SEC Rule on Share Repurchase Reporting Overturned by Court of Appeals

The post SEC Rule on Share Repurchase Reporting Overturned by Court of Appeals appeared first on Coinpedia Fintech News

The U.S. Court of Appeals for the Fifth Circuit has delivered a significant ruling against the Securities and Exchange Commission (SEC), vacating a rule requiring issuers to report day-to-day share repurchase data. This decision, issued on December 19, 2023, marks a notable setback for the SEC in its regulatory oversight.

Background of the SEC Rule

Initially issued on May 3, 2023, the SEC’s rule mandated issuers to disclose daily repurchase activity quarterly or semi-annually. The aim was to increase transparency in financial markets. However, the rule faced immediate opposition, leading to legal challenges spearheaded by the U.S. Chamber of Commerce and other business entities.

Judge Jerry E. Smith, writing for the Fifth Circuit Court, deemed the SEC’s actions as “arbitrary and capricious” and in violation of the Administrative Procedure Act (APA). The Court criticized the SEC for failing to respond adequately to comments from petitioners and not conducting a thorough cost-benefit analysis.

Timeline of the Legal Battle

• October 31, 2023: The Fifth Circuit Court initially issued its opinion, highlighting the SEC’s procedural failings 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: This motion was denied by the Court.
• November 30, 2023: The 30-day remand period expired without the SEC correcting the rule’s defects.

With the lapse of the remand period and the SEC’s admission of its inability to rectify the rule’s flaws within the given timeframe, the Court had no choice but to vacate the rule. This decision aligns with the APA, which mandates setting aside agency actions found to be arbitrary, capricious, or non-compliant with legal procedures.

This ruling represents a significant legal defeat for the SEC and may prompt a reevaluation of its regulatory strategies, particularly concerning transparency requirements in financial markets. It underscores the importance of rigorous procedural compliance and thorough impact analysis in regulatory rule-making.