Key Takeaways
- • The Managed Funds Association (MFA), a major hedge fund trade group, is petitioning the SEC to relax short seller regulations that restrict hedge funds from purchasing shares in public offerings they recently sold short.
- • Current Rule 105 of Regulation M prohibits short sellers from buying shares in public offerings within a specific window, with a shelf offering exception that hedge funds now seek to eliminate or modify.
- • Hedge funds argue these regulations impede capital formation and their ability to participate in public offerings, framing the request as a market efficiency issue rather than purely a regulatory burden.
- • The SEC has signaled openness to revisiting short sale rules following a Fifth Circuit court decision that favored hedge fund interests; short sellers are scheduled to begin reporting under new Rule 13f-2 requirements on February 17, 2026.
- • The MFA and allied investment managers plan to engage directly with the SEC and Congress in upcoming meetings to press for rule modifications, indicating an active lobbying campaign on this regulatory front.
Summary
The Managed Funds Association, the primary trade group representing the hedge fund industry, is formally requesting that the Securities and Exchange Commission scale back short seller regulations governing participation in public offerings. According to multiple sources, the MFA specifically wants the SEC to address Rule 105 of Regulation M, which currently prohibits short sellers from purchasing shares in public offerings they have recently shorted—a restriction the hedge fund industry views as unnecessarily constraining.
The core regulatory friction centers on the shelf offering exception within Rule 105. Current rules allow certain shelf offerings to operate under different parameters, but hedge funds are seeking to either eliminate this exception or substantially modify it to expand their eligibility to participate in public offerings. Hedge fund executives and investment managers argue that these restrictions impede their ability to participate in capital formation and limit market participation without corresponding market protection benefits.
The timing of this lobbying effort reflects a shift in regulatory momentum. Following a Fifth Circuit court decision that ruled in favor of hedge fund interests on related short-selling matters, the SEC has signaled willingness to revisit and potentially revise its short sale rules. This creates a window of opportunity for the hedge fund industry to press its case. Additionally, the regulatory landscape is shifting with new disclosure requirements; short sellers are scheduled to begin reporting under Rule 13f-2 beginning February 17, 2026, creating broader scrutiny of short-selling activity across the industry.
The MFA and other allied investment managers are taking a multi-pronged approach, planning direct engagement with both the SEC and Congress through meetings expected to commence soon. Hedge funds frame their position around market efficiency and investor opportunity rather than regulatory burden, emphasizing that loosening these restrictions would facilitate their legitimate participation in capital markets without materially increasing systemic risk.
The core regulatory friction centers on the shelf offering exception within Rule 105. Current rules allow certain shelf offerings to operate under different parameters, but hedge funds are seeking to either eliminate this exception or substantially modify it to expand their eligibility to participate in public offerings. Hedge fund executives and investment managers argue that these restrictions impede their ability to participate in capital formation and limit market participation without corresponding market protection benefits.
The timing of this lobbying effort reflects a shift in regulatory momentum. Following a Fifth Circuit court decision that ruled in favor of hedge fund interests on related short-selling matters, the SEC has signaled willingness to revisit and potentially revise its short sale rules. This creates a window of opportunity for the hedge fund industry to press its case. Additionally, the regulatory landscape is shifting with new disclosure requirements; short sellers are scheduled to begin reporting under Rule 13f-2 beginning February 17, 2026, creating broader scrutiny of short-selling activity across the industry.
The MFA and other allied investment managers are taking a multi-pronged approach, planning direct engagement with both the SEC and Congress through meetings expected to commence soon. Hedge funds frame their position around market efficiency and investor opportunity rather than regulatory burden, emphasizing that loosening these restrictions would facilitate their legitimate participation in capital markets without materially increasing systemic risk.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.