The U.S. Chamber of Commerce is a business-oriented and the largest lobbying group in the United States, which represents the interests of various companies and industries across the country. This is not the first time that the U.S. Chamber of Commerce is suing the Securities Exchange Commission (SEC) on issues related to markets and shareholders. The U.S. Chamber of Commerce recently filed a lawsuit against the SEC on stock buybacks. Stock buybacks are a form of shareholder remuneration where companies buy back their own shares to reduce their capital by canceling the repurchased stock. Thus, while the number of shares in circulation falls, shareholders’ stake in the company and the amount they are due from future dividends increases.
While filing the lawsuit, the Executive Vice President and Chief Policy Officer of the U.S. Chamber of Commerce, Neil Bradley, stated:
“Stock buybacks play an important role in the functioning of healthy and efficient capital markets. The SEC’s stock buyback rule doesn’t protect investors. Instead, it puts the thumb on the scale to discourage buybacks despite the fact that the repurchasing of shares improves returns for savers and investors across the economy. Buybacks efficiently distribute capital to where it is most likely to result in investments that grow businesses and add value for shareholders and Main Street investors. The Chamber’s lawsuit seeks to protect returns for investors as well as the ability of companies to make decisions free from government micromanagement.”
On May 3, the SEC finalized a rule curtailing the use of stock buybacks. According to SEC Chair Gary Gensler, this rule will increase transparency and integrity. The rule consists of amendments to expand reporting requirements for large hedge fund and private equity firms and to require companies to provide more timely disclosures on stock buybacks. In a separate 3-2 vote with the two Republican commissioners dissenting, the SEC passed the rule requiring companies to disclose daily stock buyback information either quarterly or semi-annually. The required disclosures include the number of shares repurchased that day and the average price paid for each day on which a repurchase was conducted. Moreover, companies will have to check a box indicating if certain directors or officers traded in the relevant securities within four business days before or after the public announcement of an issuer’s buyback plan or program. The amendments additionally expand the narrative buyback disclosure requirements to include a company’s objectives or rationales for buybacks and the process or criteria used to determine the amount of repurchases; and any policies and procedures relating to buybacks and sales of the company’s securities during a buyback program by its officers and directors, including any restriction on such transactions.
The U.S. Chamber of Commerce sees this rule as a pure violation of companies’ privacy and a violation of the Administrative Procedure Act under the U.S. Constitution. The Chamber emphasizes the point that limiting or eliminating buybacks would weaken markets. It stipulates that share repurchases have been shown to help facilitate orderly market trading, reduce transaction costs, reduce market volatility, and provide retail investors with an economic benefit. Hence, the SEC proposal to reinforce the disclosure of stock buybacks from companies would limit or prohibit stock buybacks risk by interfering with company governance, planning, and decision-making, thereby reducing the ability of companies to manage value.