US regulator withdraws appeal of rule on Treasury markets

By Carolina Mandl

NEW YORK, Feb 19 (Reuters) - U.S. Securities and Exchange Commission has decided to withdraw its appeal of a decision by a federal judge late last year to vacate an overhaul of Treasury dealer rules, according to a court document filed on Wednesday.

One year ago, the SEC under Chair Gary Gensler adopted a rule requiring proprietary traders and other firms that routinely deal in U.S. government bonds to register as broker-dealers, subjecting them to stricter oversight.

The rule aimed to address liquidity problems in the $26 trillion Treasury market, something market players said was part of the biggest market structure overhaul in decades.

In November, however, a federal judge in Texas vacated the rule saying the SEC had overstepped its legal authority in issuing the regulations.

Two separate suits against the SEC dealer rule had been filed by the Crypto Freedom Alliance of Texas and the Blockchain Association, as well as by investment associations including Alternative Investment Management Association (AIMA) and Managed Funds Association (MFA).

The SEC, currently under acting chair Mark Uyeda, did not explain why it has decided to drop its appeal, adding the parties involved would pay for their own costs.

The SEC declined to comment on the matter. The agency decision to withdraw its appeal marks a change in course of action of the regulator under a new administration.

Last month, AIMA and MFA sent a letter to Uyeda asking the agency to withdraw the appeal of the dealer rule.

MFA's CEO Bryan Corbett said in a statement that the decision to withdraw the rule is "consistent with its historical interpretation of the securities laws." AIMA's CEO Jack Inglis also welcomed the decision, saying hedge funds are not dealers.