The SEC proposed amendments to enhance share repurchase disclosure regulations that would require (i) issuers to provide additional, more comprehensive disclosures on a new Form SR regarding each day that an issuer, or affiliated purchaser, makes a share repurchase and (ii) more frequent disclosures of share repurchases. The SEC stated that the proposal is intended to improve the "quality, relevance and timeliness of information related to issuer share repurchases," and that the proposal is based on the results of a "comprehensive evaluation" of the SEC's share repurchase disclosure regulations.
Proposed Amendments
The SEC's proposed amendments include, among other things:
- New Exchange Act Rule 13a-21 and Form SR. The proposed amendments establish a new Exchange Act Rule 13a-21, and corresponding Form SR, that would apply to registered issuers, including foreign private issuers and certain types of registered closed-end funds, and require reporting of share repurchases made by or on behalf of an issuer or any affiliated purchaser. The proposed amendments would require that an issuer complete a new Form SR on each day it enters into share repurchase. Form SR would require disclosure of, among other things, (i) the total number of shares repurchased, (ii) the average price paid and (iii) whether the repurchase relied on Exchange Act Rules 10b-18 ("Purchases of certain equity securities by the issuer and others") or 10b5-1(c) ("Affirmative Defenses re: Employment of manipulative and deceptive devices").
- Revisions to Regulation S-K Item 703, Form 20-F, and Form N-CSR. The SEC's proposed amendments would revise Item 703 of Regulation S-K ("Purchases of equity securities by the issuer and affiliated purchasers") and correspondingly change Form 20-F and Form N-CSR, to require the following additional disclosures from each issuer engaging in a share repurchase, including as to the "objective or rationale" for the issuer's share repurchases and as to whether officers or directors of the issuer sold shares in a period where the issuer was engaged in repurchasing shares.
- Structured Data Requirement. As a technical requirement, the proposed amendments would require issuers to tag information disclosed under Item 703 of Regulation S-K, Item 16E of Form 20-F, Item 9 of Form N-CSR, and Form SR in a "structured, machine-readable data language."
Comments on the proposed amendments must be received by the SEC within 45 days after publication in the Federal Register.
Commissioner Statements
SEC Chair Gary Gensler asserted that adoption of the amendments would "increase transparency into the market" and "lessen the information asymmetries between issuers and investors through the timeliness of the disclosures." Mr. Gensler noted that both Australia and the United Kingdom have "long required" certain next day share repurchase disclosures. SEC Commissioner Allison Herren Lee supported the proposal, emphasizing that, while companies may engage in share repurchase programs for a variety of reasons, they should not do so for "the opportunistic, short-term benefit of executives." Ms. Lee highlighted that the disclosures that would be required by the proposed amendments are intended to bolster investors insights into "how, why, and to what effect companies are engaging in buybacks." SEC Commissioner Caroline A. Crenshaw also supported the amendments, highlighting what she identified as "opportunistic trading by insiders" with respect to an issuer's announcement of a share repurchase program. She said the proposal should, in part, be looked at in connection with the SEC's related proposal regarding SEA Rule 10b5-1 and insider trading.
SEC Commissioners Hester Peirce and Elad Roisman disapproved of the proposed disclosure amendments. Commissioner Peirce stated that the proposed requirements are "painfully granular, unnecessarily frequent disclosure obligations." She pointed out that repurchases are viewed as having a positive effect on firm value. Mr. Roisman expressed his disappointment at being unable to support the proposed amendments given that "there are regulatory enhancements in this area that would benefit the marketplace." He argued that the SEC's 10b5-1 proposal should have been combined with the proposed disclosure amendments, as the two proposals are "inextricably linked." Mr. Roisman also argued that, among other things, (i) the proposed amendments did not include a sufficiently detailed or thoughtful discussion of how and why issuers ultimately make the decision to engage in share repurchase programs, (ii) the proposed amendments will be "overly burdensome to companies" and (iii) a "better approach to address the potential information asymmetries involved in stock buybacks would be for companies to disclose, ahead of time, their plans to do a buyback and provide the relevant buyback information in such disclosure."
Commentary
The proposed amendments would require "next day" detailed disclosure regarding issuer share repurchases. This is in contrast to the current requirement of quarterly disclosure. An increase in the frequency and detail of disclosure is often touted as a necessary modernization of the SEC's rules; but this should be balanced against the burden to companies, the benefits to investors, and the market of an extensive and frequent disclosure requirement.
Primary Sources
- SEC Press Release: SEC Proposes New Share Repurchase Disclosure Rules
- SEC Proposed Rule: Share Repurchase Disclosure Modernization
- SEC Fact Sheet: Share Repurchase Disclosure Modernization
- Statement of SEC Chair Gensler on Share Repurchase Disclosure Modernization
- Statement of SEC Commissioner Peirce on Share Repurchase Disclosure Modernization
- Statement of SEC Commissioner Roisman on Share Repurchase Disclosure Modernization
- Statement of SEC Commissioner Lee on Share Repurchase Disclosure Modernization
- Statement of SEC Commissioner Crenshaw on Share Repurchase Disclosure Modernization
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