'Tis the Season … to Reopen Public Comment on SEC's Share Buyback Rule Proposal?
The SEC announced on Dec. 7, 2022, a second reopening of the public comment period for its proposed Share Repurchase Disclosure Modernization rule (Rule), first proposed on Dec. 15, 2021. The initial 45-day comment period was already once reopened in October 2022 due to a technical glitch, which SECond Opinions covered earlier this year, that prevented public comments on this and other proposed Rules from being posted on the SEC's website.
In its proposed Rule covering corporate share repurchases, the SEC says it seeks to amend existing rules relating to certain corporations'1 disclosures about buybacks of their own equity securities. According to the SEC and the proposed Rule, covered issuers will be required to provide a new Form SR before the close of business the first working day after executing a buyback. Form SR will require disclosure about the: 1) class of securities repurchased; 2) amount repurchased; 3) average price paid; and 4) aggregate total amount repurchased in the open market (either pursuant to the Exchange Act Rule 10b-18 safe harbor or the affirmative defense conditions under Exchange Act Section 10b5-1(c)). The SEC's Fact Sheet provides a summary of its proposals.
Notably, the Rule was proposed before the later-codified Inflation Reduction Act of 2022 (Act) became law. Among other things, the Act assesses a nondeductible excise tax on stock of certain corporations that repurchase their own shares. Given the enactment of the Act after the Rule's proposal, certain potential tax outcomes flowing from a company's decision to undertake, increase or decrease share repurchases were not able to be considered when the Rule was first proposed.
Following the Rule's enactment, the SEC's Division of Economic Risk and Analysis (DERA) analyzed, and prepared a memorandum addressing, the Act's potential economic effects. DERA's memorandum was added to the public comment file for the Rule – and the public's own feedback is again requested, now in connection with DERA's analysis and the Act's potential impacts on corporation's share repurchase activities.
The public comment period will remain open for 30 days after publication in the Federal Register.
Although the SEC decided to reopen the Rule's comment period (as it also has for 11 other rulemaking proposals, one request for comment and eight Self-Regulatory Organization matters), SEC Commissioner Mark Uyeda noted, in a separate statement, his disagreement with the 30-day length of the comment period, which he considers "especially problematic when it commences shortly before, and will overlap with, major holidays later this month." Advocating a longer period for public input, Commissioner Uyeda underscored a recurring theme in the continuing conversation – and debate – about the pace of agency rulemaking and attendant comment periods: an Administrative Procedures Act (APA) requirement that the public be granted a meaningful opportunity to comment on proposed new rules. For his part, Uyeda highlighted a concern that a 30-day period running contemporaneously with major holidays does, in his view, little more than check the box to "satisfy the lowest acceptable standard of process required" by the APA. As of posting time, none of the other Commissioners has spoken publicly on the length or timing of this particular comment period.
The SECond Opinions Blog will continue to monitor and report on this and other proposed rules and related developments. If you need any additional information on this topic – or anything related to SEC enforcement – please contact the authors or another member of Holland & Knight's Securities Enforcement Defense Team.
1 In current form, the proposed Rule will apply to issuers that repurchase securities registered under Section 12 of the Securities Exchange Act of 1934, including foreign private issuers and certain registered closed-end funds.