Dec. 7, 2022
Today, the Commission reopened the comment period for the proposed rulemaking on Share Repurchase Disclosure Modernization. The comment period was reopened to add a memorandum prepared by the Division of Economic and Risk Analysis (“DERA”) to the public comment file, and to seek public feedback on the memorandum. The memorandum analyzes the impact of section 4501 of the Internal Revenue Code of 1986 (the “Internal Revenue Code”)  on the potential economic effects of the proposed rulemaking. Section 4501, which was added to the Internal Revenue Code by the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), imposes upon a covered corporation a non-deductible excise tax equal to 1% of the fair market value of any stock repurchased by the corporation, subject to certain exceptions.
When the Commission initially proposed the Share Repurchase Disclosure Modernization rulemaking on December 15, 2021, the Inflation Reduction Act had not become law. Accordingly, the proposing release’s discussion of the rulemaking’s costs and benefits did not consider the impact that the excise tax would have on the incidence and level of share repurchases. A potential implication of the excise tax is that it might cause companies to decrease their share repurchase activity and to possibly favor dividends (including special dividends) as the preferred method of returning capital to shareholders. Any such decrease in share repurchase activity could, in turn, affect the costs and benefits analysis in the proposing release. To satisfy its statutory rulemaking obligations, the Commission must understand, to the furthest extent possible, the qualitative and quantitative impacts that the excise tax will have on share repurchase activity and the proposed rulemaking’s costs and benefits.
I appreciate the efforts by the DERA staff to address these issues in its memorandum and by the staff of the Divisions of Corporation Finance and Investment Management to prepare the reopening release. While I support the addition of the DERA memorandum to the public comment file and the reopening of the comment period generally, I disagree with the 30-day comment period for the public to provide feedback. This 30-day period is especially problematic when it commences shortly before, and will overlap with, major holidays later this month.
One might ask: what is the purpose of the comment period? Is it merely an item to be checked off to satisfy the lowest acceptable standard of process required by the Administrative Procedures Act? Or is it a vital component of a discussion between an administrative agency and the public in order to better understand the effects of a proposed rule, especially under a changed factual scenario? I believe it is the latter.
A longer period, such as 45 days, would increase the likelihood that the Commission receives more thoughtful responses. Even for commenters who can provide feedback within the 30-day period, they likely would appreciate the additional time to fine tune their analysis, while continuing their regular duties and spending quality time with their family and friends during the holidays.
 See Pub. L. No. 117-169, 136 Stat. 1818, 1828 (2022).
 See 15 U.S.C. 78c(f) (requiring the Commission, whenever it is engaged in rulemaking, to “consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation”) and 15 U.S.C. 78w(a)(2) (requiring the Commission to consider “the impact any [rulemaking] would have on competition” and prohibiting the Commission from adopting any rule that “would impose a burden on competition not necessary or appropriate in furtherance of the purpose of [the Securities Exchange Act of 1934]”).
 See, e.g., National Association of Manufacturers v. SEC, (W.D. Tex.) (Dec. 4, 2022) (stating that the “[c]ourt will not introduce its own policy preferences [over that of the Commission] about what is a ‘meaningful opportunity’ [to comment on a rulemaking proposal]” and denying the plaintiff’s motion for summary judgment that a 31-day comment period covering Christmas and Hanukkah violated the Administrative Procedures Act), available at https://assets.law360news.com/1555000/1555037/https-ecf-txwd-uscourts-gov-doc1-181129330034.pdf.