United States: SEC Adopts Amendments Requiring Additional Disclosures About An Issuer's Share Repurchases

On May 3, 2023, the Securities and Exchange Commission (the SEC) adopted amendments that increase the amount of disclosure an issuer must provide regarding its repurchases of its equity securities that are registered under the Securities Exchange Act of 1934 (the Exchange Act).¹ The amendments will, among other things, (1) require an issuer to report additional detail regarding its share repurchases (which will need to be aggregated on a daily basis and disclosed quarterly), (2) revise and expand the existing periodic disclosure requirements about issuer repurchases, and (3) add new quarterly disclosure requirements in Form 10-K and 10-Q filings regarding an issuer's adoption or termination of certain Rule 10b5-1 trading arrangements.

The amendments will become effective 60 days after publication of the Adopting Release in the Federal Register. Information about key compliance dates is provided in the section below titled "Effective Date and Compliance Dates."

Amendments At-a-Glance

• Tabular Disclosure of Daily Repurchase Activities for Exchange Act Registrants on New "Exhibit 26":Issuers that file Forms 10-K and 10-Q will be required to disclose certain share repurchase data aggregated on a daily basis (along with other information) in a specified tabular format after the end of each quarter in a new "Exhibit 26" to their Form 10-K and 10-Q filings.
  - Tabular Disclosure of Daily Repurchase Activities for Foreign Private Issuers on New Form F-SR: Foreign Private Issuers (FPIs) reporting on the FPI forms will be required to disclose certain share repurchase data aggregated on a daily basis (along with other information) in a specified tabular format after the end of each quarter on the new Form F-SR, which will be required to be filed by 45 days after the end of each fiscal quarter of the FPI.
  - "Checkbox" Disclosure Regarding Timing Between Director and Officer Repurchases and Issuer Repurchase Plan Announcements: Issuers must include a checkbox above its tabular disclosures on "Exhibit 26" and Form F-SR indicating whether any of its officers or directors who file Section 16 reports (or, for FPIs, any of its directors or members of senior management who would be identified pursuant to Item 1 of Form 20-F) purchased or sold shares that are registered pursuant to Section 12 of the Exchange Act and subject of an issuer share repurchase plan or program within four business days before or after (1) the issuer's announcement of that repurchase plan or program or (2) the announcement of an increase of an existing plan or program.
  - Additional Narrative Disclosure Regarding Share Repurchase Programs: Under revised Item 703 of Regulation S-K, issuers must include in their Form 10-K and 10-Q filings (or Form 20-F filings in the case of FPIs reporting on the FPI forms) additional new narrative disclosures regarding (1) the objectives or rationales for its share repurchase plans or programs and the process or criteria used to determine the amount of repurchases and (2) any policies and procedures relating to purchases and sales of the issuer's securities by its officers and directors during a repurchase program, including any restrictions on such transactions by such directors and officers.
  - Disclosure About Issuer Adoption or Termination of Rule 10b5-1 Trading Arrangements: Under new Item 408(d) of Regulation S-K, issuers must include in their Form 10-K and 10-Q filings new disclosures about the issuer's adoption or termination of any "Rule 10b5-1 trading arrangement" (i.e., a plan intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)), similar to recently adopted rules requiring disclosure about the adoption or termination of Rule 10b5-1 trading arrangements by directors and certain officers. However, unlike the rules regarding directors and officers, this new Item 408(d) will not require issuers to disclose information about the issuer's adoption or termination of a "non-Rule 10b5-1 trading arrangement."

Background

In 2003, the SEC adopted Item 703 of Regulation S-K² to require issuers to disclose in their Form 10-K and 10-Q filings certain information, aggregated on a monthly basis, regarding purchases made by or on behalf of the issuer or any affiliated purchaser during the most recently completed quarter of shares of any class of the issuer's equity securities registered under Section 12 of the Exchange Act. Similar disclosure has been required by Item 16E of Form 20-F on an annual basis for FPIs that report on the FPI forms.

These existing disclosure requirements apply to both open market and private transactions and require issuers to disclose in tabular format the number of shares repurchased on a monthly basis, the average price paid, the number of shares purchased as part of a publicly announced plan, and the maximum number/dollar value of shares that may yet be repurchased under such publicly announced plan. Existing Item 703 also requires disclosure about certain key terms of all of the issuer's publicly announced repurchase plans or programs.

The SEC's new rule amendments will significantly expand the amount of information that issuers are required to disclose about their share repurchase activities and share repurchase plans and programs. In adopting these amendments, the SEC noted in the Adopting Release that:

While the SEC also modified through the Adopting Release certain disclosure requirements applicable to registered closed-end investment management companies that are exchange traded, this Client Alert only discusses the rule changes applicable to entities that file Forms 10-K and 10-Q and FPIs that report on the FPI forms. A summary of those key disclosure requirement changes is set forth below.

