On November 22, 2023, the U.S. Securities and Exchange Commission (SEC) issued an order postponing the effective date of its previously adopted new rules1 governing the disclosure requirements concerning repurchases of an issuer's equity securities, commonly referred to as share "buyback" or repurchase programs (Repurchase Rules). As we discussed in our May 2023 bulletin, the rules apply to all issuers that have securities listed on a U.S. national securities exchange or otherwise have a class of equity securities registered under Section 12 of the U.S. Securities Exchange Act of 1934, as amended (Exchange Act), other than Canadian issuers reporting under the multijurisdictional disclosure system (MJDS).

Repurchase Rules as previously adopted

Under the Repurchase Rules:

  • Non-MJDS foreign private issuers (FPIs) would be required to disclose the daily quantitative share repurchase information quarterly on a new Form F-SR beginning with the first full fiscal quarter commencing on or after April 1, 2024, and would be required to provide narrative disclosures regarding share buyback programs starting in the first Form 20-F filed after their first Form F-SR has been filed.
  • Non-FPI issuers that report with the SEC as U.S. domestic companies would be required to include the quantitative data as an exhibit to, and provide the narrative disclosure in, their Forms 10-K and 10-Q for the first full fiscal quarter beginning on or after October 1, 2023.

Repurchase Rules stayed, pending further SEC action

Following adoption of the Repurchase Rules, the U.S. Chamber of Commerce, Texas Association of Business and Longview Chamber of Commerce commenced a lawsuit challenging the Repurchase Rules under the Administrative Procedures Act (APA). On October 31, the U.S. Court of Appeals for the Fifth Circuit (the Court) declined the petitioners' request to vacate the Repurchase Rules but remanded the rules to the SEC to correct specified defects by November 30, 20232. The Court concluded, among other things, that the SEC had not adequately substantiated its grounds for adopting the Repurchase Rules, including by not conducting an adequate quantitative analysis of the economic impact of the rules.

In light of the Court's decision, the SEC issued an order on November 22 postponing the effective date of the Repurchase Rules3. As a result, the Repurchase Rules are stayed pending further action by the SEC to cure the above-mentioned defects, including by completing a quantitative economic analysis necessary to substantiate its grounds for implementation of the new rules under the APA. Accordingly, until the above-mentioned defects are cured and the stay is lifted, FPIs will not be required to file quarterly share repurchase reports on Form F-SR and include narrative disclosures on Form 20-F, and U.S. domestic companies will not be required to report share repurchases or narrative disclosures on Forms 10-K and 10-Q.

Torys will monitor developments with respect to the Repurchase Rules. For example, the Court might not accept the SEC's additional analysis under the APA. Such an outcome would further delay effectiveness of the Repurchase Rules. It also remains possible that when the stay is lifted, the SEC could modify the reporting and disclosure requirements from those currently contemplated under the existing Repurchase Rules. All that said, there is also potential for the defects to be corrected and the stay lifted within a relatively short period of time, and so it is possible that issuers may be required to begin providing the required disclosures as currently contemplated in the near future.

Footnotes

1. See Final Rule: Share Repurchase Disclosure Modernization (Release Nos. 34-97424; IC-34906; File No. S7-21-21).

2. See Chamber of Com. of the USA v. SEC, No. 23-60255 (5th Cir. 2023). On November 26, the Fifth Circuit issued an order denying the SEC's request to extend the 30-day period to allow additional time to cure the defects.

3. See SEC, Announcement Regarding Share Repurchase Modernization Disclosure Rule.

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