In April, the SEC took one of its first steps to revise the rules governing public company disclosures and transactions, when it issued an exemptive order permitting certain all-cash tender offers for equity securities to close in as few as 10 business days, rather than the minimum of 20 business days specified in the rules. (You can find out more about this exemptive order in our Alert on the subject.)
The change makes a lot of sense, and I don’t want to let the perfect be the enemy of the good, but the method by which the SEC effected this reform is somewhat troubling. Specifically, I’d have preferred to see the change reflected in the rules themselves, rather than using the exemptive order process.
You may ask “why do you care?” It’s pretty simple (or, if you prefer, simple-minded). One of the first things we do – or should do – when advising a client is to check the rules. So if a client inquired how long an issuer tender offer has to stay open, we’d check the rules and find that the offer would have to stay open for 20 business days. If we know about the exemptive order and remember it while we’re trying to get a million other things done, great. But if we missed reading about the order or just didn’t recall it at the time, the text of the rules wouldn’t give us a hint that they’d been modified by exemptive order, and we’d end up giving the client the wrong information.
I understand that rulemaking is a pain in the neck. It’s a very cumbersome process with lots of technical requirements, and plaintiffs have used mistakes – sometimes minor mistakes that are the regulatory equivalent of foot faults – to invalidate rules. Rulemaking also means subjecting proposed rules and rule changes to public comment, and even in a case like this someone is bound to object, which makes the process even more cumbersome.
But at the end of the day, incorporating reforms into the text of the rules themselves makes it easier for practitioners and others and minimizes the risk of inconsistencies along the way. Moreover, given the stated goal of SEC Chair Atkins to make his regulatory reforms “future-proof,” it seems to me that requiring a future Commission to go through a cumbersome process to reverse reforms would help to achieve that goal.
I recognize that we live in an era of legislation by executive order and regulation by social media posting. However, that tends to create confusion or worse. So, even if the end in this case justifies the means, I wish it were otherwise.