Key Changes

1. Tabular Disclosure of Share Repurchase and Other Data Aggregated on a Daily Basis (and Related "Checkbox" Disclosure about Timing of Director and Officer Repurchases)

Among the most significant changes is the requirement for issuers to disclose a significantly expanded amount of share repurchase data aggregated on a daily basis in a specified tabular format. Issuers that file Forms 10-K and 10-Q will need to make these disclosures on a new "Exhibit 26" to their Forms 10-K and 10-Q,³ and FPIs reporting on the FPI forms will need to make these disclosures on a new Form F-SR. These new disclosure requirements replace the existing requirements in current Item 703(a) of Regulation S-K and Item 16F of Form 20 that require issuers to disclose certain repurchase data aggregated on a monthly basis in their periodic reports. As discussed above, the SEC noted in the Adopting Release that its shift from disclosure aggregated on a monthly basis to disclosure aggregated on a daily basis comes from the SEC's concern that the existing disclosure requirements failed to provide investors with enough detail to draw informed conclusions about the purposes and effects of many repurchases. However, in a welcome change from the SEC's originally proposed rule amendments, the SEC is not requiring issuers to provide daily repurchase disclosures within one business day after their share repurchases on a previously proposed new Form SR (similar to Form 4 filings), and is instead requiring only that the disclosures be made after the end of each quarter.

The final amendments provide that:

• Issuers that file Forms 10-K and 10-Q must file, in a specified tabular format, a new "Exhibit 26" to those reports disclosing, for the period covered by the report (or the issuer's fourth fiscal quarter, in the case of a Form 10-K), the total purchases made each day by or on behalf of the issuer or any "affiliated purchaser" of any shares of any class of the issuer's equity securities registered by the issuer pursuant to Section 12 of the Exchange Act; and
• FPIs that have a class of equity securities registered pursuant to Section 12 of the Exchange Act and that do not file Forms 10-K and 10-Q (i.e., that report on the FPI forms) must file within 45 days after the end of each fiscal quarter a Form F-SR disclosing, for the fiscal quarter covered by the form and as specified by the form, the aggregate purchases during each day made by or on behalf of the issuer or any "affiliated purchaser" of any shares of any class of the issuer's equity securities registered by the issuer pursuant to Section 12 of the Exchange Act.⁴

The "Exhibit 26" and Form F-SR tabular disclosures will need to disclose:

• The date on which the purchase of shares is executed;
• The class of shares purchased;
• The total number of shares purchased on such date (which includes all shares purchased by or on behalf of the issuer or any affiliated purchaser, regardless of whether made pursuant to publicly announced repurchase plans or programs);
• The average price paid per share (reported in US dollars and excluding brokerage commissions and other costs of execution);
• The total number of shares purchased on such date as part of publicly announced repurchase plans or programs;
• The aggregate maximum number of shares (or approximate dollar value) that may yet be purchased under the publicly announced repurchase plans or programs;
• The total number of shares purchased on such date on the open market (which includes all shares repurchased by the issuer in open-market transactions and does not include shares purchased in tender offers, in satisfaction of the issuer's obligations upon exercise of outstanding put options issued by the issuer, or other transactions);
• The total number of shares purchased on such date that are intended by the issuer to qualify for the safe harbor in Rule 10b-18;⁵ and
• The total number of shares purchased on such date pursuant to a plan that is intended by the issuer to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Issuers will also be required to disclose, by footnote to the daily repurchase table, the date any plan that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) for the shares disclosed under the last bullet point above was adopted or terminated.

Issuers will also be required to include a checkbox above its tabular disclosures on "Exhibit 26" and Form F-SR indicating whether any of its officers or directors who file Section 16 reports (or, for FPIs, any of its directors or members of senior management who would be identified pursuant to Item 1 of Form 20-F) purchased or sold shares that are registered pursuant to Section 12 of the Exchange Act and subject of an issuer share repurchase plan or program within four business days before or after (1) the issuer's announcement of that repurchase plan or program or (2) the announcement of an increase of an existing plan or program. In determining whether to check the box, issuers filing "Exhibit 26" may rely on a review of Forms 3, 4, and 5 unless the issuer knows or has reason to believe that a form was filed inappropriately or that a form should have been filed but was not, and FPIs filing Form F-SR may rely on written representations from the directors and senior management who would be identified pursuant to Item 1 of Form 20-F provided that the reliance is reasonable.⁶ When checking the box, issuers are not required to identify the individual or individuals whose trades necessitated the checking of the box.⁷

This disclosure will be deemed to be filed with the SEC (rather than furnished)⁸ and will need to be reported using Inline XBRL.

