SEC Halts Repurchase Rule
Following a court decision in the US Court of Appeals 5th Circuit, the US Securities and Exchange Commission (SEC) has decided to delay the Repurchase Rule, making the date for implementation at least uncertain. It’s an interesting demonstration of the importance of data and disclosure, and the complexity of modern regulation.
The level of share buybacks in markets have reached extraordinary proportions. In the US alone, some $6 trillion in shares have been repurchased by companies over the last 10 years. This is a complex field, and analysis can be difficult. Is the buyback a way of increasing company value? A way of rebalancing the share registry, where, for example, significant share options have been granted to staff? Or a way of managing corporate earnings, or even a way to ensure that certain compensation goals are (artificially) met? For just a bite-sized look into this field read CFA Jason Voss’ two columns on this topic in the ever-excellent Calcbench blog.
Recognising the informational asymmetries inherent in share repurchases, the SEC had proposed a rule to enhance transparency regarding timing, volumes, and purpose surrounding issuers’ share repurchases. These amendments mandated issuers to disclose daily repurchase activity on a quarterly or semi-annual basis, relevant director trading around repurchase announcements, provide narrative disclosure about repurchase programs, and offer quarterly disclosure on the adoption and termination of specified trading arrangements. Inline XBRL tagging was required for disclosures.
The pause has come in response to the Fifth Circuit’s determination that the Repurchase Rule was “arbitrary and capricious”. The SEC was directed to rectify the identified defects in the rule by 30 November, leading to a temporary halt in the Repurchase Rule’s enforcement pending further SEC actions. On 1 December, the SEC informed the Fifth Circuit that it was unable to address the rule’s issues within the timeframe provided, meaning that the rule has been (at least) postponed.
The fate of the Repurchase Rule now hinges on the SEC’s next steps – whether to appeal the decision or introduce a new proposal.
In essence, “arbitrary and capricious” is a technical term within an administrative appeal. The Court has decided that the SEC has not provided sufficient evidence about the benefit of the proposed rule, or sufficient specificity about what it wants the narrative “purpose” about a buyback to contain.
Of course, it may well be possible to provide significant evidence to back up the Commission’s proposals through a deep dive into (you guessed it) the SEC’s own XBRL data holdings.
Anyway — ever wondered why the role of securities regulators is important — and extremely complex? This case might provide you the insights you were looking for.
