Buybacks: The “Replace” Part of “Repeal & Replace” Rule 10b-18
Last week, Liz blogged about a recent rulemaking petition filed by a coalition of labor & progressive groups requesting the SEC to repeal & replace the Rule 10b-18 “safe harbor” under which most buybacks have been conducted.
The request to “repeal” 10b-18 is pretty straightforward, but what’s the “replace” part of the equation supposed to look like? The petitioners suggest that the SEC look at some 1970s-era proposals to limit buybacks, and point out that those proposals included:
– Limiting repurchases to 15 percent of the average daily trading volume for that security.
– Creating a narrower safe harbor and allowing repurchases that fall outside this safe harbor to be reviewed and approved on an individualized, case-by-case basis.
– Providing that repurchases inconsistent with the safe harbor are expressly “unlawful as fraudulent, deceptive, or manipulative.”
– Requiring various disclosures, including whether any officer or director is purchasing or disposing of the issuer’s securities, the source of funds to be used to effect the repurchases, the impact of the repurchases on the value of the remaining outstanding securities, and specific disclosures for large repurchases.
Companies continue to repurchase “massive amounts” of their own stock, and the market seems to be addicted to buybacks as well. So far, the SEC hasn’t seemed inclined to do much to further regulate buybacks, and tinkering with 10b-18 seems unlikely. But a presidential election’s looming, buybacks are getting clobbered in the media, & Democratic presidential hopefuls have them in the cross-hairs. When you throw into the mix the recent introduction of legislation that would ban open market buybacks, the SEC may at some point be faced with a situation where if it doesn’t act, Congress might.
-John Jenkins, TheCorporateCounsel.net July 23,2019
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