NEW YORK (Reuters) -A U.S. appeals court on Monday ordered the U.S. Securities and Exchange Commission to assess the economic impact of President Joe Biden-era rules aimed at boosting transparency of short sell trades, in a partial victory for hedge funds that brought the case.

The future of the rule is unclear. The review will now fall to the SEC's new leadership, led by Trump's Republican SEC chair Paul Atkins.

In December 2023, three hedge fund associations sued in the 5th U.S. Circuit Court of Appeals to vacate the rules adopted earlier that year, arguing they could reveal confidential trading positions and potentially invite retaliation. Short sales are trades that stand to profit when a stock falls.

The groups also argued the rules violated the Administrative Procedure Act, which requires agencies to justify their rules and consider feedback.

On Monday, a three-judge panel rejected the argument that the rules would expose confidential investor positions, but it did require the SEC to assess the costs and benefits of the rule.

The petitioners, the National Association of Private Fund Managers, Managed Funds Association (MFA), and Alternative Investment Management Association (AIMA), also said the rule exceeds the SEC's authority, but the court did not agree with that.

In a statement, Bryan Corbett, CEO of the MFA, the group which led the litigation, cheered the ruling.

"These regulations were fatally flawed from the start when the SEC adopted highly related rules on the same day without analyzing the impact one would have on the other," he said.

The SEC did not immediately comment on the ruling.

The associations have sued to overturn new rules the SEC adopted in 2023 under chair Gary Gensler, with the groups scoring some victories.