SEC Loses Bid for Extra Time to Revise Stock Buyback Rule

A federal appeals court denied the Securities and Exchange Commission’s request for additional time to fix problems with a rule requiring companies to provide more information about stock repurchases.

The US Court of Appeals for the Fifth Circuit left in place a Thursday deadline for the SEC to correct defects the court identified in a ruling last month. The court found the adoption of the rule was arbitrary and capricious.

Requesting an extension last week, the SEC said staff had “worked diligently” to determine a fix but additional time was necessary. The court’s order, filed Sunday, didn’t provide a reason for the denial. The SEC declined to comment.

The stock repurchase rule, adopted by the agency in May, requires companies to disclose a rationale for a stock repurchase. Companies also must report share repurchase data aggregated on a daily basis.

The Fifth Circuit said in an Oct. 31 ruling the SEC failed to conduct a proper analysis of the costs and benefits of the rule and didn’t respond to comments about the rule’s economic justifications.

The decision came after a challenge from the US Chamber of Commerce, Longview Chamber of Commerce, and Texas Association of Business. The groups said the SEC’s rule was based on “politically-driven concerns.”

Opposing the SEC’s requested extension, the business groups said it was “vanishingly unlikely” the SEC could fix the rule’s problems even if given more time. The rule “suffers from a host of” deficiencies that aren’t easy to fix, including a lack of clarity, they said.

“Even if the Rule were intelligible, the SEC’s failure to substantiate its purported benefit of reducing investor uncertainty about improperly motivated buybacks is a fundamental defect unlikely to be cured on remand,” the groups said.

Jones Day and the US Chamber Litigation Center represent the business groups. The SEC represents itself.

The case is Chamber of Commerce of the United States of Am. v. SEC, 5th Cir., No. 23-60255, order filed 11/26/23.