SEC Adopts Amendments to Share Repurchase Disclosure Requirements

Overview

On May 3, 2023, the U.S. Securities and Exchange Commission (the “SEC”) adopted new enhanced disclosure requirements for issuers’ repurchases of equity securities. The amendments require issuers to provide the following quantitative and qualitative information on a quarterly basis: (1) daily repurchase data in a tabular format; (2) checkbox disclosure indicating whether Section 16 officers and directors in issuer securities in the four business day period before or after the issuer’s public announcement of a repurchase plan or program; (3) enhanced narrative disclosures related to an issuer’s repurchase programs and practices; and (4) disclosure of an issuer’s adoption or termination of a Rule 10b5-1 plan. There are no scaled disclosure accommodations for smaller reporting companies or emerging growth companies.

Corporate issuers who file on domestic forms will be required to comply with the amendments in their first Form 10-Q or Form 10-K filing that covers a full fiscal quarter beginning on or after October 1, 2023, while foreign private issuers (FPIs) filing on FPI forms and listed closed-end funds will be required to comply beginning in 2024.^[1]

Summary of the Amendments

Tabular Disclosure of Daily Repurchase Data

The final rules provide a welcome reprieve from the near real-time disclosure contemplated by the proposing release, electing to require daily repurchase data in an aggregated format presented in an issuer’s periodic reports (or Form F-SR in the case of FPIs). Pursuant to the amendments, an issuer is required to provide the following tabular disclosure for each day on which a share repurchase was executed by or on behalf of the issuer or any affiliated purchaser^[2] of shares (or other units) of any class of the issuer’s registered equity securities:

• the execution date for the share repurchase;
• the class of shares, even if only one class is outstanding;
• the total number of shares purchased, either pursuant to a publicly announced plan or otherwise;
• the average price paid per share, exclusive of commissions or execution costs;
• the total number of shares purchased as part of publicly announced plans;
• the aggregate maximum number of shares, or approximate dollar value, that could in the future be purchased under the publicly announced plans;
• the total number of shares purchased on the open market;
• the total number of shares purchased pursuant to a Rule 10b-18 plan; and
• the total number of shares purchased pursuant to a 10b5-1 plan.

The table will also require footnote disclosure regarding the date any Rule 10b5-1 plan was adopted or terminated.

Corporate issuers who file on domestic forms are required to provide the above information on a quarterly basis in new Exhibit 26 to their Form 10-Q and Form 10-K (for the fourth quarter) filings. FPIs that file on FPI forms are required to provide the above information on a quarterly basis via new Form F-SR, which will be due 45 days following quarter-end. Listed closed-end funds are required to provide the above information in their semi-annual and annual filings on Form N-CSR. 

Checkbox Disclosure of Trading Activities of Section 16 Officers and Directors

The amendments also require inclusion of a checkbox above the repurchase data table indicating whether any Section 16 officer or director (or, in the case of FPIs, the directors or senior management members identified in Item 1 of their Form 20-F) purchased or sold shares of the issuer’s equity securities that are the subject of a share repurchase plan in the four business days preceding and following the announcement of the share repurchase plan or any expansion thereof.

Issuers can rely on a Section 16 reporting person’s disclosures on Forms 3, 4 and 5 or on a written representation from the reporting person to determine whether or not to check the box, unless they know or have reason to believe there is a discrepancy with the reports.

Narrative Disclosure of Repurchase Programs and Practices

In addition to requiring quantitative tabular disclosure, the amendments revise Item 703 of Regulation S-K, Form 20-F and Form N-CSR to impose additional qualitative narrative disclosure of the issuer’s repurchase programs and practices.  The new narrative requirements ask issuers to provide a discussion of (i) their objectives or rationales behind each share repurchase plan or program and process and the criteria utilized in order to set the amount of repurchases, and (ii) their policies and procedures related officers’ and directors’ transactions in issuer securities concurrent with a repurchase program (including any restrictions thereof).

Additionally, the amendments eliminate the monthly repurchase table currently required by Item 703 in light of the new daily repurchase table.  However, the disclosure previously required to be provided via footnote to the monthly repurchase table will now be required in the narrative discussion for the Item.

Disclosure of Adoption or Termination of Rule 10b5-1 Trading Arrangements

Recently, the SEC adopted rules revamping the Rule 10b5-1 trading regime and mandating related disclosures, including disclosure regarding officers’ and directors’ adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements (for more information see our client alert).  When the SEC adopted the new 10b5-1 rules, it elected to postpone requiring corresponding disclosure regarding an issuer’s adoption or termination of such plans in order to take into account “additional considerations.”  In connection with the share repurchase amendments, the SEC determined that an issuer should provide equivalent disclosure with respect to Rule 10b5-1 plans only.  Accordingly, new Item 408(d) of Regulation S-K requires disclosure of an issuer’s adoption or termination of a Rule 10b5-1 plan as well as related information describing the material terms of the plan other than price, such as:

• The adoption / termination date;
• Duration; and
• Aggregate number of securities to be purchased or sold. 

Moreover, the SEC has added a note to Item 408(d)(1) enabling issuers to cross-reference the disclosure provided pursuant to Item 703 if such disclosure will satisfy the Item 408(d)(1) requirements.  Issuers will not be required to disclose information regarding their adoption or termination of “non-Rule 10b5-1 trading arrangements” as such term is defined in Item 408(c).

Inline XBRL Tagging

New Exhibit 26 and the information disclosed pursuant to Item 703 of Regulation S-K, Item 16E of Form 20-F, Item 14 of Form N-CSR, and Form SR is required to be tagged using inline XBRL.

Recommendations

Most calendar year-end companies will not need to include the new share repurchase disclosures in filings until their Form 10-K for the year ending December 31, 2023. However, issuers should be preparing in advance for the upcoming rule changes by:

• reviewing and discussing the amendments with their boards and officers;
• establishing disclosure controls and procedures designed to implement the new requirements, including:
  • organizing a process for tracking daily repurchases (including by affiliated purchasers) and aggregating them in the new exhibit format;
  • recording in minutes the board’s rationales and objectives when adopting or amending a new share repurchase plan;
  • documenting the adoption / termination dates for Rule 10b5-1 plans;
  • reviewing Section 16 filings / obtaining a written representation from the reporting person that no Form 5 is required in advance of Form 10-Q / Form 10-K deadlines;
• evaluating their policies and procedures related to director and officer trading near-in-time to the adoption or amendment of share repurchase plans; and
• building in extra time in their filing calendar to prepare and tag the new disclosure and tweak existing disclosure into narrative form.

FPIs and listed closed-end funds should also engage with the new rules as soon as possible in order to establish the necessary disclosure controls and procedures in advance of their applicable compliance deadline.