Securities Regulation Daily Wrap Up, EXCHANGES AND MARKET REGULATION—AIMA petitions the SEC for rulemaking to amend Rule 105 of Regulation M, (Sep 17, 2025)

By R. Jason Howard, J.D.

It has been almost 20 years since the rule was updated, the group notes.

The Alternative Investment Management Association (AIMA) has petitioned the SEC for a rulemaking to amend Rule 105 of SEC Regulation M or, alternatively, requests that the SEC provide relief or interpretive guidance through an Exemptive Order or no-action relief to address the need to modernize Regulation M to reflect current market dynamics.

The AIMA petition explains that “Rule 105 governs short selling in connection with public offerings and concerns short sales that are effected prior to the pricing of an offering.” The Rule is specifically designed to “safeguard the integrity of the capital raising process by ensuring investors in a follow-on or secondary registered offering of equity securities do not artificially depress market prices through short selling in advance of the offering.”

AIMA notes that it fully endorses the stated goal of Rule 105 to “foster secondary and follow-on offering prices that are determined by independent market dynamics and not by potentially manipulative activity,” but cautions that because the rule has not been updated in almost two decades, it does not take into account the market developments concerning how equity securities are offered to investors, “particularly the dramatic growth of overnight offerings.”

According to AIMA, Rule 105, “unnecessarily limits investor participation in equity offerings, in effect penalizing short selling done without any knowledge of any future offering, thereby stifling capital formation and hindering market efficiency, to the detriment of issuers attempting to raise capital.” In addition, AIMA states that the “provisions and interpretations also present significant implementation challenges to investment firms as they both manage risk and seek to participate in offerings, potentially impairing markets and the broader economy.”

AIMA is seeking an opportunity to work with the SEC to modernize Regulation M to reflect current market dynamics, while ensuring that the rule work for overnight offerings, “which now constitute the vast majority of all follow-on and secondary offerings.”

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