The US securities regulator’s proposed rule of reporting security loans requires "important changes", according to the Alternative Investment Management Association (AIMA).

AIMA told Global Investor: “We have filed a response to the US Securities and Exchange Commission (SEC) encouraging them to make several important changes to this proposal before considering a final rule.” 

The trade body's changes include limiting the scope of the proposal to the wholesale segment of the securities lending market, revising the SEC’s loan definition to exclude all customer short positions and replacing its proposed 15-minute loan-by-loan reporting framework with publishing aggregate, wholesale market loan data on a T+1 basis.

When it comes to the suggested change of excluding all short positions, AIMA said: “The reason behind this change was because short positions are not loans and should be addressed through a separate rule-making.”

The global hedge fund trade body said the US regulator should take a phased approach regarding the implementation of any final rule and seek a solution for the “day one problem,” such as existing loans not captured by a new reporting framework.

AIMA’s filing was in response to the SEC's November proposal to tighten up regulation of the US securities lending industry, following the GameStop controversy in early 2021.

The proposed rule requires lenders of securities to report the material terms of their securities lending transactions, and related information regarding securities on loan or available to loan to a registered national securities association (RNSA).  

The proposal, called Exchange Act Rule 10c-1, then requires the RNSA to publish certain information concerning each securities lending transaction and aggregate information on securities on loan and available to loan.

Last February AIMA’s CEO Jack Inglis said he would “welcome a full investigation” by the SEC following events that unfolded in the US equities market which sent GameStop’s share price soaring.