Summary
On May 3, 2022, the Securities and Exchange Commission (SEC) adopted final rules to modernize disclosure requirements relating to the repurchase by issuers of equity securities that are registered under the Securities Exchange Act of 1934. The new amendments will require tabular disclosure of an issuer’s daily repurchase activity during the prior quarter or six-month period, depending on the issuer’s reporting obligation, and add a new checkbox that must be checked if directors or officers traded in the issuer’s securities within four business days before or after the public announcement of an issuer’s repurchase program.
The Upshot
- The amendments will require issuers to disclose (1) the objectives and rationales for its share repurchases, and (2) any policies relating to purchases and sales of securities during a repurchase program.
- The amendments will add new Item 408(d) of Regulation S-K to require quarterly disclosures about an issuer’s adoption and termination of Rule 10b5-1 trading arrangements, including date of adoption or termination, duration of the plan, and aggregate number of shares to be purchased or sold pursuant to the arrangement.
- In a significant change from the proposed rules, the SEC is not requiring a next-business-day filing obligation for share repurchases.
The Bottom Line
We recommend issuers review their existing processes for share repurchases, including whether to adopt separate policies governing the purchase or sale of shares by directors and officers in light of new disclosures about the timing of purchases or sales. Issuers should carefully consider any statements made about the objectives and rationale regarding share repurchases, as the SEC has stated it expects issuers to avoid “boilerplate” reasoning, and suggested more analysis, for example, that issuers compare the use of issuer funds for repurchases with other possible uses, such as investments or capital expenditures.
On May 3, 2023, the SEC adopted amendments relating to disclosures of an issuer’s share repurchases. The amendments will require issuers to (a) disclose daily repurchase activity quarterly or semiannually, depending upon the issuer’s reporting obligations; (b) indicate via a checkbox if Section 16 directors or officers traded in the issuer’s securities within four business days before or after the public announcement of an issuer’s repurchase plan; (c) provide narrative disclosure about repurchase programs in the issuer’s periodic reports; and (d) disclose quarterly, via a Form 10-K or Form 10-Q, the issuer’s adoption and termination of 10b5-1 trading arrangements.
The new amendments will require tabular disclosure of an issuer’s daily repurchase activity during the prior quarter. Listed Closed-End Funds will be required to disclose daily quantitative repurchase data in semiannual and annual reports on Form N-CSR, and foreign private issuers (FPI) on the FPI forms at the end of every quarter in new Form F-SR. The tabular disclosure will require an issuer to disclose the following information regarding share repurchases:
- Class of shares repurchased, and the date of repurchase;
- Number of shares repurchased, including the total number of shares purchased as part of a publicly announced plan;
- Average price paid per share;
- Number of shares purchased on the open market;
- Aggregate maximum number of shares (or approximate dollar value) that may yet be purchased under an issuer’s publicly announced plan;
- Number of shares purchased that qualify for the Rule 10b-18 safe harbor; and
- Number of shares purchased pursuant to a plan that satisfies the affirmative defense conditions of Rule 10b5-1(c).
The amendments also replace and eliminate the current reporting requirements in Regulation S-K, Form 20-F, and Form N-CSR regarding monthly repurchase data in periodic reports.
Issuers will be required to include a checkbox preceding the tabular disclosures, to indicate whether Section 16 directors and officers purchased or sold shares subject to a share repurchase plan within four business days before or after the announcement of that plan.
In addition to requiring tabular disclosures, the amendments also expand the narrative disclosures for share repurchases under Regulation S-K, Form 20-F and Form N-CSR to require an issuer to disclose: (1) objectives or rationales for each repurchase plan and the process used to determine the amount of repurchases; (2) the number of shares purchased other than through a publicly announced repurchase plan; and (3) any policies relating to the purchase and sale of its securities by its directors and officers during a repurchase program, including any restriction on such transactions.
If an issuer’s repurchase plan or program is publicly announced, the disclosure must also state: (a) the date each plan or program was announced; (b) the dollar amount (or share amount) approved; (c) the expiration date of each program; (d) each plan that expired during the period covered by the table; and (e) each plan the issuer has determined to terminate prior to expiration, or under which the issuer does not intend to make further purchases. This information is already required to be disclosed under the current rules.
On December 15, 2022, the SEC adopted amendments to Rule 10b5-1, including adding disclosure requirements to the use of preplanned trading arrangements by an issuer’s directors and officers. As with the amendments to Rule 10b5-1, an issuer will be required to disclose the date on which it adopted or terminated a Rule 10b5-1 trading plan, duration of the plan, and aggregate number of shares to be purchased or sold pursuant to the arrangement. However, issuers will not be required to disclose information about the adoption or termination of any trading arrangement for the purchase or sale of securities of the issuer that meets the requirements of a non-Rule 10b5-1 trading arrangement.
The final rules will become effective 60 days following publication of the adopting release in the Federal Register.
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