By Carolina Mandl
NEW YORK (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.
In a statement, the SEC said it decided to dismiss the appeal because the new rule could reduce "liquidity in the Treasury markets, making them more volatile, and increasing debt for taxpayers."
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).
Currently under acting chair Mark Uyeda, the agency decision to withdraw its appeal marks a change in course of action of the regulator under a new administration.
The SEC said in the court filing the parties involved would pay for their own costs.
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.
(Reporting by Carolina Mandl in New York; Additonal reporting by Douglas Gillison in Washington; Editing by Daniel Wallis)