Introduction

In National Association of Private Fund Managers v. SEC (5th Cir. Aug. 25, 2025), the Fifth Circuit reviewed two Securities and Exchange Commission rules aimed at improving transparency in securities lending and short selling:

• Securities Lending Rule (Reporting of Securities Loans), 17 C.F.R. § 240.10c-1a.
• Short Sale Rule (Short Position and Short Activity Reporting by Institutional Investment Managers), 17 C.F.R. § 240.13f-2.

The petitioners—three industry associations representing institutional investment managers—challenged both rules under the Administrative Procedure Act (APA) and the Securities Exchange Act of 1934 (Exchange Act). Their central contention was that the rules conflicted with each other and that the SEC failed to assess their combined economic effects.

The Fifth Circuit rejected most of petitioners’ targeted attacks, but agreed with them on a core procedural point: because the two rules are highly interrelated and were adopted during the same open meeting, the SEC was required to consider and quantify their cumulative economic impact. The court granted the petition in part and remanded both rules to the SEC for additional economic analysis, without vacating the rules.

Summary of the Judgment

• Statutory authority confirmed: The SEC acted within its authority under Dodd–Frank § 984(b) (a statutory note to 15 U.S.C. § 78j) to regulate transparency in securities lending. Section 929X (15 U.S.C. § 78m(f)(2)) governing short-sale disclosures does not cabin § 984(b).
• Notice-and-comment satisfied: The final Securities Lending Rule’s 20-business-day delay for publishing loan-size information was a logical outgrowth of the proposal, given extensive public comments on timing and sensitivity of transaction-level data.
• Alternative systems and extraterritoriality: The SEC reasonably chose EDGAR over FINRA for the Short Sale Rule and adequately addressed cybersecurity concerns; the rule does not apply extraterritorially because it is limited to securities already subject to Regulation SHO (domestic scope).
• Inter-rule “contradiction” rejected: While lending and short-sale data are correlated, they are not “direct proxies.” The SEC acknowledged the overlap and crafted mitigations (e.g., delayed loan-size disclosure, aggregate transaction activity) sufficient under arbitrary-and-capricious review.
• Key defect requiring remand: The SEC failed to consider and quantify the cumulative economic impact of the two rules, which were adopted minutes apart and are intertwined. This omission violates the APA and the Exchange Act’s unique economic analysis obligations.
• Remedy: Remand without vacatur to allow the SEC to conduct a combined economic analysis and respond to comments informed by that analysis.

Detailed Analysis

A. Precedents Cited and Their Role

• State Farm, 463 U.S. 29 (1983): Anchors arbitrary-and-capricious review. The SEC must examine relevant data and articulate a rational connection between facts found and choices made. The court used State Farm to evaluate both the agency’s explanatory adequacy and its omission of cumulative analysis.
• Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024): Post-Chevron, courts independently interpret statutes and fix the boundaries of delegated authority. The Fifth Circuit applied this approach to read Dodd–Frank § 984(b) and § 929X de novo and found clear authority for the securities lending rule.
• Business Roundtable v. SEC, 647 F.3d 1144 (D.C. Cir. 2011) and Chamber of Commerce v. SEC (D.C. Circuit), 412 F.3d 133 (2005): Establish the SEC’s “unique obligation” to assess a rule’s effects on efficiency, competition, and capital formation, and to apprise itself and the public of economic consequences. The Fifth Circuit relied on these principles to find the SEC’s cumulative-impact omission arbitrary and capricious.
• Chamber of Commerce v. SEC (Fifth Circuit), 85 F.4th 760 (5th Cir. 2023): Reinforces that agencies must respond to significant comments and provide reasoned explanations addressing relevant factors—cited in upholding the SEC’s handling of EDGAR/FINRA and in faulting its cumulative-impact omission.
• Portland Cement Ass’n v. EPA, 665 F.3d 177 (D.C. Cir. 2011) (per curiam): Agencies must ensure their “right hand” accounts for what the “left hand” is doing. The Fifth Circuit used this to reject the SEC’s sequential-baseline gambit when adopting two integrated rules at the same meeting.
• Prometheus Radio Project, 592 U.S. 414 (2021): Agencies need only reasonably consider relevant issues and reasonably explain decisions. Supports upholding the SEC’s EDGAR choice after it addressed significant comments and cybersecurity concerns.
• Classic canons and administrative law staples also appear: Chenery (courts cannot supply new reasons), Burlington Truck Lines and Marsh (reasoned decisionmaking, relevant factors), Perez (respond to significant comments), Texas v. United States, 50 F.4th 498 (5th Cir. 2022) (remand without vacatur), Gozlon‑Peretz, Russello, and Nassar (textual/structural interpretive canons).

B. Legal Reasoning Issue-by-Issue

1) Statutory authority for the Securities Lending Rule

The court applied Loper Bright’s framework to independently interpret Dodd–Frank. Section 984(b) expressly directs the SEC to adopt rules “designed to increase the transparency of information” about securities loans. That language is clear and unambiguous, and the Securities Lending Rule fits squarely within it.

