New Disclosure Rules Regarding Issuer Share Repurchase

General Overview

The Securities and Exchange Commission (“SEC”) adopted new quantitative and narrative disclosure requirements regarding share repurchases that will be coming into effect later this year for U.S. domestic companies and in the middle of next year for foreign private issuers (see “Timeline for Implementation” below). The new rules require an issuer that has securities registered under the Securities Exchange Act of 1934 (the “Exchange Act”)¹ to provide on a quarterly basis:

• quantitative disclosure regarding its share repurchases that includes, in tabular format, daily aggregated share repurchase activity during the relevant period, as well as certain other information detailed below;
• a checkbox indicating whether any executive officer or director traded shares within four business days before or after the issuer announced the establishment of or increase in a repurchase plan;
• narrative disclosure of, among other things, the objectives or rationales for the repurchase program, the criteria used to determine the amount of repurchases, and policies applicable to trading by officers and directors during a share repurchase program; and
• disclosure about the issuer's adoption or termination of any Rule 10b5-1 plan, including that plan's material terms.

Share Repurchase Disclosures for U.S. Domestic Issuers

New Table Requirement: The final rules add a new Item 601(b)(26) to Regulation S-K that requires an issuer to include an exhibit to its Form 10-Qs and Form 10-Ks showing the issuer's repurchase activity each quarter. The information must also be reported in Inline XBRL format.

The table is required to include the following items for each day on which repurchases were executed:

• The class of shares;
• The average price per share;
• The number of shares repurchased;
• The number of shares repurchased under a publicly announced plan or program;
• The aggregate amount of capacity remaining under the publicly announced plan or program;
• The number of shares purchased on the open market;
• The number of shares purchased that are intended to qualify for the Rule 10b-18 safe harbor; and
• The number of shares purchased under a plan intended to satisfy the requirements of Rule 10b5-1. Issuers must also include a footnote to the table disclosing the date any such plan was adopted or terminated.

Checkbox Disclosure Regarding Section 16 Officers and Directors: An issuer will also be required to disclose, through a checkbox immediately above the table, if any director or officer subject to Section 16 reporting requirements purchased or sold shares of the relevant class within four business days before or after the issuer announces the establishment of a repurchase plan or program or an increase in a repurchase plan or program. Unless the issuer knows or has reason to know a Section 16 form was filed improperly, it may rely on a review of insider's Forms 3, 4 and 5 for purposes of making this disclosure.

The quantitative tabular disclosure will be “filed” rather than “furnished” to the SEC, and as such, it will be subject to the same disclosure liability standards as other information included in periodic reports and information incorporated into registration statements.

Share Repurchase Disclosures for Foreign Private Issuers (FPI)

New Form F-SR: Every FPI that has a class of equity securities registered pursuant to Section 12 of the Exchange Act and that does not file reports on Form 10-Q or Form 10-K, must file a Form F-SR quarterly (within 45 days after the quarter end), which will disclose, for the period covered by the form, the same information required in the table required for domestic issuers under Item 601(b)(26) of Regulation S-X. This disclosure must also be reported in Inline XBRL format.

Checkbox Disclosures Regarding Certain Directors and Members of Senior Management: Similar to the disclosure relating to insiders of domestic issuers, Form F-SR will require that an FPI disclose, through a checkbox immediately above the table, whether any director or member of senior management purchased or sold shares that are the subject of a publicly announced issuer repurchase plan or program within four business days before or after the issuer announces the establishment of or increase to a repurchase plan or program.

Narrative Disclosure Requirements

Item 703 of Regulation S-K: The final rules amend Item 703 of Regulation S-K to require a narrative disclosure in Form 10-Qs and 10-Ks with respect to share repurchases that an issuer discloses under the new Item 601(b)(26) discussed above. This narrative disclosure must describe:

• the objectives or rationales for each repurchase plan or program and the process or criteria used to determine the amount of repurchases,
• 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 those transactions,
• 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 or other transactions), and
• for publicly announced repurchase plans or programs, the date on which the plan or program was announced, the dollar or share amount approved, the expiration date of the plan or program, each plan or program that expired during the period covered by the tabular disclosure and each plan or program the issuer has decided to terminate prior to its expiration or under which the issuer does not intend to make further purchases.

This disclosure must also be reported in Inline XBRL format.

As a result of the new disclosure requirements, the current repurchase information requirement in Item 703(a) of Regulation S-K will no longer be required and is removed by the amendments to Item 703.

Narrative Disclosures for FPIs: The final rules also amend Form 20-F to require narrative disclosure equivalent to that mandated by the amendments to Item 703 in Form 20-Fs for FPIs. This disclosure must also be reported in Inline XBRL format.

Disclosure About Issuer 10b5-1 Plans

Additionally, the SEC adopted new disclosure requirements regarding Rule 10b5-1 plans by domestic issuers. This new Item 408(d) of Regulation S-K requires issuers to disclose (1) whether, during the period covered by the filing (the issuer's fiscal fourth quarter in a Form 10-K), the registrant adopted or terminated a Rule 10b5-1 trading plan, and (2) a description of the material terms of any Rule 10b5-1 trading plan, such as the date it was adopted, the plan's duration and the number of shares to be bought and sold under the plan.

Although the final rules expressly state that pricing information need not be disclosed, the final rules and the Share Repurchase Adopting Release are silent as to whether or not other potentially sensitive terms (such as timing of trades under the plans) would be considered “material terms” that must be made public. FPI's are not subject to the additional Rule 10b5-1 plan disclosures.

Timeline for Implementation

Issuers that file Form 10-Ks and 10-Qs will be required to comply with the new requirements beginning with the filing that covers the first full fiscal quarter that begins on or after October 1, 2023. For a calendar year issuer, that will be the annual report on Form 10-K for the year ending December 31, 2023.

Foreign Private Issuers will be required to comply with the new Form F-SR reporting requirements beginning with their first fiscal quarter that begins on or after April 1, 2024. For a calendar year issuer, the first Form F-SR will report information for the quarter ending June 30, 2024 and will be due 45 days after the end of that quarter. Form 20-F filers must include the new narrative disclosure regarding share repurchases in their annual report on Form 20-F beginning, for calendar year issuers, with the Form 20-F for the year ending December 31, 2024.

Seward & Kissel will continue to monitor the implementation of the share repurchase disclosures as they begin to come into effect in 2023 and 2024.

Foonote

1. Listed closed end funds are subject to different reporting obligations not covered in this client alert.

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