Here’s the Reason the Court of Appeals Reversed the Share Repurchase Reporting Rule of the SEC
Major setback for SEC as court overturns rule on daily share repurchase reporting
In a surprising twist of events, the Securities and Exchange Commission (SEC) suffered a heavy blow on December 19, 2023, when the U.S. Court of Appeals for the Fifth Circuit overturned a crucial rule that mandated daily reporting of share repurchases by issuers. This ruling not only represents a significant setback for the SEC but also raises concerns about the future of transparency in the financial market.
The rule, introduced by the SEC on May 3, 2023, aimed to enhance transparency in share repurchase activities. Under this rule, issuers were required to report these activities either quarterly or semi-annually. However, the rule faced immediate resistance from various groups, including the U.S. Chamber of Commerce and other business organizations.
Judge Jerry E. Smith, writing for the Fifth Circuit Court, strongly criticized the SEC’s approach as “arbitrary and capricious.” The court found that the SEC had failed to follow proper procedures under the Administrative Procedure Act (APA), including adequately addressing stakeholder comments and conducting a comprehensive cost-benefit analysis.
The timeline of the legal battle leading up to this ruling includes significant dates:
– October 31, 2023: The Fifth Circuit Court initially issued its opinion, highlighting the SEC’s procedural flaws and ordering a limited 30-day remand to rectify the rule’s deficiencies.
– November 22, 2023: The SEC filed a motion to extend the remand period indefinitely, citing the need for more time to comply with the Court’s order.
– November 26, 2023: The Court denied this motion.
– November 30, 2023: The 30-day remand period expired without the SEC addressing the rule’s defects.
With the SEC’s failure to rectify the deficiencies within the given time frame, the court had no choice but to overturn the rule. This decision aligns with the APA’s requirements for agencies to adhere to legal procedures.
This ruling presents a significant challenge for the SEC and may necessitate a reevaluation of its regulatory approach, particularly concerning transparency in financial markets. The case underscores the importance of following proper procedures and conducting thorough analyses when crafting regulatory rules.