The petitioners’ attempt to graft § 929X’s short-sale reporting cadence (monthly aggregates) onto § 984(b) failed for two reasons:

• Text and structure: Treating securities loans (regulated by § 984(b)) as if they were short-sale disclosures (regulated by § 929X) would render § 984(b) surplusage—contrary to the presumption that Congress’s structural choices are deliberate.
• Non-equivalence of datasets: The SEC reasonably found (with record support) that securities lending data are not a direct proxy for short-sale information, even if highly correlated. That undermines any claim that § 929X’s limitations control § 984(b).

The court also dispatched the argument that the SEC’s 2014 staff report foreclosed transaction-level or near-real-time disclosures. The report was non-binding, expressly stated the Commission took no position, and concerned short-seller identity—something the final lending rule does not reveal.

2) Notice-and-comment: the “logical outgrowth” test

The final lending rule delayed release of loan-size information by 20 business days (from intra-day in the proposal), prompting a claim that the SEC failed to re-open notice. The court held the change was a logical outgrowth:

• The proposal squarely solicited comment on reporting timing and potential harms from immediate transaction-level disclosures.
• Commenters urged less frequent publication to protect trading strategies.
• The SEC’s shift to end-of-day reporting and twenty-day delay for size information reflected responsiveness to those comments.

3) Short Sale Rule: EDGAR vs. FINRA and extraterritoriality

The SEC discussed using FINRA’s system and reasonably explained why EDGAR was superior: FINRA does not cover all entities subject to the rule, while EDGAR provides broader coverage; recent EDGAR security enhancements mitigated cyber-risk concerns. Under Prometheus, that explanation sufficed.

The extraterritoriality challenge also failed. The rule is expressly limited to equity securities already subject to Regulation SHO—which applies to U.S. securities markets. The reference in the adopting release to managers subject to U.S. reporting obligations does not expand the substantive scope beyond Regulation SHO.

4) Alleged contradiction between the two rules

Petitioners contended the lending rule would reveal the very information the short-sale rule keeps aggregated and delayed. The SEC’s treatment—recognizing correlation but explaining the datasets aren’t direct proxies—carried the day. The agency mitigated risks by:

• Publishing certain data elements transaction-by-transaction while releasing “aggregate transaction activity” to avoid exposing net position changes.
• Delaying publication of the most sensitive element—loan size—by 20 business days (and same for modifications), because that most closely tracks short positions.
• Explaining that any reverse-engineering would be “inherently noisy” and unlikely to provide actionable insights that harm short sellers.

Under State Farm, the SEC’s explanations and tailoring were sufficient; disagreement over policy balance did not make the choice arbitrary.

5) The decisive error: failure to conduct a cumulative economic-impact analysis

The Exchange Act requires the SEC to consider effects on efficiency, competition, and capital formation. Building on Business Roundtable and Chamber of Commerce (D.C. Circuit), the Fifth Circuit held that in this unusual circumstance—two highly interrelated rules, adopted minutes apart during the same open meeting—the SEC was required to consider and quantify their combined economic effects.

The SEC’s defense—that a rule’s economic baseline includes only existing, not proposed, rules—broke down here. Although the lending rule’s adopting release could treat the short-sale rule as “merely proposed” at that precise moment, the two rules were adopted in tandem and were planned and analyzed together throughout the process (the SEC even reopened the lending rule’s comment period when proposing the short-sale rule to consider interplay).

The court highlighted:

• Temporal reality: The short-sale rule ceased to be “proposed” within roughly an hour; both were adopted at the same meeting.
• Interdependence: The rules address overlapping datasets and effect different but related constituencies (intermediaries/lenders/brokers vs. institutional investment managers).
• SEC precedent: In past tandem adoptions (e.g., Regulation Best Interest and Form CRS; the 2016 modernization and liquidity rules), the SEC addressed joint costs and cross-impacts in each rule’s analysis.
• Comment record: Stakeholders repeatedly asked the SEC to assess aggregate costs and benefits across the two rules.

Citing Portland Cement’s “right hand/left hand” admonition, the court concluded the agency could not silo the analyses to avoid grappling with combined economic consequences. The omission is an “important aspect of the problem” and renders the adoption arbitrary and capricious.

C. Remedy and Scope

The court remanded both rules without vacatur, noting a “serious possibility” the SEC can substantiate its decisions after conducting a cumulative-impact analysis and responding to further comments. The holding is expressly narrow: the court does not require cumulative analyses in all multi-rule settings; rather, the duty arises here because the rules were interdependent and adopted concurrently.

Impact and Implications

1) For the SEC and Other Financial Regulators

• Heightened economic analysis duty when rules are intertwined and adopted together. Agencies must quantify joint costs and benefits, address overlap (including populations affected, compliance architectures, and data interrelationships), and explain how combined burdens promote efficiency, competition, and capital formation.
• No “sequential baseline” end-run in concurrent adoptions. The agency cannot treat one rule as “proposed” to sidestep considering its effects on the other when both are on the cusp of adoption and interlock by design.
• Process discipline. Expect the SEC to integrate economic teams across related rulemakings, align timelines, and potentially issue joint or cross-referenced economic analyses where rules interact materially.

