December 28, 2021
I believe the proposed Share Repurchase Disclosure Modernization rule, as currently presented, is NOT going to realize its intended effect of improving information symmetry and benefitting the entire investor community. Principally, because of its daily filing requirement, I have three primary areas of concern regarding the proposed rule: (1) it imposes significant compliance costs and unreasonable, unfair daily reporting requirements, (2) it will create an avalanche of daily filings and white noise that will confuse and NOT provide helpful, relative perspective to investors, and (3) perhaps most importantly, it will create an opportunity for significant front-running and potential market manipulation by high frequency trading platforms that would definitely disadvantage the small investor.
As it relates to Concern 1, the daily filing deadline will require Issuers to bear a significant amount of incremental time and costs to comply. Indeed, the SEC estimates of 1.5 hours per day to assemble the information and make the filing. Additional systems or applications may also be required to insure timely compliance. Finally, the requirement to disclose daily purchase information to the marketplace is a burden that no other investor, small individual or large institution, is required to make, which raises a significant fairness issue.
As it relates to Concern 2, the daily filings will create a massive amount of information that will flood into the markets. Each new filing represents a single day's transaction that is unlikely to be incremental to an investor's investment decision. Over time, the daily flood of information is more likely to have a numbing effect on investors rather than provide useful information to evaluate, analyze, and compare the underlying security.
As it relates to Concern 3, the filing of daily information referencing the previous day's trading activity (price volume) will create a trading imprint that could be used by high frequency traders to front-run future orders and manipulate the underlying security price. Armed with price and volume information (from one to two days prior), High frequency traders will be able to create algorithms that could disrupt the normal price discovery process of the marketplace.
Despite these areas of concern, I believe a reasonable change in filing frequency could provide a solution that will benefit the investment community. A MONTHLY filing representing a calendar month's worth of repurchase activity (price, volume, etc.) will likely prove more incrementally relevant to investors, reduce the trading imprint/roadmap disclosed to the market participants, and significantly improve the real-time disclosure of an Issuer's repurchase activity. Furthermore, under Item 703, Issuers are currently required to provide monthly tabular buyback data in their periodic filings, so this requirement should not result in any significant incremental costs.