On May 3, 2023, in a 3-2 vote, the SEC adopted amendments to significantly increase the disclosure required about issuer repurchases of their equity securities that are registered under the Securities Exchange Act of 1934. The amendments establish new disclosure requirements related to the structure of issuer repurchase programs and share repurchases and require quarterly disclosure of certain quantitative daily repurchase data. The amendments also revise and expand the existing periodic disclosure requirements about repurchase programs, and add new quarterly disclosure in certain periodic reports related to an issuer’s adoption and termination of Rule 10b5-1 trading arrangements.
The SEC acknowledged in the adopting release that there are a number of valid reasons why issuers conduct share repurchases. The SEC expressed its view, however, that it can be difficult to determine whether repurchase timing may have been motivated by factors other than long term value maximization. In support of this theory as a justification for these new requirements, the SEC cited third party studies indicating that issuer repurchases may be influenced, in part, by a desire to increase management compensation or to affect various accounting metrics. In the adopting release, the SEC expressed its view that the amendments serve to provide investors with insight into the efficiency, purposes and impacts of an issuer’s share repurchases and alert investors to the possibility of repurchases being motivated, at least in part, by goals unconnected to increasing shareholder value or signaling the issuer’s view that its stock is undervalued.
This blog post is intended to provide a high-level overview of the amendments to issuer repurchase disclosure. A forthcoming WilmerHale client alert will explore the amendments in greater detail.
Summary of Changes to Issuer Repurchase Disclosure
The amendments impose new disclosure requirements for issuers that engage in repurchases of their 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. This is a notable departure from the originally proposed amendments, which would have required daily filings to report issuer share repurchase activity.
For domestic registrants, amended Item 601 of Regulation S-K will require this disclosure on a quarterly basis in a new Exhibit 26 to Forms 10-K and 10-Q. This new exhibit replaces the original proposal that domestic registrants file such data on a new, standalone form. Unlike the proposed daily reports, which would have been deemed “furnished” for purposes of liability under the Exchange Act, the quarterly exhibit will be deemed “filed.” The new exhibit requires disclosure of the following items in tabular format, by date, for each class or series of securities:
- the date on which the purchase of shares (or units) is executed;
- 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 or terminated.
In addition, issuers must indicate, via a checkbox in the exhibit above the tabular disclosure, whether any Section 16 officers or directors purchased or sold company securities within four business days before or after the issuer’s announcement of a repurchase plan or program. In determining whether to check this box, issuers are permitted to rely on a review of certain Section 16 filings, 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, as well as certain written representations from reporting persons.
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.
Qualitative Disclosure of Repurchase Programs. The amendments also revise Item 703 of Regulation S-K to eliminate the previous monthly tabular repurchase disclosure and to introduce certain narrative disclosure requirements. The SEC stated in the adopting release that the amendments are aimed at providing investors with the proper context to understand the daily quantitative repurchase disclosures, such as by allowing investors to confirm that the daily pattern of trades is consistent with the issuer’s stated purpose for those repurchases. The following new disclosure requirements must be provided in narrative form:
- 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 an issuer’s securities during a repurchase program by their officers and directors, including any restriction on such transactions.
Issuers will need to continue to comply with certain requirements under Item 703 that were in effect prior to the recent amendments. For example, issuers much continue to disclose the number of shares (or units) purchased other than through a publicly announced share repurchase 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). For publicly announced repurchase programs, issuers must also continue to disclose the date each plan or program was announced, the dollar amount (or share or unit amount) approved, the expiration date (if any) of each plan or program, each plan or program that has expired during the covered period, 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. Pursuant to amended Item 703, these disclosures are no longer required to be provided in tabular format.
The new disclosure requirements also apply to Listed Closed-End Funds and foreign private issuers pursuant to parallel amendments to Form N-CSR and Form 20-F.
Additional Disclosure of Rule 10b5-1 Trading Arrangements. Pursuant to new Item 408(d) of Regulation S-K, issuers must disclose in their periodic reports on Forms 10-Q and 10-K whether they adopted or terminated any Rule 10b5-1 trading arrangements during the covered fiscal quarter. The disclosure must include a description of 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 following:
- the date on which the issuer 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.
Issuers may satisfy this disclosure requirement by including a cross reference to the disclosure provided in response to Item 703, provided such cross-referenced disclosure satisfies the requirements of Item 408(d)(1).
Timing and Logistical Matters
Disclosure provided pursuant to the amendments discussed herein must be tagged using Inline XBRL.
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 beginning with the first filing that covers the first full fiscal quarter that begins on or after October 1, 2023. For issuers with a December 31 fiscal year end, compliance will thus be required beginning with the Form 10-K for the fiscal year ending on December 31, 2023 (as it relates to repurchases made during the fourth quarter ending December 31, 2023).
Foreign private issuers that file forms specific to that status will be required to comply with the new disclosure and tagging requirements in new Form F-SR that covers the first full fiscal quarter that begins on or after April 1, 2024. The Form 20-F narrative disclosure 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. Listed Closed-End Funds will be required to comply with the new disclosure and tagging requirements in their Exchange Act periodic reports beginning with the Form N-CSR that covers the first six-month period that begins on or after January 1, 2024.