibility that the agency will be", "paragraph_id": "para_875" }, { "text": "able to substantiate its decision given an opportunity to do so.’” Texas v.", "paragraph_id": "para_876" }, { "text": "United States, 50 F.4th 498, 529 (5th Cir. 2022) (quoting Tex. Ass’n of Mfrs.", "paragraph_id": "para_877" }, { "text": "v. U.S. Consumer Prod. Safety Comm’n, 989 F.3d 368, 389–90 (5th Cir.", "paragraph_id": "para_878" }, { "text": "2021)). As that appears to be the case here, remand of both Rules is", "paragraph_id": "para_879" }, { "text": "warranted to allow the Commission to analyze their cumulative economic", "paragraph_id": "para_880" }, { "text": "impact and responding to further comments in view of that analysis.", "paragraph_id": "para_881" }, { "text": "VI.", "paragraph_id": "para_882" }, { "text": "For the foregoing reasons, we GRANT the petition for review in part", "paragraph_id": "para_883" }, { "text": "and REMAND the Securities Lending Rule and the Short Sale Rule to the", "paragraph_id": "para_884" }, { "text": "Commission to allow the agency to consider and quantify the cumulative", "paragraph_id": "para_885" }, { "text": "economic impact of the Rules, consistent with this opinion. See Chamber of", "paragraph_id": "para_886" }, { "text": "Com. (Fifth Circuit), 85 F.4th at 780. 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