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Even If Enacted, Financial CHOICE Act May Not Repeal SEC’s Pay Ratio Rule

While prognosticators continue to place odds on whether the Financial CHOICE Act of 2017, H.R. 10, will be enacted, many commentators are claiming that it will “repeal” the Securities and Exchange Commission’s pay ratio rule.  Even if H.R. 10 is enacted, I’m not so sure that it would “repeal” the pay ratio rule.

It is certainly true that Section 857(a)(24) of H.R. 10 specifically repeals Section 953(b) of the Dodd Frank Wall Street Reform and Consumer Protection Act, H.R. 4173.  Section 953(b) in turn directs the SEC to amend Item 402 of Regulation S-K to require pay ratio disclosure.  So why wouldn’t H.R. 10 repeal the pay ratio disclosure rule?  My concern is that while H.R. 10 eliminates the requirement that the SEC adopt the pay ratio rule, it does not expressly repeal the rule or the authority of the SEC to adopt the rule.  Although the SEC adopted the pay ratio rule to implement Congress’ mandate, it did not rest its authority solely on Section 953(b).  It also relied upon  Sections 7, 10 19(a), and 28 of the Securities Act, Sections 3(b), 12, 13, 14, 15(d) 23(a), and 36(a) of the Exchange Act.  The SEC could, of course, decide to repeal the pay ratio rule.  A repeal may not be immediate because the Administrative Procedure Act would require the SEC to provide notice and an opportunity for comment on the repeal.  5 U.S.C. § 553 (The APA defines “rulemaking” as the “process for formulating, amending, or repealing a rule”.)  It is possible, however, that the SEC would invoke the APA’s “good cause” exception.  However, this would require the SEC to find that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. 5 U.S.C § 553(b)(3)(B).  Given the APA’s failure to define “good cause”, proponents of the pay ratio rule may challenge the SEC’s decision in the federal courts.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume VII, Number 180
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

949-851-5428
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