SEC Stays Its Share Repurchase Disclosure Modernization Rule

On November 22, 2023, the Securities and Exchange Commission (SEC) issued an order postponing the effective date of the Share Repurchase Disclosure Modernization Rule it adopted in May 2023. That rule required issuers to:

• Disclose daily share repurchase activity quarterly or semiannually;
• Disclose whether certain directors or officers traded in the relevant securities within four business days before or after the public announcement of an issuer’s repurchase plan or program;
• Provide narrative disclosure about the issuer’s repurchase programs and practices in its periodic reports; and
• Provide quarterly disclosure in an issuer’s periodic reports on Forms 10-K and 10-Q related to an issuer’s adoption and termination of 10b5-1 trading arrangements.

Shortly after its adoption, the United States Chamber of Commerce and others filed a petition with the United States Court of Appeals for the Fifth Circuit challenging the new rule claiming that, among other things, the SEC violated the Administrative Procedure Act (APA) by not adequately responding to petitioners’ comments during the rulemaking process and by not adequately substantiating the Rule’s purported benefits. In an October 31, 2023 decision, the Court agreed with the petitioner’s claims, finding that the SEC acted arbitrarily and capriciously in violation of the APA. The Court did not vacate the rule but provided the SEC with 30 days to correct the deficiencies. After its request for an extension of time was denied by the Court, the SEC postponed the effective date of the rule at the end of the 30 day period.

While it remains to be seen whether the judicial process will result in the rule being vacated or whether the SEC will be able to cure the defects noted by the Court, for now compliance with the suspended rule is not required.