The Securities and Exchange Commission adopted temporary rules that seek to keep stocks from plummeting when US markets open today after a terrorist attack on New York wiped out four days of trading.
The five-day emergency rules let public companies repurchase stock without following limits on how many shares they can buy or restrictions forbidding buybacks at the beginning or end of a trading day. The SEC, which polices US stock and bond markets, for the first time used congressionally granted emergency authority to temporarily change its normal rules to respond to a crisis.
PHOTO: AP
"This will make it easier for companies to buy at a tense time when there are concerns that the markets may decline," said Stuart Kaswell, general counsel for the Securities Industry Association, a brokerage trade group.
The SEC, under new Chairman Harvey Pitt, acted to help get US markets back on their feet after devastation in New York's financial district, where bond broker Cantor Fitzgerald LP lost around 700 workers and Morgan Stanley Dean Witter & Co lost 22 floors of offices when the World Trade Center's landmark 110-story towers collapsed.
Using for the first time its emergency authority to temporarily change rules, the SEC's rule package also would let mutual funds borrow money from affiliated banks so that, if mutual fund investors rush to redeem shares, fund companies can pay them without being forced to sell stock.
"They're worried that people are going to come in after this terrible national catastrophe and all want to sell everything," said Marianne Smythe, former head of the SEC's investment management division and a lawyer at the Wilmer, Cutler & Pickering firm. "If you can borrow the money" to pay for fund redemptions, "then you are not going to have to go into the marketplace and sell securities and just add to the downdraft."
The SEC's action suspended for next week restrictions that limit company stock buybacks to 25 percent of a day's small trades. It also exempts companies from a rule saying that a company buyback can't be the first reported trade of the day and can't occur during the last 30 minutes of trading.
Some of the changes are aimed at solving technical or administrative issues, such as making sure accountants aren't charged with auditor independence violations if they help clients put back together records lost after two hijacked airliners were flown by terrorists into the World Trade Center's towers.
Independence rules normally forbid auditors from helping to prepare company records they will later audit.
Under the changes, companies for five days also can repurchase shares without running afoul of accounting rules that could force a large write-off if buybacks occur close to the time of a stock-swap merger. Having companies prepared to buy their own stock can help demonstrate confidence in a company and markets and can provide a ready buyer to bolster a stock's price if sell orders surge, experts said.
"Repurchases can be a source of liquidity for the market," SEC General Counsel David Becker said. "We want to prevent a situation where there are serious order imbalances."
Becker said he doesn't expect stocks to fall dramatically Monday, though he said companies have told the SEC that they find the temporary rules "extremely useful."
He also said he doesn't expect the SEC to extend the rules beyond next week.
"What you're seeing is a quiet, responsible response to an extraordinarily staggering national tragedy which hit the financial community with particular force," said Joel Seligman, dean of the Washington University law school in St. Louis.
The rules also would let brokerages calculate net capital without considering the four days the market was closed; let mutual funds borrow from and lend to "related parties," and relax a requirement for in-person meetings of mutual fund boards.
The SEC's unprecedented action follows moves by Congress, in 1990 and 1996, that gave the agency power to "summarily" take emergency action to "maintain or restore fair and orderly securities markets" and to grant exemptions from SEC rules.
"This is like a magic wand-type of provision," Seligman said. "You can do anything you want, with very few restrictions."
Unless trading systems fail during a Saturday test, the New York Stock Exchange, the NASDAQ Stock Market, and other US markets are set to be back in business Monday at 9:30am. Trading floors have been quiet since terrorists on Tuesday flattened the twin 110-story World Trade Center towers and forced the evacuation of Manhattan's financial district.
In public comments this week, Pitt talked about easing repurchase restrictions as a way to provide stability in the markets.
"We're pleased to see that flexibility" created by the SEC action on buyback rules, said Joseph White, chief financial officer at Insituform Technologies Inc. "That should give more reassurance to the market."
Chesterfield, Missouri-based Insituform, which repairs tunnels and pipelines, added 1 million shares to its existing 1.5 million-share repurchase authorization in a bid to soothe investors, White said.
Cisco Systems Inc, the largest maker of computer-networking equipment, yesterday said its board had authorized the repurchase of as much as US$3 billion of stock over the next two years.
At least 20 US companies followed Friday with announcements about new, expanded, or continued buybacks.
H&R Block Inc, the world's largest tax preparer, said the company had new authority to buy back 15 million common shares, on top of a 12 million-share buyback authorized last year.
"The timing could not have been better," said investor relations director Mark Barnett. "As a result of this authorization we're in an excellent position to support our shareholders in the event we would see a lot of pressure on our stock."
HCC Insurance Holdings Inc, a property and casualty insurer that expects some claims related to the World Trade Center's destruction, also said it's ready to repurchase 3 million shares, just in case.
DEFENDING DEMOCRACY: Taiwan shares the same values as those that fought in WWII, and nations must unite to halt the expansion of a new authoritarian bloc, Lai said The government yesterday held a commemoration ceremony for Victory in Europe (V-E) Day, joining the rest of the world for the first time to mark the anniversary of the end of World War II in Europe. Taiwan honoring V-E Day signifies “our growing connections with the international community,” President William Lai (賴清德) said at a reception in Taipei on the 80th anniversary of V-E Day. One of the major lessons of World War II is that “authoritarianism and aggression lead only to slaughter, tragedy and greater inequality,” Lai said. Even more importantly, the war also taught people that “those who cherish peace cannot
STEADFAST FRIEND: The bills encourage increased Taiwan-US engagement and address China’s distortion of UN Resolution 2758 to isolate Taiwan internationally The Presidential Office yesterday thanked the US House of Representatives for unanimously passing two Taiwan-related bills highlighting its solid support for Taiwan’s democracy and global participation, and for deepening bilateral relations. One of the bills, the Taiwan Assurance Implementation Act, requires the US Department of State to periodically review its guidelines for engagement with Taiwan, and report to the US Congress on the guidelines and plans to lift self-imposed limitations on US-Taiwan engagement. The other bill is the Taiwan International Solidarity Act, which clarifies that UN Resolution 2758 does not address the issue of the representation of Taiwan or its people in
Taiwanese Olympic badminton men’s doubles gold medalist Wang Chi-lin (王齊麟) and his new partner, Chiu Hsiang-chieh (邱相榤), clinched the men’s doubles title at the Yonex Taipei Open yesterday, becoming the second Taiwanese team to win a title in the tournament. Ranked 19th in the world, the Taiwanese duo defeated Kang Min-hyuk and Ki Dong-ju of South Korea 21-18, 21-15 in a pulsating 43-minute final to clinch their first doubles title after teaming up last year. Wang, the men’s doubles gold medalist at the 2020 and 2024 Olympics, partnered with Chiu in August last year after the retirement of his teammate Lee Yang
The Philippines yesterday criticized a “high-risk” maneuver by a Chinese vessel near the disputed Scarborough Shoal (Huangyan Island, 黃岩島) in a rare incident involving warships from the two navies. The Scarborough Shoal — a triangular chain of reefs and rocks in the contested South China Sea — has been a flash point between the countries since China seized it from the Philippines in 2012. Taiwan also claims the shoal. Monday’s encounter took place approximately 11.8 nautical miles (22km) southeast” of the Scarborough Shoal, the Philippine military said, during ongoing US-Philippine military exercises that Beijing has criticized as destabilizing. “The Chinese frigate BN 554 was
RSS