2) For Market Participants

• Opportunity to shape remand record. Commenters should provide granular evidence of combined compliance costs (technology buildouts, data governance, personnel, cybersecurity, reconciliation across EDGAR/FINRA), and quantify benefits and competitive effects in the aggregate.
• Planning under remand without vacatur. The rules remain on the books unless the SEC stays them. Firms should continue to track compliance milestones while monitoring the SEC’s remand proceedings, which could adjust timing, scope, or mitigation features.
• Transparency vs. strategy protection. The court validated the SEC’s balance (transaction-level disclosures with time lags/aggregation to protect strategies). Expect the SEC to keep calibrating timing and granularity, potentially revisiting the 20-business-day delay in light of new cost-benefit findings.

3) Litigation Strategy and Administrative Law

• “Cumulative impact” is now a live issue in the Fifth Circuit. Parties challenging clusters of interrelated rules should build records showing overlap in data, populations, timelines, and cost centers, and request combined quantification.
• Narrowness matters. The court’s holding is circumscribed to concurrent, interrelated adoptions; not every multi-rule package will require joint analysis. Showing interdependence and simultaneity will be critical.

Complex Concepts Simplified

• Securities lending vs. short selling:
  • Securities lending: temporary transfer of securities from lender to borrower for a fee.
  • Short sale: selling shares you do not own, typically after borrowing them, hoping to repurchase at a lower price; lending facilitates shorting but also serves other purposes (hedging, closing positions, collateral).
• Are lending and short-sale data “the same”? No. They are correlated but not one-to-one “proxies.” A loan may not correspond to a new short; it might reflect hedging, close-outs, or collateral dynamics.
• Aggregate vs. transaction-level reporting:
  • Transaction-level: granular per-loan or per-trade details.
  • Aggregate: pooled data (e.g., totals, ranges) designed to inform without identifying strategies or net positions.
• Economic baseline:
  • The “world without the rule.” Agencies compare the rule’s incremental costs/benefits to this baseline.
  • This case requires expanding beyond strict sequential baselines when two interdependent rules are adopted together.
• Logical outgrowth: A final rule can differ from the proposal if stakeholders were fairly alerted to the issue and could have anticipated the change based on the notice and comments.
• Extraterritoriality and Regulation SHO: The short-sale rule is limited to securities subject to Regulation SHO, which governs U.S. markets. That anchor prevents improper reach into foreign securities transactions.
• Statutory notes: Provisions codified as notes to a U.S. Code section (e.g., Dodd–Frank § 984(b) as a note to 15 U.S.C. § 78j) are genuine law, not mere commentary, and can confer rulemaking authority.
• “Short and distort” and “naked” short selling:
  • Short and distort: shorting a stock and then spreading negative rumors to drive down price.
  • Naked shorting: selling short without having stock available for timely delivery; targeted by locate and delivery requirements (Regulation SHO).
• Remand without vacatur: The court returns the rule to the agency for further explanation or analysis but leaves it in place in the meantime if the agency may be able to justify it on remand.

What the SEC Must Do on Remand

• Quantify joint costs and benefits of the lending and short-sale rules together, not just each in isolation.
• Address overlapping populations and infrastructures (e.g., EDGAR vs. FINRA, duplicative data prep, reconciliation burdens) and potential economies of scope.
• Analyze market-structure effects in combination: price discovery, liquidity, potential for reverse engineering, and interplay with existing transparency (e.g., FINRA Rule 4560 short interest).
• Respond to significant comments specifically on aggregate burdens and cross-rule interactions.
• Explain any mitigation (timing delays, aggregation, confidentiality protections) and why benefits justify residual costs across the combined regime.

Key Takeaways

• New procedural rule in the Fifth Circuit: When two SEC rules are materially interdependent and adopted together, the SEC must consider and quantify their cumulative economic impact under the Exchange Act and APA.
• Most substantive challenges failed: The SEC had clear statutory authority for the securities lending rule; its notice-and-comment process and choices regarding data systems and scope were reasonable; and the rules’ disclosure approaches, though different, were adequately justified.
• Narrow but potent holding: The court expressly limited its ruling to these facts but signaled that agencies may not “silo” analyses to avoid addressing real-world combined burdens when acting in tandem.
• Practical outcome: Remand without vacatur keeps the rules in place while the SEC shores up its economic analysis. Stakeholders should watch for a reopened comment period focused on cumulative impacts.

Conclusion

National Association of Private Fund Managers v. SEC meaningfully clarifies the SEC’s economic analysis obligations in a post-Chevron, Exchange Act–anchored landscape. The court affirmed the agency’s statutory power and much of its policy design, but insisted on a common-sense requirement: when the Commission adopts interlocking rules at the same time, it must grapple with their combined economic consequences and show its work.

By adopting a remand-without-vacatur remedy and emphasizing the limited scope of its holding, the Fifth Circuit both preserved regulatory continuity and reinforced a durable administrative-law principle: transparency in economic reasoning is not optional, especially when the agency’s “right hand” and “left hand” move together.