2. Additional Narrative Disclosure Regarding Share Repurchase Programs

The amendments expand the required narrative disclosures about repurchases that issuers that file Forms 10-K and 10-Q will need to include under Item 703 of Regulation S-K in their Form 10-K and 10-Q filings and that FPIs reporting on the FPI forms will need to include in their Form 20-F filings. In the Adopting Release, the SEC noted that these enhanced narrative disclosures work with the new periodic quantitative tabular repurchase disclosures to provide investors with more detailed information to evaluate the issuer's share repurchases and stated its belief that these disclosures will help investors evaluate whether the issuer is engaged in efficient repurchases.

The amendments will require an issuer to disclose the following new information in narrative form with respect to the issuer's repurchases disclosed in the "Exhibit 26" or Form F-SR, as applicable:

• The objectives or rationales for each repurchase plan or program and the process or criteria used to determine the amount of repurchases; and
• Any policies and procedures relating to purchases and sales of the issuer's securities by its officers and directors (or in the case of an FPI reporting on the FPI forms, its director and members of senior management) during a repurchase program, including any restriction on such transactions.

The SEC noted in the Adopting Release that the disclosures regarding the objectives or rationales for the repurchase program should be tailored to the company and should not merely be "boilerplate." The SEC noted that issuers could discuss the factors driving the repurchase, including whether the issuer's stock is undervalued, prospective internal growth opportunities are economically viable, or the valuation for potential targets is attractive, among other factors.

Similar to existing Item 703 of Regulation S-K (and existing Item 16E of Form 20-F), the amendments will also require an issuer to disclose the following information in narrative form with respect to the issuer's repurchases disclosed in the "Exhibit 26" or Form F-SR, as applicable:

• The number of shares purchased other than through a publicly announced plan or program and the nature of the transaction (e.g., whether the purchases were made in open-market transactions, tender offers, in satisfaction of the issuer's obligations upon exercise of outstanding put options issued by the issuer, or other transactions); and

For publicly announced repurchase plans or programs:

• The date each plan or program was announced;
• The dollar amount (or share amount) approved;
• The expiration date (if any) of each plan or program;
• Each plan or program that has expired during the period covered by the table in "Exhibit 26" or Form F-SR; and
• Each plan or program the issuer has determined to terminate prior to expiration or under which the issuer does not intend to make further purchases.

The Item 703 narrative disclosure will also need to refer to the particular repurchases in the table in "Exhibit 26" or Form F-SR, as applicable, that correspond to the different parts of the narrative.

The Item 703 disclosure will need to be reported using Inline XBRL. The new Item 703 disclosure will be triggered only if an issuer had conducted a share repurchase in the prior fiscal quarter.

3. New Item 408(d) Disclosure Concerning Adoption or Termination of Issuer Rule 10b5-1 Trading Arrangements

In December 2022, the SEC adopted rules that, among other things, amended the requirements of the Rule 10b5-1(c) insider trading "safe harbor" and added new Items 408(a) - (c) of Regulation S-K requiring issuers to disclose the use of Rule 10b5-1 plans by directors and certain officers of the issuer.⁹ At that time, the SEC did not adopt proposed rules that would have required corresponding disclosure regarding the use of Rule 10b5-1 trading plans by the issuer of the security. Instead, at that time, the SEC noted that further consideration of the potential application of the disclosure requirement for purchases of equity securities by the issuer was warranted.

In the SEC's May 3, 2023, Adopting Release, the SEC adopted new Item 408(d) of Regulation S-K to add new disclosure requirements regarding an issuer's adoption or termination of any "Rule 10b5-1 trading arrangement" (i.e., any contract, instruction, or written plan for the purchase or sale of securities of the issuer intended to satisfy the affirmative defense conditions of Rule 10b5-1(c)). The SEC indicated it believes these new Item 408(d) disclosures will complement the new disclosure requirements concerning issuer repurchases that the SEC also adopted in the Adopting Release and allow investors to better evaluate issuer repurchases. New Item 408(d) substantially mirrors the disclosure required by existing Item 408(a) of Regulation S-K for any Rule 10b5-1 trading arrangement adopted or terminated by directors or certain specified officers of the issuer during the last fiscal quarter. However, in a change from the rule proposal, new Item 408(d) will not require issuers to disclose information about the adoption or termination by the issuer of any "non-Rule 10b5-1 trading arrangement" (as defined in existing Item 408(c)).¹⁰

Specifically, new Item 408(d) will require issuers to disclose:

• Whether, during its most recently completed fiscal quarter (the issuer's fourth fiscal quarter in the case of an annual report), the issuer adopted or terminated any "Rule 10b5-1 trading arrangement" (as defined above); and
• The material terms of the Rule 10b5-1 trading arrangement (other than terms with respect to the price at which the party executing the Rule 10b5-1 trading arrangement is authorized to trade), such as:

• The date on which the registrant adopted or terminated the Rule 10b5-1 trading arrangement;
• The duration of the Rule 10b5-1 trading arrangement; and
• The aggregate number of securities to be purchased or sold pursuant to the Rule 10b5-1 trading arrangement.

