On September 16, 2025, the Alternative Investment Management Association (“AIMA”) filed a rulemaking petition with the US Securities and Exchange Commission (the “SEC”) requesting that the SEC amend Rule 105 of Regulation M (“Rule 105”).
Rule 105 governs short selling before a registered offering of equity securities and concerns short sales effected shortly before the offering is priced. Specifically, absent an exception, a person is prohibited from selling short a security that is subject of a registered offering and then purchasing the offered securities from an underwriter, broker or dealer participating in the offering, if the short sale was effected during the “Rule 105 restricted period” (generally, this period begins five business days before the offering is priced and ends with the pricing of the offering).
AIMA contends that Rule 105 was last amended nearly 20 years ago, and since then, the market has evolved. Issuers now frequently use overnight shelf offerings or one-day offerings to raise capital. AIMA laments that Rule 105 was drafted with the assumption that there will typically be a multi-day period between offering announcement and pricing. As currently drafted, Rule 105 “simply does not work for overnight or one-day offerings.” AIMA observed that “the rigid five-day period now captures many investors who, just by chance, happened to engage in short selling prior to the announcement of the offering (and therefore without any intent to artificially depress the price of the issuer’s securities).”
To account for overnight shelf offerings, AIMA proposes that the SEC update the “Rule 105 restricted period” definition to provide that the period cannot begin prior to the public disclosure of an offering. Instead of the five-business day restricted period prior to pricing, firms would be prohibited from engaging in short selling activities for the shorter period between public announcement and pricing. The public announcement could take the form of an email from the bookrunner in the overnight or one-day offering that is widely distributed and picked up by market data service providers. The proposed amendment would promote capital formation while still promoting the rule’s goal of preventing activities that artificially depress market prices. The petition also seeks clarification from the SEC on the more technical implementation-related aspects of Rule 105, including the “separate accounts” exception to Rule 105 and the treatment of options exercises entered into prior to the commencement of the restricted period and prior to any actual knowledge of an upcoming offering. A copy of the rulemaking petition is available here.