SEC Share Repurchase Proposals: Key Takeaways From a Special NeuGroup Session With Sidley Austin

# Capital Markets

# Accounting and Disclosure

Treasury teams seek guidance on how best to respond to SEC’s buyback disclosure and cooling-off period proposals.

In response to requests from several members, NeuGroup recently hosted a special session with partners from the law firm Sidley Austin to discuss proposed rule amendments to SEC Rule 10b5-1 and disclosures about share repurchase plans that the SEC announced in mid-December. The session followed one on the same topic NeuGroup held the week before . Prabhat Mehta and Sonia Gupta Barros , partners in Sidley’s capital markets area, reviewed in detail the proposals and provided helpful insight into processes at the SEC. Here are some of the key takeaways:

Timing. The SEC proposals have not yet been published in the Federal Register, which Sidley noted was unusual given when they were announced. Publication will start the clock on a 45-day comment period. Sidley described that window as short given the importance of these proposals, and said a 60- or 90-day comment period is more common for significant rule proposals.

Last week, an SEC spokesman told NeuGroup Insights that the regulator does not have a “specific date” when the proposals will be published in the Federal Register.

Comments. Members were also keen to ask about the best way to submit comments to the SEC on the share repurchase proposals. In previous discussions, some said they were likely to join trade organizations or business lobbying groups that may submit comments. Sidley provided the insight that the SEC reviews all comments and that those from individual companies and investors can have a meaningful impact.

A few members suggested NeuGroup consider providing comments to the proposals, something that’s under consideration. Any comments provided would focus on the impact these proposals could have on investor protection and capital formation.

Disclosure. Members expressed concern about the proposals’ increased disclosure requirements and in particular daily disclosures of buybacks on Form SR. That, they fear, might provide advantages to some traders, and companies paying more for their shares, which is not in the interest of current shareholders.

SEC study. Sidley made members aware of a study published by the SEC in December 2020 which, arguably, challenged part of the rationale for the Rule 10b5-1 proposals.

The study concluded that 82% of the firms reviewed either did not have EPS-linked compensation targets or, if they had them, the board considered the impact of repurchases when determining whether performance targets were met or in setting the targets. That “potentially suggests that most repurchase activity does not represent an effort to influence the value of EPS-linked compensation,” the report said.