On November 22, 2023, the SEC issued an order staying its rule that would have imposed new disclosure requirements related to issuer share repurchases. This order followed a Fifth Circuit opinion finding that the rule was arbitrary and capricious. The events that followed suggest that the rule will be vacated and, as a result, will not impose additional disclosure obligations on issuers in their Form 10-K and Form 10-Q reports.

Background
As we previously discussed in our prior client alert here, in May 2023 the SEC adopted a rule that would have imposed new disclosure requirements for issuer repurchases of equity securities and certain related matters, starting with the first filing that covered the first full fiscal quarter that began on or after October 1, 2023, which would have been the upcoming fiscal year 2023 Form 10-K for calendar year issuers. The rule would have expanded disclosure obligations to include (i) tabular reporting of daily share repurchase activity (in the form of a new quarterly exhibit); (ii) checkbox disclosure regarding whether directors and certain officers traded issuer equity securities that are the subject of a share repurchase plan within four business days of the announcement of such plan; (iii) certain narrative disclosure regarding an issuer’s share repurchase program; and (iv) disclosure of whether during the most recently completed fiscal quarter the issuer adopted or terminated a 10b5-1 trading plan and the material terms of any such plan.

Legal Challenge
The U.S. Chamber of Commerce, along with the Texas Association of Business and the Longview Chamber of Commerce, filed suit in the Fifth Circuit Court of Appeals to block the implementation of the SEC’s rule. They argued, among other things, that the rule was arbitrary and capricious because the SEC failed to weigh the costs and benefits of the rule, despite the SEC’s statutory obligation to do so. In an opinion issued on October 31, 2023, the Fifth Circuit agreed, stating that the SEC had acted arbitrarily and capriciously, in violation of the Administrative Procedures Act, when it failed to respond to the petitioners’ comments and conduct a proper cost-benefit analysis. The Fifth Circuit directed the SEC to correct the defects in the rule within 30 days, by November 30, 2023. Following the Fifth Circuit’s opinion, the SEC issued an order staying the share repurchase disclosure rule and filed a motion asking the Fifth Circuit to extend the deadline by which the SEC needed to correct the defects in the rule.  In response, the Fifth Circuit issued an order on November 26, 2023 rejecting the SEC’s request for an extension, and, following the expiration of the deadline imposed by the Fifth Circuit, the SEC informed the Court that it would not be able to correct the defects of the rule within the allotted time period.

What Comes Next
Typically, when a court finds that an agency action was arbitrary and capricious, the agency action is vacated and the agency must try again. If the Fifth Circuit vacates the rule, the SEC can decide to appeal or it can revise the rule to be responsive to the Fifth Circuit’s concerns and propose a revised version. Assuming the rule is vacated and the SEC does not appeal, issuers will not be subject to any of the new reporting requirements imposed by the rule. In that case, issuers will continue to report share repurchase information according to the prior requirement to include repurchase data aggregated on a monthly basis in periodic reports.

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