The Business Roundtable
Mr. Jonathan G. Katz
Re: Release No. 33-8160, Comments on Proposed Rule: Rule 10b-18
Dear Mr. Katz:
The following comments are submitted on behalf of The Business Roundtable, an association of chief executive officers of leading corporations with a combined workforce of more than 10 million employees in the United States and $3.7 trillion in annual revenues. The chief executives are committed to advocating public policies that foster vigorous economic growth, a dynamic global economy, and a well-trained and productive U.S. workforce essential for future competitiveness. We appreciate the opportunity to provide you with our views on a recent Securities and Exchange Commission (the "Commission") proposal to amend Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and require disclosure of issuer repurchases.
The Roundtable applauds the Commission's efforts to update the Rule 10b-18 safe harbor. The Commission's proposed simplification of the manner of purchase and price conditions would make the safe harbor more straightforward and easier to apply, and the proposed modification to the timing condition is an appropriate change for issuers with actively traded securities and larger public floats. We also support the Commission on the addition of an alternative volume condition. The proposed amendments fittingly reflect changes in the marketplace that have occurred since Rule 10b-18 was adopted and last revised.
We believe that it is appropriate to provide public disclosure regarding issuer repurchases in cases where such information is material to investors. The Proposing Release, however, would require issuers to disclose all repurchases of registered securities, including the number of shares purchased, the average price paid per share and the identity of broker-dealers used, as well as additional information relating to publicly announced repurchase plans. Issuers would be obligated to disclose this repurchase information in their quarterly and annual reports in the form of a table and several footnotes, regardless of its materiality. Such a far-reaching requirement to disclose every repurchase is unnecessary, burdensome and would provide information that is not meaningful to investors.
On previous occasions, the Commission has addressed disclosure requirements relating to issuer repurchases and found them to be unnecessary. See Release No. 34-17222 (October 17, 1980); Release No. 34-19245 (November 17, 1982). It determined that an issuer's obligation to disclose information concerning repurchases should depend on whether the information is material. While the proposing release notes that disclosure requirements relating to issuer repurchases have previously been considered and rejected, it does not present an adequate rationale for why such information should be required if it is not material. Moreover, the recently adopted revisions to the Commission's rules under Section 16 of the Exchange Act already require immediate reporting of repurchase transactions with senior executives, directors and greater than 10 percent shareholders. Thus, the additional disclosure of such transactions in quarterly and annual reports is not necessary. Further, information as to aggregate repurchases is available in the statements of shareholders' equity already required as part of each issuer's annual financial statements, and most public companies discuss aggregate repurchases in the liquidity and capital resources section of their Management's Discussion and Analysis.
We also note our concern with the Commission's proposal to make the Rule 10b-18 safe harbor unavailable to issuers from the time a merger or acquisition is publicly announced to the time the transaction is completed. The concern advanced by the Commission, that during this period "an issuer has considerable incentive to support or raise the price of its stock," does not seem to be a sufficient basis for the ban, as Regulation M already prohibits repurchases during merger pricing periods.
For these reasons, we suggest that the Commission (i) not adopt the proposed amendments to require additional mandatory disclosure of information relating to repurchases, and instead maintain the current materiality standard under Rule 10b-18, and (ii) not make the Rule 10b-18 safe harbor unavailable during the entire period from the public announcement of a merger to its completion.
We appreciate your consideration of these comments, and we would be happy to discuss these matters further or to meet with you if it would be helpful.
cc: William H. Donaldson - Chairman, U.S. Securities and Exchange Commission