Court Vacates SEC's Share Repurchase Disclosure Rule

On December 19, 2023, the U.S. Court of Appeals for the Fifth Circuit vacated the Securities and Exchange Commission’s Share Repurchase Disclosure Modernization Rule.[1]

Because the Rule is no longer in effect, none of its new reporting provisions are required. Companies will, however, need to comply with disclosure requirements regarding share repurchases that were in effect before the Rule was adopted.

Background:

• Adopted on May 3, 2023, the Rule expanded the amount of information that companies would be required to disclose about share repurchases, including a requirement to show detailed information about a company’s daily share repurchases in a new table. The Rule also added a new provision requiring public companies to report their adoption and termination of Rule 10b5-1 plans on a quarterly basis.[2]

• The Rule became effective on July 31, 2023, and required the new disclosures for the first full quarter that began on or after October 1, 2023.
• On October 31, 2023, in response to litigation initiated by the Chamber of Commerce and other parties, a three-judge panel of the Fifth Circuit unanimously ruled that the SEC acted arbitrarily and capriciously, in violation of the Administrative Procedure Act, in adopting the Rule. 
  • In particular, the panel held that (i) the SEC failed to respond to suggestions submitted in comment letters as to how to quantify the economic effects of the Rule (the SEC had claimed in its cost-benefit analysis that it was not possible to quantify many of the economic effects of the rule) and (ii) the SEC failed to substantiate the Rule's benefits and costs as required by the APA.
• Rather than vacate the Rule, the panel gave the SEC 30 days to remedy these deficiencies, as the panel believed there was “at least a serious probability that the SEC would be able to substantiate its decision if given the opportunity to do so.”
• On November 22, 2023, the SEC issued an order indefinitely staying the rule.
• On December 1, 2023, the SEC wrote the court to state that it could not remedy the deficiencies identified in the panel’s opinion within the 30-day time period.
• On December 19, 2023, the Fifth Circuit vacated the rule.

[1] Final rule: Share Repurchase Disclosure Modernization (sec.gov)

[2] For additional detail on the requirements of the Rule, please see our client alert.