Importantly, the final rule clarifies that new Item 408(d) does not require disclosure of the price at which the party executing the trading arrangement is authorized to trade.

Issuers will be required to include this Item 408(d) disclosure in their Form 10-K and 10-Q filings and tag the information using Inline XBRL.

To prevent potential duplicative disclosures, the SEC added a note to Item 408(d) indicating that, if the disclosure provided under Item 703 contains disclosure that would satisfy the requirements of Item 408(d), a cross-reference to that disclosure would satisfy the Item 408(d) requirements. The SEC also clarified that Item 408(d) will require disclosure if a Rule 10b5-1 trading arrangement was adopted or terminated during the prior quarter, regardless of whether a repurchase transaction pursuant to that plan actually occurred during such quarter.

Effective Date and Compliance Dates

The amendments will become effective 60 days after publication of the Adopting Release in the Federal Register.

FPIs that file on the FPI forms will be required to comply with the new disclosure and tagging requirements in new Form F-SR beginning with the Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024. The Form 20-F narrative disclosure that relates to the Form F-SR filings, which is required by Item 16E of that form, and the related tagging requirements will be required starting in the first Form 20-F filed after their first Form F-SR has been filed.

All other issuers will be required to comply with the new disclosure and tagging requirements in their Exchange Act periodic reports on Forms 10-Q and 10-K (for their fourth fiscal quarter) beginning with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023.

Footnotes

1 Share Repurchase Disclosure Modernization, SEC Release Nos. 34-97424; IC-34906 (May 3, 2023), available at https://www.sec.gov/rules/final/2023/34-97424.pdf. We refer to this SEC release as the "Adopting Release."

2 See Purchases of Certain Equity Securities by the Issuer and Others, SEC Release No. 33-8335 (Nov. 10, 2003) 68 FR 64952 (Nov. 17, 2003), available at https://www.sec.gov/rules/final/33-8335.htm.

3 We are referring to this disclosure requirement as "Exhibit 26" because the SEC added new Item 601(b)(26) of Regulation S-K to require the detailed repurchase information to be presented in an exhibit to the applicable form. Prior to the SEC's new rule amendments, existing Item 703 has required share repurchase data to be disclosed in the body of an issuer's Form 10-K and 10-Q filings.

4 In the Adopting Release, the SEC noted that "if an FPI's home country disclosures furnished on a Form 6-K satisfy the Form F-SR requirements, it can incorporate by reference its Form 6-K disclosures into its Form F-SR," thus eliminating some potential duplicative disclosure.

5 Rule 10b-18 outlines the conditions under which issuer repurchase transactions would be subject to a "safe harbor" from liability for manipulation when an issuer repurchases its common stock in the market in accordance with the manner, timing, price, and volume conditions of Rule 10b-18.

6 In the Adopting Release, the SEC observed that, with respect to the checking of the box regarding insider transactions, issuers could provide additional disclosure to put the required information in context. Such disclosure could include information about the trades by the officers or directors to alleviate concerns about the optics of such trades.

7 The authors observe that, for companies whose directors and officers file Section 16 reports, a review of any Form 4 filings reporting trades that occurred during the four days before and after the announcement will necessarily allow investors to determine the individual or individuals whose trades necessitated the checking of the box.

8 As noted by the SEC in its Adopting Release, issuers will be subject to Exchange Act Section 18 liability and Securities Act Section 11 liability for such disclosures.

9 See Client Alert: SEC Adopts Amendments Regarding Rule 10b5-1 Insider Trading Plans and Disclosures for Equity Awards and Gifts (Dec. 21, 2022), available at https://www.jenner.com/en/news-insights/publications/client-alert-sec-adopts-amendments-regarding-rule-10b5-1-insider-trading-plans-and-disclosures-for-equity-awards-and-gifts.

10 In contrast, existing Item 408(a) of Regulation S-K requires issuers to disclose information about the adoption or termination of any "Rule 10b5-1 trading arrangement" and/or "non-Rule 10b5-1 trading arrangement" during the last fiscal quarter by directors or certain specified officers.

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