In May 2023, the Securities and Exchange Commission (SEC) amended its rules to significantly increase the disclosures public companies must make about repurchases of their equity securities. The recent amendments are the latest in a series of federal rule changes focused on insider trading and issuer repurchases, including the SEC's December 2022 rulemaking imposing new requirements to rely on Rule 10b5-1 and new disclosures concerning the use of such plans,1 as well as the new excise tax on share repurchases that became effective January 1, 2023.2
Currently, domestic registrants are required under Item 703 of Regulation S-K to disclose information about share repurchases in quarterly and annual reports, aggregated on a monthly basis and in tabular format. On December 15, 2021, the SEC proposed amendments, which, among other things, would have mandated daily reporting of quantitative data on issuer repurchases on a new, standalone form.3 The new form would have been required to be furnished electronically via EDGAR one business day after execution of an issuer's share repurchase order. The SEC reopened the comment period on the proposal twice and received nearly 200 comment letters from issuers, investors and other stakeholders. Commenters raised an array of concerns about the rule proposals, with the feasibility of and necessity for the one-day reporting requirement chief among the comments raised by issuers.
On May 3, 2023, in a 3-2 vote along party lines, the SEC adopted final repurchase disclosure requirements.4 In a significant departure from the 2021 proposal, the final amendments do not require reporting repurchase information within one business day.5 Rather, the amendments will require quarterly reporting of daily repurchase data, as well as new qualitative disclosures related to issuer repurchase programs and activity, including a description of the issuer's policies and procedures regarding repurchase plans.6 In addition, the amendments will require quarterly disclosure related to adoption, modification and termination of issuer Rule 10b5-1 trading arrangements. There are no accommodations for smaller reporting companies or emerging growth companies. In a notable departure from the historical approach to foreign private issuer reporting requirements, foreign private issuers will be required to file quarterly reports with the repurchase information.7
New Issuer Repurchase Disclosure
The amendments impose new disclosure requirements for issuers that engage in repurchases of their equity securities. These new requirements include:
Quarterly Reporting of Daily Repurchase Data. Issuers that are subject to the reporting requirements of the Exchange Act must, on a quarterly basis, provide daily quantitative repurchase data for purchases made by or on behalf of the issuer, or any affiliated purchaser, of shares or other units of any class of the issuer's equity securities that is registered pursuant to Section 12 of the Exchange Act.
For domestic registrants, amended Item 601 of Regulation S-K will require this disclosure in a new Exhibit 26 to Forms 10-K and 10-Q. This new quarterly exhibit will be deemed "filed" for purposes of liability under the Exchange Act, rather than "furnished" as had originally been proposed. The new disclosure requirements also apply to Listed Closed-End Funds, which must provide this disclosure in their annual and semi-annual reports on Form N-CSR, as well as to foreign private issuers, which must provide this disclosure in new Form F-SR, which is due within 45 days after the end of each fiscal quarter.
The new exhibit is required to include disclosure, in the tabular format shown below, of the following items, by date, for each class of securities repurchased:
- the date on which the purchase of shares (or units) is executed (not the settlement date);
- the class of shares (or units), which should clearly identify the class, even if the issuer has only one class of securities outstanding;
- the total number of shares (or units) purchased on this date, which includes all shares (or units) 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 (or unit), reported in U.S. dollars and excluding brokerage commissions and other costs of execution;
- the total number of shares (or units) purchased on this date as part of publicly announced repurchase plans or programs;
- the aggregate maximum number (or approximate dollar value) of shares (or units) that may yet be purchased under the publicly announced repurchase plans or programs;
- the total number of shares (or units) purchased on this date on the open market, which includes all shares (or units) repurchased by the issuer in open-market transactions, and does not include shares (or units) 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 (or units) purchased on this date that are intended by the issuer to qualify for the safe harbor in Exchange Act Rule 10b-18; and
- the total number of shares (or units) purchased on this date pursuant to a plan that is intended by the issuer to satisfy the affirmative defense conditions of Exchange Act Rule 10b5-1(c), including footnote disclosure of the date that any such plan was adopted, modified or terminated.
To view the full article click here
1. See our December 30, 2022 Client Alert, available at https://www.wilmerhale.com/en/insights/client-alerts/20221229-getting-ready-for-amended-rule-10b5-1-and-other-new-requirements.
2. See our August 26, 2022 Client Alert, available at https://www.wilmerhale.com/en/insights/blogs/Focus-on-Audit-Committees-Accounting-and-the-Law/20220829-evaluating-the-new-stock-buyback-tax.
3. Share Repurchase Disclosure Modernization, Release No. 34-93783 (December 21, 2021), https://www.sec.gov/rules/proposed/2021/34-93783.pdf.
4. Share Repurchase Disclosure Modernization, Release No. 34-97424 (May 3, 2023), https://www.sec.gov/rules/final/2023/34-97424.pdf. [hereinafter Adopting Release].
5. Id. at 45.
6. Id. at 1.
7. Id. at 58.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.