Federal appeals court strikes down SEC's share buyback rule over procedural lapses

The federal appeals court has nullified the US Securities and Exchange Commission’s (SEC) attempt to enhance disclosure requirements for companies engaging in share buybacks. 

The US Chamber of Commerce, a business lobbying group, successfully challenged the rule, adopted by the SEC in a 3-2 vote earlier this year, citing procedural shortcomings.

The rule, intended to compel companies to provide more detailed information about their share repurchase plans, faced criticism for lacking clarity and violating procedural norms. 

The court's ruling is seen as a victory for the business community and a setback for the SEC's regulatory efforts.

The US Fifth Circuit Court of Appeals had given the SEC a 30-day deadline in October to address the "defects" in the rule,  stressing upon violations of the Administrative Procedure Act. 

The court argued that the SEC had failed to adequately respond to the Chamber's comments during the rule-making process and neglected to conduct a thorough cost-benefit analysis.

Despite the court's ultimatum, the SEC missed the deadline, and its request for an extension was denied last month. Circuit Judge Jerry Smith, appointed by Ronald Reagan, expressed dissatisfaction with the SEC's efforts, stating, “The SEC claims to have 'worked diligently to ascertain the steps necessary to comply with the Court's remand order.' Yet the agency has nothing to show for its efforts.”

The rule, which aimed to mandate quantitative disclosure of daily share repurchases, totaling nearly $950 billion in 2022, on a quarterly or semi-annual basis, faced staunch opposition from the business community. 

The court's decision reinforces the importance of procedural compliance in the rule-making process.

While the SEC expressed disappointment in the court's ruling, it highlighted that the court rejected challenges to the rule's comment period and First Amendment issues. The agency indicated that any future steps related to share repurchase disclosures would involve presenting staff recommendations to the commission.

(With Reuters Inputs)