patron -
quote.bloomberg.com
"09/14 20:20
SEC Adopts Temporary Rules for Stock-Market Opening (Update2)
By Neil Roland, Judy Mathewson, and Vicky Stamas
Washington, Sept. 14 (Bloomberg) -- The Securities and Exchange Commission adopted temporary rules that seek to keep stocks from plummeting when U.S. markets open Monday 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 U.S. stock and bond markets, for the first time used congressionally granted emergency authority to temporarily change its normal rules to respond to a crisis.
``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 U.S. 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.
Avoiding `Downdraft'
``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.
Repurchases Demonstrate Confidence
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.
Other Changes
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 U.S. markets are set to be back in business Monday at 9:30 a.m. 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.
Buyback Flexibility
`We're pleased to see that flexibility'' created by the SEC action on buyback rules, said Joseph A. 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 $3 billion of stock over the next two years.
At least 20 U.S. companies followed today with announcements about new, expanded, or continued buybacks.
H&R Block Inc., the world's largest tax preparer, today said the company had new authority to buy back 15 million common shares, on top of a 12 million-share buyback authorized last year. Kansas City-based H&R Block said the repurchase wasn't prompted by this week's catastrophe, though it acknowledges that it may prove helpful on Monday.
Pressure on Stock
``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.''
Traders saw a demonstration of a buyback's impact a day after trading was halted on Oct. 27, 1997, when the Dow Jones Industrial Average fell 554 points. International Business Machines announced a $3.5 billion buyback authorization on Oct. 28, and the Dow Index rose 337 points that day.
Shaw Group Inc., a Baton Rouge, Louisiana-based power-plant builder, issued a statement saying it may buy back as much as $100 million of stock ``to demonstrate our confidence in this country's financial markets.''
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.
``We've done it on a defensive basis so that if something negative should happen in our stock, we'll be able to maintain orderly trading,'' said Stephen L. Way, chairman and chief executive. ``I really don't think it is going to happen this time, but if it does, we'll be ready to go.'' "
©2001 Bloomberg L.P. All rights reserved
...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. ...
IOW, feel free to paint the tape at the close.
...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. ...
Thus either the published NAVs will overstate the value of the funds by ignoring the debt or the parent companies are encouraged to take on debt that may threaten their survival.
Regards, Don |
