On November 22, 2023, the SEC postponed its new share repurchase disclosure rules in response to an adverse decision by the Fifth Circuit Court of Appeals in a case challenging those rules under the Administrative Procedure Act (APA).

On December 19, 2023, the court dropped the hammer on the rules, vacating them.

Where does this leave public companies? Public companies need not comply with these requirements:

• quarterly disclosure of daily share repurchase information (previously scheduled to replace monthly repurchase information beginning with the three months ending December 31, 2023);
• checkbox disclosure indicating whether executive officers or directors traded within four business days before or after announcement of a repurchase program;
• annual narrative disclosures in the upcoming Form 10-K or Form 20-F about the objectives, rationales and other information relating to repurchase plans;
• Form F-SR quarterly filings by foreign private issuers; and
• quarterly disclosures regarding company-established trading plans under Rule 10b5-1.
• Form F-SR quarterly filings by foreign private issuers; and
• quarterly disclosures regarding company-established trading plans under Rule 10b5-1.

Can the decision be overturned? Yes, today’s decision is not the last word. The SEC could seek rehearing before the panel that issued the opinion or before the full court sitting en banc. The SEC could also appeal the decision to the United States Supreme Court.

Could the SEC fix the defects and re-adopt the rules? Yes, but the agency would need to go back to the drawing board in a time-consuming process requiring APA compliance.

Why did the court invalidate the rules? The order today followed the court’s earlier determination, on October 31, 2023, that the SEC acted arbitrarily and capriciously, in violation of the APA, by failing to respond to comments in the rule-making process and by failing to conduct the proper cost-benefit analysis that the APA requires. Referring to the thirty-day period ending on November 30, 2023, which the SEC unsuccessfully sought to extend, the court vacated the rule and stated:

“That thirty-day period has come and gone. 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. It returns to this court empty-handed, admitting that it ‘was not able to “correct the defects in the rule” within 30 days.’ The rule remains no less flawed—and no less unlawful—than it was on October 31, 2023.”